Think Tank Calls for Looser Export Controls for Tech Sent to Chinese Buyers

In a think tank effort that seems to assume a change in Washington, though never explicitly says it, the Peterson Institute for International Economics says there should be a return to more conservative use of export controls and entity lists to manage the threat of Chinese access to advanced technology for nefarious purposes. Martin Chorzempa, a PIIE research fellow, discussed a memo he authored to a future Commerce undersecretary for export controls in the next administration, during an Oct. 22 webinar at PIIE.

Chorzempa said that the fact that the U.S. is no longer dominant in research and development for advanced technology erodes the effectiveness of export controls, since countries that are on the licensing list can buy from other countries. “There's less of a consensus now about who is a security threat,” he said, so even if the U.S. tries to work with allies on export controls, that's not an easy solution. “The U.S. can't veto exports under the Wassenaar agreement” the way they did during the Cold War, he added.

Chorzempa said the worst way to handle export controls is to prohibit sales to a country, or to create such a large compliance burden to sell to that country that it's as good as a ban, but the product under restrictive licenses is something that country can buy on the open market from other countries.

He said those kinds of controls mean lost revenue for U.S. firms, and that lost revenue could have been used to invest in R&D for future products. So the companies potentially become less competitive “without any actual security benefit,” he said. He said the U.S. has too many products under export control.

“We want to find as narrow as possible a list in truly critical technologies,” he said. He said this was the Obama administration's approach, which it called small yard, tall fence.

“More narrow controls are more likely to secure compliance from allied countries and also gain their buy-in to adopt similar controls,” he wrote in the memo. “The process of determining what should be inside the fence will identify areas crucial to keep cutting-edge US technological out of the hands of strategic rivals, thus potentially restricting access to key building blocks like semiconductor manufacturing equipment or design tools when such actions could effectively block import substituting industrial policy or prevent countries and firms from profiting from stolen intellectual property.”

He said semiconductor manufacturing equipment makers in Japan and the Netherlands agree that China's desire to become self-sufficient in semiconductors is problematic and that their theft of IP is damaging, so they should be convinced to put export controls on the machines as well.

When the U.S. pushes for technology decoupling, Chorzempa argues, it accelerates China's Made in China 2025 ambitions and convinces corporations to move R&D out of the U.S. so that chips made in, for instance, Taiwan, are also designed there.

“Both US and foreign firms have reported privately that Chinese buyers, even those not in sensitive sectors, are requiring certification that their supply chains are outside the reach of US export controls. China’s concerns are encouraging foreign firms to eliminate American participation in global supply chains,” he wrote.

He said that if licenses are required -- but are also frequently granted -- that gives U.S. authorities the ability to keep an eye on what Chinese capabilities are developing in technology.

Chorzempa was asked if there's any area where decoupling is warranted, because the U.S. doesn't want to be complicit in Chinese policies. He said that we may have to reduce collaboration in facial recognition technology, given how China is using it for political suppression. He also said, “Obviously forced labor is a hard line where you don’t want to engage with them.” Forced labor has been more of an issue for low-value imports, rather than technology exports.