Export Controls on Finished Chip Products May Only Hurt US Firms, R&D, Experts Say

The U.S. should continue to impose export controls on advanced semiconductor manufacturing equipment and machinery but be careful about restricting sales of finished semiconductor products to China, Chinese economics and technology policy experts said. Controls on finished products may risk hurting U.S. semiconductor exporters and would not stop China from importing those goods elsewhere, they said.

Peter Cowhey, a technology policy expert, said a “variety” of finished semiconductor items don’t present U.S. national security risks and shouldn’t fall under national security controls implemented by the Commerce Department. Speaking during an event last week hosted by the Information Technology and Innovation Foundation, Cowhey said these controls are hurting the chip sector even as the government tries to support it, including through legislation such as the CHIPS Act (see 2110200030), which is still awaiting congressional approval.

“The failure to be able to sell [finished semiconductor goods] into the growing Chinese market reduces the revenue streams of U.S. firms that then invest it in capital expenditures and research and development,” said Cowhey, previously the dean of the School of Global Policy and Strategy at the University of California, San Diego. He said controls on “production techniques and machinery should remain in place, and can be done so reliably,” but “we have to look at those export controls on finished products very carefully.”

China accounts for about 36% of the U.S. semiconductor industry’s sales, said Stephen Ezell, vice president for global innovation policy at ITIF. “Those revenues are vital to plowing back into future generations of R&D investment,” he said.

Scott Kennedy, a Chinese economics expert at the Center for Strategic and International Studies, said the U.S. should be “very vigorous about looking at limiting the sales of certain types of technologies” to China, especially ones that would allow the country to independently develop cutting-edge technologies. “Semiconductor equipment tools in particular,” Kennedy said.

But he also agreed that U.S. firms should be able to sell certain items overseas because it will allow those companies to reinvest in R&D. In this way, exports to China can indirectly aid the U.S. military and national security, because U.S. semiconductor firms can use the revenue earned from those exports to develop new dual-use technologies. “It is not a straight zero-sum calculation that whatever helps us economically obviously harms us national-security wise,” Kennedy said. “It's actually more complex.”

Kennedy also stressed that the U.S. is still ahead of China in many of the “leading-edge” industries, even though China has “caught up and improved in a lot of areas.” But he also said the U.S. needs to be “careful thinking about policies that we might adopt that might change those circumstances.” Although building more semiconductor facilities in the U.S. can be beneficial, he said there may be “potential risks of overly localized production” in the U.S.

“A lot of production looks like it's going to go potentially to Arizona,” said Kennedy, referencing the Taiwan Semiconductor Manufacturing Company’s plan to begin production on a chip factory there in 2024 (see 2005150033). “What's Arizona's energy and water situation? Anyone who knows anything about chips knows you need a ton of electricity, you need a lot of water.”

Cowhey also said the U.S. should understand that decoupling from China isn’t a realistic solution. “We have to be clear in our head that the idea of real divorce in the technology and science systems is not a practical goal,” he said. “We have to be smart in designing how we do risk management and to be very firm about some things, but understanding that we'll live in a world that is not isolated.”