By BEN SCHRECKINGER

It’s not often that the launch of a new phone raises huge policy questions about global technology and control of the future, but the Chinese telecom giant Huawei managed exactly that last week.

As Commerce Secretary Gina Raimondo toured China, Huawei unveiled a new smartphone powered by an apparently Chinese-made chip more advanced than any the country had produced to date.

Joe Biden has staked much of his trade policy on blocking China from acquiring cutting-edge computer chips, so news outlets and social media users in both China and the West greeted the announcement as a big setback to those efforts.

Is it that big a deal? A half-dozen experts on the U.S-China tech race told DFD that meaning and scale of the Chinese achievement — and its implications for U.S. policy — depend on its details, which are still emerging as of this afternoon.

“How Huawei managed to do this matters quite a bit,” Gregory Allen, former director of strategy and policy for the Pentagon’s Joint Artificial Intelligence Center, told Digital Future Daily.

Analysts said there were a range of scenarios by which Huawei could have acquired the chips, each with its own implications for U.S. policy:

The stockpile scenario. While early analyses suggest China’s Semiconductor Manufacturing International Corporation produced the chip domestically, Allen said it was too soon to rule out the possibility that the phones simply use chips stockpiled before the imposition of U.S. export restrictions, or smuggled in since.

The use of stockpiled chips would have little bearing on current policies, while the use of recently smuggled chips would suggest a need for the U.S. to tighten its export controls.

Chinese chips from imported equipment. Another scenario — consistent with reports last summer that SMIC was producing its own advanced chips — is that SMIC manufactured the chips in China using equipment procured from abroad before Commerce imposed its restrictions last October. Since then, the Netherlands and Japan, global leaders in advanced chipmaking, have joined the blockade.

Manufacturing equipment providers from participating nations are banned from providing spare parts or software updates that would support continued operation of the manufacturing equipment.

Graham Webster, editor-in-chief of Stanford’s DigiChina Project, told DFD there was room for the U.S. to further tighten restrictions on maintenance support.

The accidental competitor scenario. The most dramatic possibility is that Chinese firms have quickly learned to create the equipment needed to manufacture advanced chips themselves, an achievement far beyond their previously known capabilities.

That would suggest that U.S. policy had backfired by spurring rapid Chinese innovation at the upper end of chipmaking — but evidence for this possibility remains lacking.

Now what? If, as initial indications suggest, Chinese firms did produce the chips domestically — whether with their own or imported equipment — a key question would be at what yield, a measure of the efficiency of their manufacturing process.

The complicated manufacturing process for high-end microchips is sensitive to errors, meaning that a large volume of silicon wafers may only yield a small number of working microchips.

If China produced its chips with a low yield, the phones would amount to a “high-expense demonstration project,” as Webster put it, rather than an indication that the country was ready to produce its own advanced chips at scale.

A U.S. response could take several potential forms.

Among them, Allen argued for increasing the budget of the Commerce Department’s Bureau of Industry and Security, which is charged with enforcing the export restrictions, saying the budgets of Russians and Chinese smugglers had surely increased in the past year

The Biden administration could also cut ties further. Last month, the Biden administration pursued a six-month extension of a Carter-era technology-sharing deal with Beijing, despite pressure from House Republicans to scrap the arrangement. The agreement could be curtailed or abandoned when the short-term extension expires next year.

Mike Pillsbury, a fellow at the Heritage Foundation who has advised several presidential administrations on China policy, said the unveiling also underscored a need for U.S intelligence agencies to strengthen their science-and-technology capacity, which he said has withered since the end of the Cold War.

“Correct the blindness,” Pillsbury, author of “The Hundred-Year Marathon: China’s Secret Strategy to Replace America as the Global Superpower,” told DFD.

Source: https://www.politico.com/newsletters/digital-future-daily/2023/09/05/why-a-new-chinese-cell-phone-is-freaking-everybody-out-00114045