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The United States–China ‘tech war’ - Decoupling and the case of Huawei – Part 4 of 4

Maria Ryan and Stephen Burman. Global Policy, Wiley. 29 February 2024

A new export rule issued in October 2022 did several more things. Additional items were added to the CCL, including more advanced microchips, commodities containing such chips, and more semiconductor manufacturing equipment. The foreign direct product rule – used against Huawei in 2020 – was expanded further to cover a wider range of items destined for China, including for use in supercomputing and the development or production of semiconductors or the equipment to manufacture them. US companies were forbidden from supporting the production of microchips in China. This rule was reportedly prompted by the news in July 2022 that the Chinese chip developer, SMIC, had produced a microchip that rivalled the complex chips produced in Taiwan, leading the Biden administration to seek a wider clamp down on exports to China. US companies affected include chip design leaders, Nvidia and AMD, and tool makers including Applied Materials and Lam Research. In China, the controls will affect SMIC, YMTC and Chang Xin Memory

The rationale, as National Security Adviser, Jake Sullivan, explained, was ‘premised on straightforward national security concerns. These technologies are used to develop and field advanced military systems, including weapons of mass destruction, hypersonic missiles, autonomous systems, and mass surveillance.’ The administration was implementing a ‘small yard, high fence’ strategy to protect critical US technologies: ‘Chokepoints for foundational technologies have to be inside that yard, and the fence has to be high – because our strategic competitors should not be able to exploit American and allied technologies to undermine American and allied security’

The Biden administration also aims to “multilateralise” the sanctions so as to avoid disadvantaging US companies, but this is not an easy or quick task. Until early 2023, discussions with allies, including the Dutch, Japanese, South Korean, British and Israeli governments, to persuade them to issue restrictions alongside US were mostly unsuccessful. A US request that the Netherlands prevent ASML from exporting older lithography machines to Chinese semiconductor companies was rebuffed, although the Hague did agree to ban exports of extreme ultraviolet lithography equipment required to manufacture cutting-edge chips for AI. TSMC, and two South Korean memory chip makers, Samsung and SK Hynix, have all reportedly received temporary licences from the DoC, which will effectively exempt them from the new sanctions rules for 1 year. In January 2023, after 2 years of negotiations, the Netherlands and Japan agreed to restrict exports of additional chip manufacturing tools to China.

The Biden administration also faces opposition in the form of resistance from businesses whose interests its strategy may negatively effect. In the DoC's 2020 industry consultation on the interim sanctions rules on Huawei and its affiliates, both SEMI – the US branch of the global semiconductor industry association – and the Semiconductor Industry Association (SIA) of the United States urged that sanctions be narrow in scope and applied multilaterally . When the DoC released the final rules on sanctions in August 2020, SEMI warned that

Commerce's decision to significantly expand these unilateral restrictions will likely lead to more lost sales, eroding the customer base for U.S-origin items. The new restrictions will also fuel a perception that the supply of U.S. technology is unreliable and lead non-U.S. customers to call for the design-out of U.S. technology. Meanwhile, these actions further incentivize efforts to supplant these U.S. technologies.… Revenue from global sales is a major source of U.S. research and development (R&D) funding in these technologies; lost global revenue will lead to a decrease in R&D undermining U.S. semiconductor innovation