At Virtual ISS 2021, during the session on geopolitics, Martijn Rasser of The Center for a New American Security (CNAS); and Congressman Michael McCaul of Texas’ 10th District, addressed the current situation with U.S. export controls on the sale of semiconductor chips to China in the name of national security.
Rasser says the problem with this unilateral approach is that the administration incorrectly assumes that the U.S. leads the world in technology development. “The U.S. no longer dominates R&D spending, and China has made many strides in its technology capabilities,” he said. “It is near-peer in many tech areas; at parity and perhaps even ahead of the US in some areas.”
Rasser detailed how these outmoded export controls can end up harming U.S. companies. They incentivize other players to circumvent those controls by not buying from U.S. manufacturers and designing out U.S. content altogether so that they can sell their semiconductor products to China without recourse.
McCaul, who introduced the Chips for America Act to provide incentives for U.S. manufacturing and funding for US R&D, addressed the perceived threat to U.S. economic and national security that China poses if it succeeds in building its own semiconductor supply chain, and achieve their goal of producing 70% of the world’s semiconductor chips by 2025.
While McCaul played up the national security aspect, Rasser seemed to be more focused on China gaining economic dominance. He said by restricting sales of chips, we’re fueling technology indigenization efforts. Rassar suggests we reframe the goal of export controls and work together with U.S. allies and partners to control the sale of semiconductor equipment so that they can’t design and manufacture chips. Essentially, he said if China can’t produce state-of-the-art semiconductors, which are foundational to so many things, they will remain dependent on foreign sources of semiconductors, which he says is a strategic advantage.
I began to wonder if this aligned with SEMI’s position on the topic, as such a strategy may not be in the best interest of all its members globally. To find answers to my questions, I reached out to Joe Pasetti, VP, Global Public Policy & Advocacy at SEMI. I also spoke with Doyle Edwards, director of government programs at Brewer Science, and executive advisor on government relations. He also serves on SEMI’s Export Control subcommittee. Here’s what transpired.
SEMI’s Response to Rasser’s Strategy for Export Controls
SEMI President and CEO, Ajit Manocha, stated SEMI’s position in an open letter to the incoming commerce secretary, Gina Raimondo. He said export controls are powerful national security tools that should be tailored to focus on specific national security issues rather than being used as another industrial policy tool.
In the letter, SEMI’s key requests included:
- Open a transparent process to review recent final rules to allow the industry to provide input to avoid unintended consequences.
- At a minimum, avoid additional unilateral controls while a review is pending.
- Adjust unintended controls
- Address the backlog of licenses and classification requests pending a review to alleviate delays and potentially lost business
Pasetti says SEMI appreciates that CNAS and other think tanks suggest multilateral control, rather than unilateral controls. There is no long-term benefit to controlling access to a certain technology if the customer in question can get the technology elsewhere. Where there is foreign availability, export control should be implemented multilaterally.
However, Pasetti noted several inconsistencies in the argument to allow chip sales but control equipment. The need for foreign revenue, indigenization efforts by China, and a desire to maintain China’s dependence on U.S. suppliers are put forward to justify continued sales of advanced chips to China but they apply equally to equipment, he explained.
“Why don’t we also want to maintain China’s dependence on U.S. semiconductor manufacturing equipment?” he asked. “Equipment companies are also vulnerable to indigenization efforts in China, and they need foreign revenue to innovate. It is unclear why those reasons apply to advanced semiconductors and not to equipment.”
In addition to these inconsistencies, SEMI is also concerned about unintentional consequences that could transpire if the US implemented this strategy.
“Policymakers should be very cautious using export controls as a tool of industrial policy. There are usually unintended consequences,” explained Pasetti. “For example, in September, when reports surfaced that SMIC was being considered for addition to the Entity List, there was no discussion of a chip shortage for automakers. SEMI wrote a letter to Commerce Secretary Ross highlighting the potential disruption SMIC’s addition to the Entity List would cause to semiconductor production. Additional actions that would reduce global capacity could make existing shortages worse.”
According to Pasetti, efforts in the U.S. and other countries are underway to provide incentives for increased capacity, but those will only bear fruit after further government action and the lengthy process to build new capacity is completed. While Congress passed the structure of the programs outlined in McCaul’s Chips for America Act, no money has been appropriated for them yet. Ongoing efforts will continue this year to fund these programs, he said. For example, an incentive program in the Commerce Department was created, and the industry also seeks tax credits for investment in fabs, which may turn out to be the most efficient approach.
As noted in Manocha’s letter, SEMI’s position is that unilateral controls should be avoided when possible because they are inferior to “multilateral controls – where items of concern are controlled by all major producing nations – create a level playing field, maximize effectiveness, and minimize harm to U.S. national security and economic competitiveness.”
The Bigger Picture
Like SEMI, Edwards supports Rasser’s recommendations that we approach this strategy multilaterally, versus unilaterally. “If you try to go it alone, you’ll be alone. That’s the bottom line,” said Edwards. “We need to work with our allies. China is going to be China and will keep developing.” He referred me to the book, The Hundred-Year Marathon, which discusses China’s goal to be the dominant economic superpower by 2049, the 100th anniversary of the communist party in China. Made in China 2025, he says, aligns with this goal.
Edwards is in favor of working with our allies to support manufacturing development not only on US soil, but also in Australia, Japan, Europe, and India to support the growing global chip needs.
Offering the materials supplier perspective, Edwards explained that as the cost of scaling continues and becomes more expensive, our industry could become ripe for disruption. He says nationally we need a broader strategy with our allies, and while we can’t ignore China, the solution is not solely about coming up with a government strategy to delay China’s ability to develop. If we get too focused on them, we may miss out on other opportunities at home, he said.
Rather, we should collectively invest in hard science, and focus domestically beyond silicon to materials innovation that will build on and propel us beyond silicon’s capabilities. We have to remember that all industrial innovations eventually become commoditized, especially when manufacturing moves abroad. It happened with steel, and it will happen with silicon, he explained.
“Are we seeing the end of the Silicon age? Is it still going to be the economic driver for the US?” asked Edwards. “It could be following the natural progression and will be costly to wrestle it out of the hands of China. Their commitment is great toward following that path, and we must be every bit as committed to finding better ones.”
For more on SEMI’s collaborative efforts regarding U.S. export controls, read this blog post by Kimberly Ekmark, director of Public Policy and Advocacy at SEMI.