Initial Narrow Scope for Outbound Screening Won’t Last, Former Official Says

Robert Zoellick, who was USTR during the George W. Bush administration, acknowledged that policymakers want the new outbound screening program to be narrow, with Treasury Secretary Janet Yellen this month saying the screening requirements will apply only to semiconductors, quantum computing, artificial intelligence and potentially other specific technology sectors (see 2307170029). But Zoellick said he doesn’t expect that to last.

“I suspect that at the start, that's what they will look like,” Zoellick said, speaking during a July 25 event hosted by the Peterson Institute for International Economics. “But remember, [the Committee on Foreign Investment in the U.S.] was created in '74, '76, and it wasn't supposed to be doing any of the things that it's now doing.

“These things have a way of expanding,” he said. “And all of a sudden, Congress starts to come in and says, ‘Well, why should we be investing in this, this and this?’”

Zoellick suggested some portions of the administration’s industrial and economic policies are contradictory. He pointed specifically to the semiconductor industry, which is receiving federal funding from the Chips Act but which is also facing restrictions on exporting certain products to China, a country that represents a significant source of the chip industry’s revenue. Zoellick said he hasn’t “heard a satisfactory answer” about whether chip companies receiving the funding will be able to use those funds to sell or potentially invest in China.

“For many of them, [China is] 20% to 25% of their revenues,” Zoellick said. “But how do the politics sound when Congress says, ‘I’m giving you billions of dollars to subsidize you. In effect, I’m subsidizing your products. And you’re giving that to the Chinese?’” He added that some companies, such as American chipmaker Nvidia, “aren’t getting the subsidies, but they’re gonna get caught into this.”

The Commerce Department earlier this year proposed restrictions on certain uses of American chips funding to align those limits with existing export controls (see 2304050050), although trade groups and technology companies asked Commerce to amend those rules so they don’t inhibit “routine” business activities (see 2305250022). Despite those guardrails, a Commerce official last month said the funding is garnering “tremendous interest” from chip companies (see 2306280038).

Larry Summers, who served stints running the Treasury Department during the Clinton administration and the National Economic Council during the Obama administration, urged the administration to be cautious. “I think we need to be very mindful of the fact that once put in place, these policies endure for a very long time and often morph into having perverse consequences, unimaginable at the time they were put in place,” he said, speaking broadly about government intervention, including investment screening.

The U.S. needs to be “extremely careful and cautious at their moment of implementation,” Summers said, adding that he finds “this new enthusiasm for these kinds of policies” to be “a problematic turn in direction. Of course, extraordinary problems require extraordinary measures, but it's the enthusiasm for the intervention that I think is deeply problematic.”

Zoellick added that the administration needs to better reconcile its support for domestic chip industry growth and its economic statecraft tools. “I’m not against government investment for public goods, for [research and development]. I liked the R&D part of it,” he said. But when “you start to get into particular sectors and industries and companies, you better answer these questions.”