In January, the Netherlands and Japan – the leading suppliers of semiconductor production equipment – agreed in principle to implement US October 2022 semiconductor export controls on China, which hinder China’s development of advanced semiconductors. While the details of the trilateral agreement remain murky, restrictions on the sale of AI chips and advanced machine tools to China will significantly hinder China’s pursuit of high-tech self-sufficiency.
But these restrictions are just the opening salvos in a series of unprecedented Chinese export controls planned by the Biden administration. After controls on semiconductors, the Commerce Department is moving on to the next emerging technology it worries China could weaponize: quantum computing. Export controls on quantum computing hardware, error correction software and the provision of cloud services to Chinese entities are poised to become the next front in the US-China tech war.
Quantum computing is a relatively new technology that uses the unique properties of quantum physics to build extremely powerful computers whose processing power comes from subatomic particles. Quantum computers could theoretically have much more computing power than today’s “classical” computers, allowing them to tackle problems that are currently impossible, such as breaking advanced encryption. However, the field is still in its infancy and current quantum computers are error-prone and lack any real applications.
Commerce Undersecretary for Industry and Security Alan Estevez said last year that he would “put money down” on the US imposing additional export controls related to quantum computing, artificial intelligence (AI) and biotechnology. Commerce Secretary Gina Raimondo doubled down on Estevez’s commitment in a speech at the Massachusetts Institute of Technology, saying the U.S. would “strengthen (its) export control system” and “take steps to protect (its) advantage” over China with respect to quantum information science, semiconductors, AI , biotechnology and clean energy technology.
U.S. National Security Adviser Jake Sullivan laid out this policy in September 2022, arguing that “computing, biotechnology, and clean technology are truly force multipliers” and that the U.S. would impose export controls to “maintain as large an edge as possible” over rivals like China. In other words, because technologies like quantum computers have the capacity to give China military and economic advantages, whether through new cyber weapons or faster drug detection, the US plans to impose comprehensive unilateral export controls on China.
Policymakers in Washington are determined to maintain the US lead in quantum computing because of its potential military applications. Scientists have warned that a potent quantum computer could defeat existing encryption schemes, prompting US President Joe Biden to issue a national security memorandum requiring federal agencies to transition to post-quantum encryption by 2035.
In 2021, three Chinese quantum computing organizations were placed on the Commerce Department’s Entity List, preventing US companies from selling products to them without a license. The Commerce Department claimed that these Chinese quantum computing groups “support the military modernization of the People’s Liberation Army” and are using American technology to develop “anti-stealth and counter-submarine applications, and the ability to break encryption.” But stronger measures are likely to come.
The US and China are the two most advanced countries in quantum computing, but the US is the clear global leader. It leads in three of the four most promising technological approaches to quantum computing, while China leads in just one approach. From 2011 to 2020, the United States produced the most quantum computing publications as well as twice as many highly cited quantum computing publications as China. In addition, US quantum computing companies have 30 times more funding than private Chinese competitors – although much money goes to government-backed research in China as well
While China is a world leader in quantum communications, a subfield of quantum information science with the potential to enable ultra-secure data transmissions, Chinese researchers acknowledge the US lead in quantum computing. Top Chinese quantum computing researcher Lu Chao-Yang recently concluded “Google is in the lead,” adding that he had “no idea” how the rumor started that China had spent $15 billion on quantum computing because “the actual money is maybe 25 percent of that .”
The Commerce Department has been consulting with the private sector on quantum computer export controls since at least 2019. While little information about these restrictions is publicly available, recent reports indicate that they could target China’s access to quantum computer hardware, error correction software and cloud services that use the same regulatory tools such as semiconductor export controls.
For example, export controls on quantum computers could prohibit the sale of critical components to Chinese devices, just as export controls on semiconductors did. One key technology that the US can restrict is the dilution refrigerator, which creates extremely low temperatures that allow individual atoms to be manipulated. There is little evidence that any Chinese company can manufacture dilution refrigerators on a large scale – the leading companies are Bluefors Oy in Finland, Oxford Instruments NanoScience in the UK and JanisULT in the US, which between them have a 70 percent market share.
The Commerce Department could create export controls via a foreign direct product rule that would ban the sale to Chinese entities of any dilution refrigerators that rely on American technology, as it did with advanced semiconductor manufacturing lithography tools. Alternatively, the Commerce Department could block the sale of entire quantum computers and their essential components to China.
