US-China tech controls face problematic diagnosis

CEPA has published an article saying recent reports highlight the negative impacts of US tech export controls targeting China. But the US is determined to march forward — and to force allies to follow. Caliber.Az reprints the article.

Although US export controls are designed to widen Washington’s lead over Beijing in the race for advanced semiconductors, two new studies suggest the crackdown is boomeranging, hurting US business while helping Chinese companies.

Analysis from the New York Federal Reserve shows the new controls wiped “out $130 billion in market capitalization” for US firms and caused them to “experience a drop in bank lending, profitability, and employment.” Another study from US and Chinese financial experts claims controls on dual-use tech from 2007-2019 caused Chinese tech manufacturing or assembly firms to produce “more high-quality innovations.”

In short: US pressure appears to be accelerating Chinese innovation while depriving US firms of the revenue needed to keep their lead. Despite this evidence, the Biden Administration defends the chip crackdown and vows to continue expanding the export controls.

These studies are among the first to outline the costs of China-focused export controls imposed by the Trump and Biden administrations. President Joseph Biden expanded Trump-era efforts to hamper Chinese telecommunications champion Huawei in October 2022 imposing new export controls on advanced AI chips and chip-making tech.

The US continues to tighten those restrictions. On May 7, the US Department of Commerce revoked licenses for Intel and Qualcomm to sell chips to Huawei. In April, the US forced Dutch chip equipment giant ASML to stop servicing tools made with US tech sold to Chinese customers. The Commerce Department is reportedly considering new controls on selling the software that powers AI services such as ChatGPT. A proposed bipartisan House bill would provide the Department of Commerce with new powers to block exports of advanced AI systems.

The new independent studies portray past US export controls as provoking a wide range of unintended consequences. China “boosted domestic innovation and self-reliance, and increased purchases from non-US firms that produce similar technology.” Beijing points to new Huawei phones powered by Chinese-made advanced chips as early evidence of China out-innovating the US controls.

Although US export controls are designed to widen Washington’s lead over Beijing in the race for advanced semiconductors, two new studies suggest the crackdown is boomeranging, hurting US business while helping Chinese companies.

Analysis from the New York Federal Reserve shows the new controls wiped “out $130 billion in market capitalization” for US firms and caused them to “experience a drop in bank lending, profitability, and employment.” Another study from US and Chinese financial experts claims controls on dual-use tech from 2007-2019 caused Chinese tech manufacturing or assembly firms to produce “more high-quality innovations.”

In short: US pressure appears to be accelerating Chinese innovation while depriving US firms of the revenue needed to keep their lead. Despite this evidence, the Biden Administration defends the chip crackdown and vows to continue expanding the export controls.

These studies are among the first to outline the costs of China-focused export controls imposed by the Trump and Biden administrations. President Joseph Biden expanded Trump-era efforts to hamper Chinese telecommunications champion Huawei in October 2022 imposing new export controls on advanced AI chips and chip-making tech.

The US continues to tighten those restrictions. On May 7, the US Department of Commerce revoked licenses for Intel and Qualcomm to sell chips to Huawei. In April, the US forced Dutch chip equipment giant ASML to stop servicing tools made with US tech sold to Chinese customers. The Commerce Department is reportedly considering new controls on selling the software that powers AI services such as ChatGPT. A proposed bipartisan House bill would provide the Department of Commerce with new powers to block exports of advanced AI systems.

The new independent studies portray past US export controls as provoking a wide range of unintended consequences. China “boosted domestic innovation and self-reliance, and increased purchases from non-US firms that produce similar technology.” Beijing points to new Huawei phones powered by Chinese-made advanced chips as early evidence of China out-innovating the US controls.