In early October, the Department of Commerce (DoC) announced that 31 Chinese tech companies, specializing in super-computing and artificial intelligence, were being placed on its “unverified list.” This means that the U.S. government has not been able to conduct end-user checks to ensure that U.S. tech is not being diverted for military purposes.
Inclusion on the list now automatically sets the clock ticking on a 60-day deadline for the user checks to be completed. If they are not, or if the end users are found to be military entities, the likely result is inclusion on the DoC’s Entity List — meaning that U.S. persons would require a license to export to them. To do this, the DoC is reportedly preparing to extend the foreign direct product rule (FDPR) — meaning that any product made using U.S. technology, wherever it is made in the world, requires a DoC license to sell it to a sanctioned entity. This is how the U.S. cut off the Chinese tech giant, Huawei, from high-end U.S. semiconductors. The result has been a decoupling of Huawei and over 150 of its affiliates from 5G-related U.S. technology. The placement of 31 additional companies on the unverified list indicates that the administration is seeking to widen this decoupling from one company and its affiliates to entire sectors.
Despite appeals from the Semiconductor Industry Association and the U.S. Chamber of Commerce for sanctions on China’s tech industry to be as targeted as possible — because the industry relies on these sales to fund its R&D — Congress appears determined to pursue a decoupling from China in what it has labeled “emerging and foundational technologies.” This phrase was used in the Export Control Reform Act of 2018 and the Foreign Investment Risk Review and Modernization Act of 2018 to signal the kinds of new tech that Congress sought to control. The DoC was tasked with defining the categories of “emerging and foundational technologies.” While it is understood that the phrase includes areas like 5G-related technology, microelectronics, and Artificial Intelligence, so far, the DoC has been unable to define the terms precisely or provide the extensive lists of specific controlled items, as envisaged by Congress, because of the inherent complexity of the task.
The Biden administration’s likely expansion of the FDPR, in a way that targets whole sectors rather than one specific company, reflects the shared determination of the executive and legislative branches to extend the parameters of the tech war beyond Huawei and hasten a decoupling in “emerging and foundational technologies” — even though the exact parameters of this term are still being debated.
As part of this process, the Biden administration has also made it clear that it seeks to reinvigorate American supply-chains so that the U.S. is not dependent on China, or any areas that could come under Beijing’s control (such as Taiwan) for production of any critical technologies the U.S. needs. Last year the Biden administration released a major review of U.S. global supply chains, which highlighted that the U.S. is “heavily dependent on a single company — Taiwan Semiconductor Manufacturing Corporation — for producing its leading-edge chips.” The report emphasized the need for non-Chinese supply lines in large capacity batteries (essential for electric vehicles) and the critical minerals and materials needed to make them, such as rare-earth metals.
On October 12, the Biden administration released its first National Security Strategy (NSS), which, unusually, included extensive comments on U.S. industrial policy and technological leadership. The NSS called for “a modern industrial strategy that makes strategic public investments in America’s workforce, and in strategic sectors and supply chains, especially in critical and emerging technologies such as microelectronics, advanced computing, biotechnologies, clean energy technologies and advanced telecommunications.”
The CHIPS and Science Act, which offers incentives worth $280 billion to stimulate domestic manufacturing in semiconductors, advanced computing and next-generation communications, is the signature policy of this new industrial strategy, but the implementation of many of the recommendations of the 2021 supply chain review report are ongoing into 2022.
In October, the White House also released a National Strategy for Advanced Manufacturing, which contains detailed recommendations on building resilience into manufacturing supply chains and ecosystems, enhancing supply chain interconnections, and expanding efforts to reduce supply chain vulnerabilities.
To be sure, the Biden administration’s focus on supply chain resilience is not driven solely by the tech competition with China; COVID-19 also demonstrated the need for greater resilience, and this is reflected in the diverse recommendations of the 2021 supply chain review report. But as the tech war unfolds, it continues to drive the diversification of tech supply chains away from China. If the industrial subsidies in the CHIPS Act are the carrot in this approach, the purported expansion of the Entity List is the stick, which will compel producers of high-end technologies derived from U.S. software or machinery to decouple from an increasingly wide range of Chinese entities.
Since there is strong bipartisan agreement on this approach, it is likely to continue. However, the parameters of the tech war are still unfolding, not least because Congress and the DoC have not been able to agree on how to apply controls to “emerging and foundational technologies” — meaning that we must continue to monitor how the DoC interprets and applies these terms, in order to understand the full impact of the “tech war” and its associated decoupling.
Dr. Maria Ryan is Associate Professor of American History, Department of American & Canadian Studies, at the University of Nottingham, U.K.
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