These restrictions could be somewhat effective in the short term, but they would not be anywhere near as effective as controls on semiconductor exports. Unlike with semiconductors, foreign companies have few if any critical dependencies on U.S. quantum technologies and components, meaning they can circumvent export controls on dilution refrigerators by using alternatives to U.S. materials and parts.
Export controls for quantum computing could also block the sale of ion traps, which are used to isolate individual atoms in quantum computers. Export controls on the sale of ion traps to China may appeal to policymakers because the United States has huge advantages in this area: No Chinese group has succeeded in developing a quantum computer using trapped ions, while the American companies Honeywell and IonQ are both global leaders in this technological approach.
Aside from hardware, the Commerce Department is reportedly considering placing export controls on software that corrects errors made by quantum computers due to mechanical vibrations or temperature fluctuations. Although much of this software is currently open source—and therefore difficult to restrict—it may become more privatized or otherwise restricted as quantum computing matures as a field and as governments make quantum computing a national security priority.
Unlike the semiconductor industry, quantum computing is a nascent sector with no current practical applications. Edward Parker, a physics researcher at the RAND Corporation and lead author of a 2022 report on quantum in the US and China, said: “It’s very difficult to isolate national security applications in quantum computing because, frankly, there aren’t any applications yet.” As a result, export controls are much less likely to be effective, as the industry has not yet consolidated around a single approach to building a quantum computer and supply chains are not well developed.
The most immediate use of quantum computers is as a cloud service for companies hoping to rent quantum computers to perform large-scale calculations. Washington is reportedly considering banning companies from giving organizations in China cloud access to quantum computers, hindering US startups like IonQ and Rigetti that derive most of their revenue from cloud services. In a recent analysis, Parker found that quantum startups view “the prospect of export controls as an existential threat.”
In September 2022, the Commerce and Treasury departments adopted export controls on the supply of dilution refrigerators, quantum software and cloud services to Russia and Belarus, providing an example of what restrictions on quantum computing by China could look like. While similar measures aimed at China would be far from foolproof, they would create significant roadblocks in the short term.
But strong action from Washington is likely to prompt a response from Beijing. China has not reacted directly in response to the Commerce Department’s controls on semiconductor exports — but it has already developed a set of policy tools it can use to leverage its market power and prevent foreign companies from expanding their technological advantage.
For example, Chinese regulators have blocked British semiconductor company Arm from exiting its Chinese joint venture with SoftBank, preventing it from raising money through an initial public offering (IPO). An anonymous Chinese official said: “China does not want to lose Arm at this time. … The US-China chip war continues to escalate and Arm is a must-have ally for China’s chip industry.”
China’s recently expanded antitrust laws also give it ample power to block mergers and joint ventures led by American companies. The latest US target of antitrust law is DuPont, which scrapped its deal to acquire advanced materials maker Rogers Corporation last November after China’s State Administration for Market Regulation (SAMR) delayed approval of the acquisition.
Another merger in SAMR’s crosshairs is Intel’s acquisition of Israeli chipmaker Tower Semiconductor. The $5 billion deal is at the heart of Intel’s strategy to compete with Samsung and Taiwan Semiconductor Manufacturing Company Limited (TSMC) as a foundry that makes chips designed by its customers. Intel’s revitalization is the cornerstone of Washington’s semiconductor strategy, but its acquisition of Tower requires Beijing’s stamp of approval. SAMR has stalled the deal for a year and is likely to delay it further because Tower is a major player in China’s semiconductor industry and would be subject to tighter US controls if it became part of Intel.
In addition, China could retaliate against quantum computer export controls by restricting technology transfers to US companies in areas where China dominates the global market, such as batteries for electric vehicles. In a stark illustration, in the wake of Ford’s announcement that it would license battery technology for electric cars from Chinese giant CATL, which controls 37 percent of global supply, Beijing plans to subject the licensing deal to further scrutiny.
At China’s recent National People’s Congress, Chinese President Xi Jinping said he was both happy and worried about CATL’s market leadership, noting that “nascent industries should … find out where the risks are and avoid going deep into enemy territory alone , only to be captured by others and wiped out.”
U.S. policymakers have upped the ante in the technology race with China by committing to an unprecedented program of export controls in industries China sees as the engine of its economic future. The risks of this strategy are significant — and it’s unclear whether restrictions on start-up technologies like quantum computing are worth potentially provoking a retaliation from Beijing.
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