Raimondo Talks Tough at Reagan Defense Forum But Challenges Remain  

Last weekend Secretary of Commerce Gina Raimondo spoke at the annual Reagan National Defense Forum, one of the signature events on the national security calendar. As the name might suggest, the gathering is traditionally popular with right-leaning national security figures, so credit a Democratic Secretary of Commerce for making an appearance. While she did have comments worth applauding, it’s clear the administration is still focused on advanced chips and needs to broaden its focus to counter threats at the legacy chip level for the sake of our national security and economic prosperity.  

CTT has long argued that U.S. semiconductor equipment companies are putting cash over country (see our report by that name) by selling some of the world’s most sensitive technology to China. Raimondo similarly echoed the need for U.S. companies to prioritize national security over profits. In reference to the October 2022 controls on advanced semiconductors, Raimondo said, “I know there are CEOs of chip companies in this audience who were a little cranky with me when I did that because you’re losing revenue.” She went on, “Such is life. Protecting our national security matters more than short-term revenue.” 

It’s great that Raimondo has publicly stated this imperative and tried to deny the Chinese military the most powerful chips in the world. But the question now remains: When will she apply this approach to legacy chips (those 14nm and above)?  

In many ways, Chinese legacy chip companies are no less dangerous than their advanced chip producing counterparts. SMIC – a company at the forefront of China’s legacy chip ambitions – supplies the PLA in the same way Chinese producers of advanced chips do. (Raimondo notably called SMIC out.) America’s military is at risk of depending on China for its own legacy chip needs if the Chinese government can successfully subsidize its legacy chip producers into global dominance. And American business and consumers will also be at risk if China can concentrate inside its borders the production of the chips that go into virtually every electronic device.  

All this points to the need for Raimondo to follow through on comments she made earlier this year at a top conservative think tank, the American Enterprise Institute: “The amount of money that China is pouring into 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.” There’s no time like the present to take action. (Our Every Chip Matters report released last May articulates some ideas in detail, including a presumption of denial standard, Section 301 tariffs on Chinese chips, and a fair distribution of CHIPS Act funding to domestic legacy chip producers.) 

Raimondo also called for more funding for the Bureau of Industry and Security (BIS), something that is hard to disagree with given the deluge of new export controls targeting China in recent years. The Chinese propaganda rag China Daily slammed Raimondo’s request, describing Raimondo’s remarks as, “befitting of a general trying to drum up more money for her forces by scaring the populace of a citadel with wild surmises about a barbarian horde that will soon be at the gate.” You know you’re doing something right if Beijing’s propaganda artists are bashing your ideas in such vicious terms.  

But while a funding increase could be helpful, the problem at BIS isn’t fundamentally about money. The porous U.S. export control regime has failed to hinder Chinese advances. The debut of Huawei’s new smartphone with a 7nm chip made by SMIC indicates that SMIC was able to achieve a major technological breakthrough despite export controls. According to the Financial Times, paraphrasing chip expert Gregory Allen, “US officials were surprised SMIC was able to acquire the spare parts and technical services needed to keep its 7nm production facility operational even after the export controls.”  

If the U.S. has export controls in place, how did this breakthrough happen? China most likely used older generation technology uncovered by export controls to produce chips at an advanced level—indicating a need for tighter controls above the advanced node size.  Tough talk is good, but it’s time to act tougher. The U.S. needs to be better about export control enforcement and take a broader approach to protecting our national and economic security interests when it comes to China and chips.