The Biden Administration Attempts to Square the Circle on Export Controls to China
The Biden administration's attempt to go multilateral in constraining China's access to cutting-edge technology
The hard-working staff here at Drezner’s World has been… let’s say “skeptical” of the Biden administration’s foreign economic policy. The Biden team’s vibe of “more competent Trumpism” is not a great selling point as far as I am concerned. That said, the shift in approach toward China makes sense from a realpolitik perspective. As Jake Sullivan explained the shift last September:
We have to revisit the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies. We previously maintained a ‘sliding scale’ approach that said we need to stay only a couple of generations ahead. That is not the strategic environment we are in today. Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.
The question was whether the Biden administration would be able to competently implement such a policy. The first step was the Commerce Department’s “sweeping restrictions” on the export of semiconductors and semiconductor-making equipment to China. Those restrictions also included the use of the “foreign direct product rule” to prevent foreign producers from exporting certain categories of equipment to China if they barred U.S. persons from assisting Chinese firms in the manufacturing of high-end semiconductors.
When the Biden administration announced the provisions, most experts acknowledged that such measures would negatively affect China’s ability to produce high-end semiconductors in the short run. Some proffered it as an example of “weaponized interdependence,” akin to U.S. financial sanctions. But Sarah Bauerle Danzman and Emily Kilcrease warned in Foreign Affairs that the two sectors are not really analogous:
The U.S. role in the semiconductor supply chain cannot be compared with the primacy of its currency in global finance. Technology supply chains can be adapted and reorganized more easily than the dollar-based financial system. Worse, this argument is dangerous because it lulls policymakers into a false sense of security about the effectiveness of unilateral approaches, leading them to discount the importance of building multilateral alliances to ensure the effectiveness of export controls….
A handful of U.S. companies—namely, Applied Materials, KLA, and Lam Research—control important tooling technologies today. But foreign-based companies such as ASML and the Japanese firm Tokyo Electron are market leaders in related parts of the supply chain and are well positioned to develop substitutes to U.S. technologies in the medium term. These foreign companies may want to do just that, as the forced exit of U.S. tooling companies from China creates a natural market opening. The foreign tooling companies also have a strong incentive to design out U.S. technologies in their own supply chains as a way of evading the threat of further U.S. controls….
In this context, the United States must act quickly to build a consensus among advanced economies on a shared approach to the technology competition with China, one that reaches a deeper understanding of the appropriate role for export controls. The United States may not dominate the entire semiconductor supply chain, but it has the strong advantage of deep alliances and partnerships with the majority of places that represent other critical nodes. A better coordinated strategy will dramatically decrease the risk that other actors will simply fill the vacuum left by the United States.
Danzman and Kilcrease’s analysis is spot on. Further complicating U.S. efforts in this regard has been the underlying trade tensions between the United States and its allies. Little wonder, then, that earlier this month key European officials made it clear that they would not automatically acquiesce to the U.S. rules: “you can't say that they've been pressuring us for two years and now we have to sign on the dotted line. And we won't.”
But credit where it’s due, the Biden administration’s knack for diplomatic skill and will looks like it will pay dividends. Bloomberg’s Jenny Leonard, Ian King, and Cagan Koc reported late last week that the U.S. is close to making its export controls more multilateral:
The Netherlands and Japan, home to key suppliers of semiconductor manufacturing equipment, are close to joining a Biden administration-led effort to restrict exports of the technology to China and hobble its push into the chips industry.
The Dutch and Japanese export controls may be agreed to and finalized as soon as the end of January, according to people familiar with the matter. Japan’s prime minister, Fumio Kishida, and the prime minister of the Netherlands, Mark Rutte, discussed their plans with US President Joe Biden at the White House earlier this month.
“I’m fairly confident that we will get there,” Rutte said Thursday.
If Rutte’s confidence translates into multilateral cooperation, then the U.S. export controls on China undeniably will have more staying power.
Of course, in international relations, “fairly confident” does not always translate into “done deal,” so we’ll see how this plays out. But it looks like the Biden administration has managed to square its import control circle.