DoD Pushback on de Minimis Change Shows Complexity of Technology Trade With China

The U.S. effort to box out Huawei shows how complex and intertwined the issues are, the Asia Society Policy Institute president and a former deputy secretary of state said Jan. 28. Former Australia prime minister Kevin Rudd, now president of ASPI, said he's spoken with many people in the U.S. semiconductor industry, and they tell him that their ability to reinvest at the scale they need to remain dominant in the latest advances “hangs in part on their ability to export to China.” He asked, if the government bans those exports, will it “then step in to supplement on the order of tens of billions each year?”

Rudd and former deputy secretary of state John Negroponte were talking about the U.S.-China relationship at an ASPI event in Washington. In response to a question from Export Compliance Daily, Negroponte said the fact that the Pentagon is pushing back on Commerce Department moves to restrict exports to Huawei (see 2001240012) is revealing. “I think it's the Department of Defense finally calling to our attention this issue is more complex than it may seem. This technological war is going to be complicated.”

The U.S. makes 45 percent of semiconductors; China, 5 percent.

That same day, the United Kingdom announced it would not bar Huawei from its 5G networks, but would keep it out of the “core” of those networks. Rudd said, “Sounds like a Great British fudge to me.” He said the fallout in the U.S.-British relationship -- including a possible free trade deal -- will depend on what the definition of “core” is.

The think tank also distributed past Rudd speeches, in which he talked more in depth about strategic competition and Chinese telecommunications firms like Huawei and ZTE. He noted that if the export ban to ZTE had persisted, it would have shuttered the company. “China's national interest, at least for the decade ahead, is to de-escalate the trade war until such time as China's dependency on the U.S. export market is less critical,” he had said in a previous speech. He said U.S. chip makers believe China is at least five years behind in semiconductors. Some Chinese industry analysts say the gap is larger, he wrote.

“Xi Jinping has learned not to trust what Donald Trump says,” Rudd wrote, and said that he doesn't believe administration assurances that they're not seeking decoupling. Instead, he's warned, there will be 30 years of struggle between the Chinese government and America.

Ironically, the trade war began over “Made in China 2025,” which is evidence of China's “struggle for technological primacy over the United States,” Rudd noted, and the trade war has accelerated China's drive to become technologically independent of U.S. firms.

“The reality is that a significant degree of technological decoupling between the United States and China is already underway,” he wrote. “Of course, this began nearly two decades ago when China decided to embark on internet sovereignty to restrict the free flow of information to its citizens.“