Experts React to Disappointing New Round of Export Controls at “Cash Over Country” Event

A year ago, BIS issued a landmark set of export controls designed to hinder China’s ability to make advanced semiconductors (and with good reason, since China’s major semiconductor companies are tied to the Chinese military). While encouraging at the outset, they’ve ultimately proved to be inadequate because of loopholes and a too-narrow focus on advanced chips.

When reporting first trickled in that BIS was going to add additional provisions to the October 7 rules, optimism was brewing that BIS may expand them to cover legacy chips. After all, addressing China’s drive to dominate the legacy chip sector would be a logical step for protecting American national and economic security. That optimism was rooted in comments from Commerce Secretary Gina Raimondo, who stated this summer, “The amount of money that China is pouring in to subsidizing what will be an excess capacity of mature chips and legacy chips, that’s a problem that we need to be thinking about and working with our allies to get ahead of.”

Sadly, today’s export control news, which focuses on chips for AI, is a swing and a miss. It’s great that the new controls are designed to limit China’s access to chips useful for boosting its AI capabilities. But it’s disheartening to read Raimondo’s quote that “The vast majority of semiconductors will remain unrestricted.”

Experts weighed in on today’s news as well as the importance of legacy chips and the need for further BIS action at today’s “Cash Over Country” event, which was jointly hosted by CTT and the Coalition for a Prosperous America (CPA) on Capitol Hill:

  • Nazak Nikakhtar, former Assistant Secretary for Industry and Analysis at the Commerce Department, downplayed the importance of the new rules, describing them as “a small bite at the apple.” Nikakhtar also commented,  “Export controls need to be tighter…when our rules are replete with loopholes, of course China works around them.”
  • Jeff Ferry, Chief Economist at CPA (and co-author of the Cash Over Country report), said “If we allow China to dominate legacy chips, that means we will be dependent on China in 5 or 10 years.”
  • Steve Coonen, former export control official at the Pentagon and a China Tech Threat Advisor (and author of Willful Blindness), remarked, “We should stop providing China with the tools required to make what we’re calling legacy semiconductors.”
  • CTT co-founder Roslyn Layton, the moderator for the discussion, offered a novel policy prescription: “If they [Chinese chipmakers] build stuff using equipment that’s illegal to use, we should not be importing those products.”

Recent tech breakthroughs by sanctioned Chinese companies reinforce the panelists’ points that BIS must better enforce and refine existing export controls. After Huawei unveiled a new 5G-enabled phone in September, members of Congress rightly expressed alarm that U.S. export controls targeting SMIC imposed in 2020 have not achieved their goal. The fact that SMIC was able to produce a 7-nm chip suggests that export control violations are taking place. SMIC likely could only have produced that chip using advanced semiconductor manufacturing equipment made by American companies. James Mulvenon’s new report states that tools devoted to fabricating 28-nm chips are “likely being rerouted to leading-edge production.”

The Huawei-SMIC news also prompted ten members of the House of Representatives to write  to BIS on September 14: “BIS has continued to grant licenses to Chinese Communist Party (CCP) controlled companies, such as SMIC, worth hundreds of billions of dollars. These companies support the CCP’s military and have been responsible for manufacturing semiconductors that power Huawei’s 5G devices, in violation of BIS’ export controls.”

More recently, Douglas Fuller with Nikkei Asia commented in his column, “If the U.S. government is serious about constraining China’s technical capabilities at the level announced a year ago, it must close the loopholes of its own making.”

Further to the need to stop China’s legacy chip takeover, Jeff Ferry also added, “The U.S. must both protect and encourage its mainstream chip business.” Consistent with the recommendations in the Cash over Country report published in August of this year, Roslyn Layton also urged, “BIS should be reporting on what percentage of chips are consumed and produced in USA.” Tougher export controls must be complemented by a fair allocation of CHIPS Act money for domestic legacy chip production.

Loopholes in BIS controls are allowing China to achieve major breakthroughs and fulfill its ambitions to dominate the legacy chip space. It’s time for Congress to force BIS to close them. As Coonen put it succinctly at the event, “the whole process for putting controls on emerging technology needs to be reformed.”