America’s “small garden, high fence” strategy of restricting key technologies from China will be difficult to be effective in practice.
More than 50 years after President Trump initiated a systematic policy of U.S. trade and technology regulation toward China, the Biden administration continues to expand the scope of these measures. These currently include export controls, inward and foreign investment controls, vendor monitoring and reporting obligations, and cover a growing list of technologies.
Jake Sullivan, Biden’s national security adviser, described this as a “small garden and high fence” approach to managing a small group of “strategic” technology. It is not intended to affect a general “decoupling” from the Chinese economy. However, developments suggest that it is impossible to maintain this distinction in policy goals.
In order to maintain military advantage, U.S. regulations such as those targeting China’s access to advanced semiconductors are justified on national security grounds. But U.S. measures continue to expand, targeting an increasingly wide range of items and industries, and the U.S. government is increasing pressure on third countries to follow its lead. This trend will have an inevitable impact around the world. Most countries are deeply involved in trade with China, and this trade is steadily climbing the technological ladder.
A good example is the so-called “legacy chips”. Semiconductors manufactured using older technology and used in a wide range of applications, including the automotive sector. When U.S. semiconductor regulations targeting China were introduced, U.S. officials declared that there was no need to include such legacy chips and that it was actually preferable for China to continue manufacturing them.
But the U.S. Department of Commerce is currently conducting a new study of the global market for legacy chips to uncover how U.S. companies source such chips. A related press release states that “non-market actions that threaten the United States’ traditional chip supply chain are a matter of national security,” and cites China as the main culprit.
Similarly, a recent Congressional letter argues that the focus on managing advanced semiconductors ignores the risks that legacy chips made in China pose to U.S. economic security, arguing that such chips are “unnecessarily important in the modern economy and in modern times.” It is the lifeblood of the military.” The letter asks the Biden administration to “explain all existing trade authorities…or what new authorities or mechanisms are needed to protect supply chains and domestic producers.”
This attention is being driven by China’s rapidly increasing production capacity for legacy chips due to state-led industrial policies and surging global market demand. Much of that demand is due to the shift to electric vehicles, a trend also currently being led by Chinese companies. The rapid rise of Chinese EV makers is itself currently being framed as a national security issue by US authorities and being investigated by the EU.
The shift from advanced chips to legacy chips shows why the stated goal of keeping measures targeting the Chinese economy within a “small garden” may prove unsustainable. Modern economies span a vast range of technologies based on cross-border supply chains, in which China is deeply embedded. And many technologies, such as semiconductors, are inherently dual-use. In this context, concerns about Chinese power easily shift from military uses of advanced computing to legacy chips in cars.
Navigating the growing vortex of foreign “onshoring” efforts and trade control competition, and potential retaliation for non-compliance, is currently the biggest challenge facing Southeast Asian leaders. This is one of the challenges.
Regardless of who becomes the next president, U.S. domestic policy will continue to focus on refocusing the nation’s economic and technological power. Apart from Biden’s flagship project to “re-land” industrial and research activity, the US government is gradually clarifying the list of “strategic technologies” under the export and investment control regime, without clear definition criteria. I have to. It is currently considering restricting China’s use of U.S.-provided cloud computing (including resale by foreign parties) and restricting Chinese-made vehicles and parts imported into the U.S. via third countries.
Furthermore, the usefulness of “high fences” to prevent the spread of technology is questionable at best. Even with advanced chips, restrictions need to be placed on a wide range of items to slow China’s technological progress, and companies in each country are required to comply.
China continues to show progress in advanced semiconductor manufacturing, which may explain why last year’s update to U.S. semiconductor export controls went further than Dutch regulations announced just a few months earlier. expensive. This puts a wide range of machinery from Dutch equipment giant ASML under unilateral U.S. restrictions. Similarly, U.S. companies had their export licenses to China suspended following news of Huawei’s new chips.
There is a clear expectation that companies will not only follow U.S. regulations, but also their “spirit” and “intent.” Therefore, updated U.S. chip regulations require reporting to the government of exports to China that fall below regulatory standards.
There is not even a solid precedent for such measures achieving their stated goals. The use of supply chain “choke points” to prevent the proliferation of “strategic technologies” has not yet been proven in practice. The history of export controls suggests that their long-term effect is to promote diffusion and import substitution. If China’s advances continue, the United States will likely be forced to expand the scope and depth of its countermeasures and expand its influence in third countries.
As international trade and technology flows become increasingly securitized, technology manufacturers will exercise more and more power over technology takers. The US and China, as well as the EU, Japan, South Korea and India, now have ambitious plans to “onshore” larger parts of their semiconductor supply chains, capturing a larger share of revenue and allowing other countries to do more. Trying to reduce influence. act against them. Countries whose companies own the technology to manufacture these complex products can impose political goals on companies “downstream” in the supply chain and those that rely entirely on purchasing finished goods from other countries. It has the power to push.
This is a thorny issue for Southeast Asian countries. All Southeast Asian countries remain largely “technology takers,” with economies deeply intertwined with both the United States and China. Chinese and US companies are expanding semiconductor design, manufacturing, packaging, cloud computing and AI businesses in Southeast Asia, and Chinese EV makers are expanding local market share and industrial operations. Navigating the growing vortex of foreign “onshoring” efforts and trade control competition, and potential retaliation for non-compliance, is currently the biggest challenge facing Southeast Asian leaders. This is one of the challenges.
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