US-China tech war is likely to escalate soon: Jefferies

Investing.com -- The US-China technology conflict is set to intensify as the Biden administration’s AI Diffusion policy comes under scrutiny and export controls tighten, according to Jefferies analysts.

President Donald Trump’s nominee to lead the Bureau of Industry and Security (BIS), Jeffrey Kessler, used his Senate testimony to emphasize the importance of enforcing export controls against China.

According to Jefferies, Kessler “spent most of his testimony discussing how he would use export controls against China and other major US rivals to ensure that the US maintains tech leadership and national security.”

Jefferies noted that the new administration’s “America First Trade Policy” has placed key China hawks in positions of power, with Secretary of State Marc Rubio and Secretary of Commerce Howard Lutnick tasked with strengthening export controls.

Lutnick has argued that “export controls must be fully backed by tariffs to make them effective.”

These measures are expected to form part of a broader policy framework aimed at maintaining US economic and technological dominance over China.

The crackdown could particularly impact AI chips and autonomous driving technology. Jefferies analysts highlighted that “China’s ADAS chip and NVDA H20” are among the most vulnerable products.

While Nvidia’s H20 chip was not included in the previous round of AI-related export bans, Jefferies believes it remains at high risk of future restrictions. Meanwhile, Chinese companies relying on Taiwan’s TSMC and South Korea’s Samsung (KS:005930) for ADAS chip manufacturing could face new hurdles.

Additionally, the US is reportedly pressuring Japan and the Netherlands to halt maintenance support for semiconductor equipment previously sold to Chinese firms. While Jefferies expects these countries to comply, they note that China has largely localized maintenance, reducing the potential impact.

With the US aiming to close loopholes in existing regulations, Jefferies believes further tightening of restrictions is imminent, escalating tensions in the ongoing tech standoff.

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