Industry Urges Commerce to Pursue Multilateral Export Controls, Chip Investments to Aid Semiconductor Suppliers

The Commerce Department should be careful not to place unilateral export restrictions on semiconductors and should invest heavily in domestic chip innovation, technology companies told the agency in comments due this week. But at least one think tank urged Commerce to pursue more strict controls and argued that decoupling from China along the semiconductor supply chain is inevitable.

The comments, submitted to the Bureau of Industry and Security as it looks to boost the competitiveness of the U.S. semiconductor industry (see 2103110047), underscore the increasing importance chip companies and the U.S. government are placing on addressing risks in semiconductor supply chains. The comments will help inform Commerce’s policy recommendations to the White House as part of a February executive order to address supply chain shortages of semiconductor chips (see 2102240068).

The Semiconductor Industry Association urged BIS to work closer with allies on export controls and other measures to address semiconductor supply chain issues. Although current U.S. export restrictions on advanced “electronic design automation” and other critical equipment are working -- mostly because U.S. companies are the “only viable suppliers of those items” -- the restrictions will become less effective once other suppliers catch up, SIA said. “These rules have encouraged China to develop and seek alternatives, and although it may take some time to do so, the trend towards reduction of dependence on U.S. semiconductor suppliers and indigenization of the supply chain is beginning to take shape.”

SIA also said companies in Europe, Japan and South Korea are being caught by U.S. export restrictions against China because they may incorporate some U.S.-origin technology in their products. If this continues, some of the U.S.’s closest allies may also be pushed out of the China market, allowing companies in non-allied countries to “fill the space with their own technology, thereby hurting both U.S. companies and those of allies,” SIA said. “Continued restrictions on these firms in allied countries could create a negative spiral -- reduced growth, revenue and profits leading to smaller scale investments in production equipment and research and development -- which would negatively impact U.S. customers and suppliers, the semiconductor industry, and the U.S. economy overall.”

The semiconductor group also criticized what it said has been a shift in recent years in using export controls “more expansively to restrict a broad range of non-sensitive commercial products.” SIA said Commerce should ensure controls are “narrowly targeted” and only impact technologies that aren't also available in foreign markets, and should avoid incentivizing the development of those technologies outside the U.S. “These actions, done unilaterally and without full consideration of all aspects of the industry, risk U.S. semiconductor leadership -- itself a contributor to national security -- and providing a competitive advantage to global competitors by providing a reason to locate in areas without similar controls,” SIA said.

James Lewis, a Center for Strategic and International Studies expert and a former government official who led the U.S. delegation to the Wassenaar Arrangement, argued that the U.S. needs to pursue stronger export controls for certain semiconductor technologies. While China will eventually establish its own high-tech semiconductor industry, U.S. restrictions can slow that pace, he said. But he also said controls “must be balanced against the need to protect (as far as possible without damaging national security) the robustness of the America semiconductor industry and that of its allies.”

He also said the U.S. should work to incentivize allies and companies to diversify out of China through “additional restrictions and subsidies.” If the U.S. helps create a multilateral framework for doing so, Lewis said, trading partners will likely follow. “Given China’s behavior and intent, further decoupling is inevitable and semiconductors are a good place to start,” he said. “If the U.S. pursues complete decoupling, other countries will be strongly tempted to substitute their producers when possible.”

But he said the U.S. must still take a tactful approach, arguing against a “complete and immediate” trade embargo, which would damage U.S. industry. The U.S. should allow sales of “commodity chips” to China to continue, but other items, such as advanced semiconductor manufacturing equipment, presents a greater challenge. “Barring further deterioration in the relationship, the U.S. should allow only limited transfers of less advanced SME to China to continue,” he said. “This will not satisfy all producers, but since China’s intent is to displace the U.S. and its companies, our national interest points in the direction of increasing restrictions undertaken in cooperation with key allies.”

Several U.S. technology companies urged Commerce to strengthen the domestic semiconductor supply chain without touching export controls. Cerfe Labs, a Texas microelectronics company, said “targeted investment” in research and development for microelectronics can “place the U.S. in a position of leadership in microelectronics technology, rather than simply paying to keep close to” places like Taiwan and South Korea. “Investment in disruptive new technology is the only way to win the long game,” the company said.

Linton Crystal Technologies, a New York industrial equipment supplier, said a stronger research and development tax credit program would allow it to hire more workers and fund projects. The company said the U.S. should pursue more “business friendly conditions and incentives” to help reshore manufacturing and diversify customers and suppliers. “Currently, much of the world’s wafer eggs are in one basket,” it said, “and there is the obvious need to spread that out and diversify risk so we don’t get stuck in the Suez Canal.”

BIS has said it takes industry comments seriously and plans to hold a virtual forum April 8 to present ways the agency can help boost the competitiveness and capacity of the U.S. semiconductor industry (see 2103290003).