Export Control Policy Rears Its Ugly Head Once Again

Export control policy is back in the news again as the White House announced, finally, a nominee for under secretary of commerce for industry and security: Alan Estevez, who is currently at Deloitte but had a long career in the Department of Defense. He appears to be well-qualified and has the undeniable advantage of having said very little publicly about China, which should facilitate his confirmation. It will not, however, preclude questions about his views on that country, and he will be pressed by Republican China hawks to take a hard line. (Remember Secretary Raimondo’s problems after she wavered on the question of keeping Huawei on the Department of Commerce’s Entities List. Saying a policy was “under review” worked for Katherine Tai, but not so much when it comes to China and export controls.)

The confirmation process will once again put export controls in the crosshairs, where far more will be demanded of them than they are capable of delivering. This is not new. During my tenure in the same job, I testified before Congress 54 times. One year I apparently held the record for the most appearances—not something I welcomed. Some of the issues were different—commercial communications satellites, high performance computers, encryption—but the approach was the same. The administration was letting critical technology escape to our adversaries and was therefore “soft” on security.

History repeats. This time the administration is being accused of being soft on China, primarily by Republican senators running for president and looking for an issue. This is an easy issue to demagogue, but that can lead to policy mistakes that will actually harm our security. This is typified by the argument over how best to control semiconductor exports. The core problem is that for the chip companies, China is both the biggest threat and the best customer. China clearly plans to become a world-class competitor in this sector, which in the long term poses an existential threat to the U.S. industry, not to mention the challenge that it will pose to our national security should they develop independent capabilities equal to or better than ours. At the same time, while exports of cutting-edge products are restricted, older, lower-level chips are not, and they provide an important source of revenue for U.S. companies—revenues they need to produce the next generation of chips that our own national security establishment will rely on.

Past administrations have dealt with this conundrum by having a general policy of keeping U.S. adversaries a generation or two behind us technologically, a specific control policy of issuing licenses based on the bona fides of specific end-users, and an ongoing effort to persuade other governments to follow the same path.

It is fair to ask whether that approach has run out of gas in the face of an adversary with both the will and the resources to go its own way technologically (leaving aside the fact that much of their technology was stolen from us). However, the answer from some quarters—treat semiconductors as a “foundational” technology and impose broader controls on them, including re-controlling older chips—will only make things worse. Aside from closing the barn door after all the horses have left, this approach would starve the U.S. industry of revenue, set back our own development of next-generation chips, and thereby compromise our security. Pouring new federal money into the industry, as the CHIPS for America Act proposes, is a good idea, but it will not fully compensate for the damage overly restrictive controls will do.

The challenge for Mr. Estevez, as it was for his predecessors, is to navigate the fine line between too little control, where technology leaks out to our adversaries, and too much control, which has the consequences I described. Table-pounding from Congress does not make that any easier.

So far, the administration seems to be taking a more restrained path, although recent remarks by National Security Adviser Jake Sullivan on controlling outbound investment suggest they are about to make a major mistake. (I will comment on that separately in the future.) Their path seems to be to retain the tools developed in the last administration, such as the direct product rule and the military end-use/end-user definition, which have enabled them to control foreign production based on U.S. technology more effectively and to reach out more actively to our allies and partners who make comparable products and try to get them on the same page. In both these areas they are focusing more on the technology for making semiconductors than on the chips themselves, which is the right approach because it makes it more difficult for China to develop competing capabilities. Working with allies will also be more effective than simply relying on the extraterritorial aspects of U.S. law, and an advantage in this case is that there are not very many other competitive manufacturers, and they tend to be in countries that share our concerns.

Of course, the administration’s wisest action so far is to focus on the “running faster” part of the equation—making sure our own industries are equipped to stay ahead of their competitors. That is why I warned above about asking more from export controls than they can deliver. They play a critical role in our national security, but they will never be a substitute for a sound technology policy that helps our industry grow and prosper. I hope in his confirmation hearing Mr. Estevez will point that out, but, more important, I hope the senators will listen.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C. 

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