The US Commerce Department has unveiled a broad range of new export controls on Chinese technology firms. Washington would impose heavy restrictions on the sale of key technology to Chinese companies and hinder their efforts to build a self-sustaining technology base. Experts believe that this is a sign of a major sharp change in US policy. Mint breaks down this development:
What are these new export controls?
On Friday, the US Commerce Department published a 100-page set of rules that restrict the supply of key technologies to Chinese firms.
31 Chinese companies, such as the Yangtze Memory Technologies Company, are placed on an “unverified list” maintained by Washington. This means that the US government is unable to verify whether the listed firms are complying with the regulations. US technology firms will face more hurdles in doing so. trade with these Chinese firms.
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The US is also implementing a foreign direct product rule, which prohibits firms in the US and around the world from selling advanced equipment to China if US technology and input were used. American individuals, alluding to citizens and companies, would be barred from supporting Chinese advanced chip manufacturing firms.
The new sanctions will also affect Beijing’s efforts to develop supercomputers for military use.
How will this affect Chinese technology firms?
The new rules are expected to be disastrous for Chinese technology ambitions. While the country has put its weight behind building self-reliance in advanced technology since at least 2015, this technology is dependent on imports. In 2021, the country spent $432 billion on microprocessor imports alone.
While US sanctions previously prevented Chinese firms from acquiring the most sophisticated technologies, these new US sanctions include many other technologies designed to stifle China’s technological development. The sanctions previously imposed against Huawei heavily damaged the firm’s ability to do business. At the government level, Beijing’s ambition to develop technologies for both civilian and military purposes, dubbed “civilian-military fusion”, will also face significant challenges.
What does the introduction of these new rules mean?
Some experts believe that the US has essentially declared war on China’s technology ambitions. National Security Adviser Jake Sullivan has referred to this new sharp turn in the policy of the Biden administration. He points out that the US has long been comfortable maintaining a relative advantage over competitors. However, Sullivan argues that technology imports are being used by players such as China and Russia to develop military capabilities and undermine US national security. Therefore, Washington will change its goals and try to maintain as large an advantage over its competitors as possible. This explains why the Biden administration has targeted such a large selection of technologies and companies. The goal is to break any momentum that China’s tech firms have gained and maximize America’s considerable dominance over its main rival. Over time, this would mean that China’s military capabilities would also stagnate.
How have different players reacted?
Clearly, Beijing was furious about the new sanctions. It alleged that the US seeks to cripple its firms while trying to maintain “hegemony” over critical technologies.
Industry associations such as the Semiconductor Industry Association reacted with caution and urged Washington to bring allies and industry players along to enforce the rules. Major companies such as Nvidia and AMD will be at a disadvantage given their close business ties with Chinese firms.
US politicians largely approved of the move given the negative outlook of China, which has taken root among the country’s political elite.
What are the challenges in implementing the rules?
Administration officials have acknowledged that so far the sanctions have been set unilaterally by Washington. If the new rules are successful, they will need the support of allies such as South Korea, Japan, and major European players such as the Netherlands. The decision will not be easy for these countries as many have close business ties with Chinese firms. This is especially true for firms such as Taiwan Semiconductor Manufacturing Corporation (TSMC) that sell chips to Chinese firms. Some concessions have been given. For example, US sanctions do not apply to foreign firms manufacturing chips in China. This will help companies like SK Hynix and Samsung of South Korea.
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