Export Controls on China: Breakdown + Implications

  1. Introduction

Early last week, President Biden introduced new export controls that further heightened tensions with China, as the rule is directed to undermine Beijing while uplifting the American technology industry. While the controls have many consequences for China (and perhaps some unintended ones for the US, as well), it is mostly a tell-tale sign of where we are in terms of our diplomatic relations with China. The implications of these exports go beyond further than trade and the two nations economies- it pegs the question of where our rivalry with China is heading. 

  1. New export controls: breakdown 

IIa. What is it? 

Early last week, Biden introduced new export controls: semiconductors made with US technology for use in artificial intelligence, high-performance computing and supercomputers can only be sold to China with an export license (a license that will be very difficult to obtain). In addition to this, there is a ban on US citizens and entities from working with Chinese chip producers (unless there is “specific approval). Lastly, there is also a strict limit on exports to China of chip manufacturing tools and technology which will make it harder for Chinese companies developing their own equipment such as super-computers or AI technology.

IIb. Who will be affected and what are the consequences? 

“To put it mildly, [Chinese companies] are basically going back to the Stone Age,” said Szeho Ng, Managing Director at China Renaissance[1]. Of course, Chinese companies will be hurt by these export controls the most, though some say that there will be many losers, and not only in China. The controls will hit Chinese companies in multiple ways. One, they will ban US companies from exporting critical chip tools to China, consequently affecting groups such as Semiconductor Manufacturing International Corp, Yangtze Memory Technologies Co and ChangXin Memory. Of course, the restriction to ban American citizens and companies from providing support to Chinese companies in chip manufacturing will greatly hurt these companies as talent and partnership will decrease. Lastly, the US put YMTC (as well as 30 other Chinese entities) on a list of unverified companies which could possibly lead to inclusion on a blacklist (the “entity list”) that would potentially ban US companies from supplying them with technology.

While there are no denying Chinese companies will take a hit due to these export controls, some claim that other nations will also be affected. Certain analysts think that these rules will favor foreign chipmakers since in attempting to slow China’s development in chip technology, leading foreign chipmakers like Taiwan Semiconductor Manufacturing Company or Intel, can actually stand to gain from this[2].

IIc. Are there unintended consequences?

While the intent of these export controls is to undermine China and uplift the United States technological influence and domination, certain people point out that these export controls could very well also hurt the US and other international actors, having unintended consequences. Triolo claims that while the full impact of these controls will take a while to become clear, it will, at minimum, “slow innovation in both China and the US, ultimately costing US consumers and companies hundreds of millions or even billions of dollars”. Moreover, he points out that there would be “many losers” in this, including US chip design leaders like Nvidia and AMD as well as tool makers like Applied Materials and Lam Research. Furthermore, it could potentially hurt international players, like ASML (a Dutch company that produces the most advanced semiconductor tools) and TSMC (a Taiwanese contract foundry company). Moreover, Willy Shih, a Harvard Business School professor who specializes in technology and manufacturing warned that the export controls could have unintended consequences for the United States. He claims that the thing “we need to worry about is collateral damage”[3] – as depriving China of the ability to make the highest-tech chips could cause it to pump out even more low-end chips, driving down prices and making it hard for U.S. and Western factories to compete in that segment. Consequently, this could leave Western buyers of such chip’s dependent on Chinese suppliers. The Commerce Department commented on this prospect and claimed that they will continue to monitor for any such negative effects: “That’s just something we continue to watch and if there are unintended consequences, we’ll figure out what adjustments are appropriate”[4].

IId. Who is backing it?

Export controls, along with other policies aimed to weaken China’s military and economic power while uplifting the United States, has been a popular stance with Democrats and Republicans. Chuck Schumer, for example, welcomed the controls but said the US need to go further. He said the Senate was looking at ways to include measures in an upcoming defense spending bill to counter Chinese efforts to undermine the US chip industry. When the Senate Foreign Relations Committee backed the Taiwan Policy Act of 2022 , it was by 17-5, which greatly emphasizes the bipartisan support as well. 

  1. What are the further implications: Is there a new cold war? 

With the new export controls and the promises of further policies that may undermine China’s strength, it is impossible to see a future where Sino-US relations do not escalate beyond trade disputes. However, does this mean what everyone is labeling it to mean? Are we, in fact, approaching a new Cold War? No. The very nature of the tensions between the two powers (ie, export controls, trade disputes, ect) reveal just how much this situation differs from the Cold War. There are two main reasons why we are not entering a Cold war. One, the Cold War was more than just two great powers competing militarily and economically: it was fundamentally a war of two alternatives to the way of living life. The Cold War was a very specific clash of two very different modernities- meant to offer two completely alternative packages of the future (beyond culture, ideology, and economic models). The Cold War, was NOT, just a great power rivalry. When observing China, or even Russia, today, it cannot be said that either really represent a strong alternative system. Some may argue that China, in some respects, does, however, it still does not offer up a completely different package. 

The relationship between the United States and China now is very much a good old-fashioned great power rivalry- which is not exactly better than a Cold War. In fact, one of the features that differs this current rivalry from the Cold War and reveals the dangers of the present power rivalry, is the sheer interdependency of the United States and the Chinese economies. The very fact that our export controls have such drastic consequences, and that China can (and probably will) strike back harshly shows that we really have the power to hurt one another. In the Cold War, there was little to no economic dependency as trade was not present for some time, and then very limited. Moreover, the Soviet Union and its allies were quite isolated from the rest of the world. In stark contrast, China is a great power of the global economy, and its own economy is deeply integrated with that of the United States. Thus, we cannot exactly say we are in a Cold War part II. – in fact- what we have now has the power to be a lot more dangerous due to the sheer interdependency present. 

  1. Conclusion

Sino-US relations are declining in terms of diplomacy and this is raising red flags for those concerned over “another Cold War”. These rising tensions, seen not just in Washingtons new, export controls, but also their new National Security Strategy, and grand support of Taiwan, all demonstrate a great power rivalry that may very soon escalate. However, this does not mean that the US and China are in a Cold War, as the Cold War was something much more than an old-fashioned great power rivalry. In fact, the stark difference of this situation can be seen through the recent export controls placed by the US: there is a clear dependency between the Chinese and American economies. Due to the fact that these countries are very much intertwined, the sheer impact of hurting one another can be even more catastrophic than seen in the Cold War.

[1] https://www.ft.com/content/e950f58c-0d8f-4121-b4f2-ece71d2cb267

[2] https://www.ft.com/content/e950f58c-0d8f-4121-b4f2-ece71d2cb267

[3] https://www.washingtonpost.com/technology/2022/10/17/export-controls-us-china-chips/

[4] https://www.washingtonpost.com/technology/2022/10/17/export-controls-us-china-chips/