Export Controls Aren't Long-Term Solution to China Tech Competition, Expert Says
The U.S. should shift away from only using export controls as a technology competition strategy against China and instead turn to domestic investment, Ling Chen, a Wilson Center China fellow, said in a July report funded by the think tank. “Weaponizing” supply chains will only “galvanize” China, the report said, causing it to “accelerate” its technological development. “The effect of the tech war may be counterproductive for the United States,” the report said.
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A similar argument has been made by U.S. lawmakers and officials, particularly the Commerce Department, which has urged Congress to pass funding for the semiconductor industry that could incentivize research and development and spur innovation. Commerce Secretary Gina Raimondo has repeatedly said the U.S. can’t play only defense against China by using export restrictions -- it must also play offense by investing in its own technological capabilities (see 2204270039).
The report argues for a long-term strategy focused around domestic investments but suggests much of the damage from the U.S.’ current strategy has already been done. Export controls, especially during the COVID-19 pandemic, caused companies to move supply chains out of the U.S. and into the Asia Pacific region “to maintain production stability” and avoid being caught by U.S. restrictions, the report said.
“The very success of Apple itself during the Covid period precisely lies in its increase of supply chains in Asia rather than in the United States,” the report said, adding that KLA, a U.S. semiconductor equipment manufacturer, also tried to offshore to Southeast Asia by not using American equipment. “This implies that direct offshoring of production to Asia or China without selling core components to Chinese companies can become the dominant trend, through which U.S. companies’ success becomes tightly bounded with development in Asia by using non-American equipment, thus starting their de-Americanization process.”
The report also pointed to Taiwan Semiconductor Manufacturing Corporation, which has been “wedged between the politics of the United States and China.” Although TSMC has agreed to build a new chip facility in Arizona (see 2005150033) and can’t sell certain chips to Chinese companies on the Entity List (see 2007170021), “there has been major talent flowing from TSMC to the Chinese mainland,” the report said, including in “several major semiconductor projects in Shanghai and Wuhan.”
In South Korea, Samsung, Hyundai, SK Group and LG have all been “under pressure” to manufacture semiconductors and batteries in the U.S., the report said. In return, the companies asked for export licenses to sell certain items to Chinese companies on the Entity List, the report said, such as Huawei and Semiconductor Manufacturing International Corp. “Under such pressure, the U.S. Department of Commerce did grant them licenses,” the report said, “which directly countered the United States’ own goal of blocking Chinese companies from having the key components.”
“These factors jointly suggest that in the current era, the U.S. government cannot single-handedly block off everything to create an export vacuum for Chinese firms because there are business players both in and outside of the United States that still seek to recover the broken supply chain,” wrote Chen, an assistant professor at Johns Hopkins University’s School of Advanced International Studies. The report also said a technology advantage is “no guarantee of effective weaponization of the supply chain,” pointing to the fact that the U.S. depends on various companies, including foreign ones, to manufacture high-tech products.
“The United States could increase its control over the business if it seeks to continue weaponizing the supply chains. However, over the short to mid-term, this is unlikely to succeed and may cause further backlash from businesses,” the report said, adding that “continued sanctions will propel China to accelerate its pace of core technology development.”
The report urges U.S. lawmakers to examine “the long-term effects of the tech war instead of only short-term goals” and called for more R&D in emerging technologies. The U.S. also needs to better attract and retain foreign talent, the report said. The U.S. “does not only need a technological advantage in core components, but also the ability to scale up the fabrication of these components with U.S. companies in order to address the problem of lacking capability of electronics production,” it said. “Otherwise, the ability to fabricate core components could be used as a bargaining chip by other countries to weaken the goal of the U.S. strategy.”