US GPU export limits could bring cold war to AI, data center markets

The US Biden administration, during its final week in office, issued a rule limiting sales of powerful AI chips to more than 100 countries, to keep the technology out of the hands of Chinese companies and the military there.

The Biden policy will create a huge AI disparity between the US and its close allies and the rest of the world, some critics contend.

If the rule holds in the new Trump administration, organizations in most countries may be prohibited from buying large numbers of high-powered GPUs used to train and run AI models, although exemptions allow for small-scale sales.

“The fundamental problem here is that these restrictions lock the vast majority of the world and all of the Global South out of the US AI market,” says Arijit Sengupta, CEO and founder of Aible, provider of a cloud platform for generative AI deployments. “While locking out direct AI competitors might have made sense, locking out the vast majority of the world, including countries like Israel and India means the US is actually pushing these countries towards collaborating with countries like China and Russia.”

A cold war on chips

The rule attempts to keep China and other US adversaries from buying chips through countries on the list of countries with limits on purchases. While the Biden administration has argued a chip export ban to China is partially driven by national security concerns, the effect is mostly economic, says Oliver Blanchard, research director and AI practice lead at The Futurum Group, an IT analysis firm. “There’s a little bit of economic warfare here,” he says.

The chip export limits add to the growing tension between the US and China as the two countries compete for global dominance, he adds.

“China is a huge market for companies like Nvidia, Arm, and Apple, so all the way up and down the tech stack, from hardware to software to devices and services, we want to sell to China,” Blanchard says. “There is this really strange and dangerous tension between doing trading with China and treating China as a good faith trade partner and a tremendous market opportunity for these companies, while at the same time understanding that China is our biggest rival, and I don’t think anyone is sure just to what extent AI can be weaponized.”

Nvidia strongly criticized the export controls. The rule “threatens to derail innovation and economic growth worldwide,” the GPU-maker said in a blog post.

“The new rules would control technology worldwide, including technology that is already widely available in mainstream gaming PCs and consumer hardware,” continued Ned Finkle, vice president of government affairs at Nvidia. “Rather than mitigate any threat, the new Biden rules would only weaken America’s global competitiveness, undermining the innovation that has kept the US ahead.”

Eighteen countries, including the UK, Canada, Sweden, France, Germany, Japan, and South Korea, are exempted from the AI export caps. The Biden administration had previously banned the export of some powerful AI chips to China, Russia, and other adversaries in rules from 2022 and 2023.

But other countries friendly to the US, including Mexico, Israel, India, and Saudi Arabia, would be subject to the quotas. The export limits would take effect 120 days from the Jan. 13 order, and it’s unclear whether the incoming Trump administration will amend or rewrite the rule, although Trump has targeted China as a primary economic competitor of the US.

The cost of AI

In addition to cutting off most of the world from large AI chip purchases, the rule will force countries such as China and Russia to pump up their own AI capabilities, ultimately reducing US AI leadership, claims Aible’s Sengupta.

Even though the rule may reduce demand for AI chips in the short term, Sengupta doesn’t expect a corresponding drop in price, because of a current supply shortage.

“In the short-term, international companies will need to move their AI work to these exempt countries, driving up the demand for data centers and AI talent, thus driving up the cost of AI in the US and in exempt countries,” he says.

Other AI market experts believe the rule’s impact will be limited. The Biden rule allows for several exemptions on import quotas. Even for countries with import limits, chip orders with collective computation power of up to about 1,700 advanced GPUs do not count against national chip caps, The Futurum Group’s Blanchard notes.

In addition, organizations in countries that are not close allies of the US can purchase up to 50,000 advanced GPUs per country over the next two years. Organizations can also apply for a trusted National Verified End User status that would allow them to purchase up to 320,000 advanced GPUs over the next two years.

The Biden rule does, however, restrict the sharing of some AI model weights, used to help train AI models, he notes.

Data center market impacts

The rule would also make it difficult for companies to build data centers in China and comply with local regulations, Blanchard says. Companies trying to build data centers in China to do business there may not be able to get their hands on the most powerful GPUs, he says.

The 100-plus countries with chip import limits may see a competitive disadvantage in data center construction, he adds.

“If you’re in one of the 18 approved countries, you are now sort of in a privileged position,” Blanchard says. “If I’m going to build a data center, I don’t want to run into supply chain issues, and I don’t want to have any restrictions on what kind of chips I can use.”

Construction of the largest data centers will likely center on the US and the 18 exempt countries if the rule holds, he adds. “The competitive landscape for data centers essentially just changed,” Blanchard says.

Technology analyst Jack Gold played down the impact of the rule, however. While the rule may create short-term problems for the countries with import limits, the workarounds for organizations in those countries should be sufficient, he says.

“Many of the ‘in-the-middle’ countries can work with the US government to get most favored status if they choose to,” he adds. “Part of the point is to make sure we are evaluating each and every country for what the potential ramifications are.”

Gold notes, however, that the rule provides a mechanism for cutting off countries that buy advanced GPUs and resell them to US adversaries such as China and Russia.

“This is increasingly an avenue being used to circumvent restrictions,” he says. “I definitely support the banning of leading-edge AI to China and Russia, as that tech can be used to enhance their military.”