Summarizing AEI’s Derek Scissors on Decoupling, Semiconductors, and BIS

Derek Scissors, a scholar at the American Enterprise Institute (AEI), is a leading expert on trade and economic policy of the People’s Republic of China (PRC). He wrote the definitive guide to economic decoupling and offers a critical review of the actions of the Bureau of Industry and Security (BIS). As it relates to the eventual nominee to head BIS, he recently told China Tech Threat:

“The Undersecretary for Industry and Security must accept that the philosophy of more sales always benefitting America is now damaging with respect to China and advanced technology. The most important sign of that acceptance is fully implementing the 2018 export control reform within six months of taking office.”

One of Scissors contributions is the notion that export controls should be implemented for technological categories (e.g. semiconductors), rather than individual end-users, since China can always shift assets away from these end-users. The key benefit of this approach is to remove the cumbersome and piecemeal investigation of many firms, rather than a single product. For example, the process of determining whether companies have connections to the People’s Liberation Army is arduous, and may be captured by industry to enable loopholes, even though the PRC’s expressed strategy of Civil Military Fusion is that all economic inputs can be commandeered for the military. Scissors also argues that spending to enhance semiconductor capacity should come with a mandate to prevent Chinese participation in the supply chain, ensuring that no benefits or leverage accrue to the PRC.  

Additionally, Scissors has observed the following about the Department of Commerce and BIS:

  • Export controls may be the single most important aspect of American policy toward China.

  • The ongoing obsession with Huawei is far less important than implementing export controls. Huawei is just one firm, whose assets can be seized and reallocated at will by the Communist Party. Telecom is an important sector but hardly the only one, and broad export controls would in any case include telecom.

  • The Department of Commerce has continuously stalled the implementation of the 2018 Export Control & Reform Act. It disregarded Congress in favor of implementing its own clearly inadequate actions. Last summer, Commerce finally remarked on an important element of export control implementation after two years of industry lobbying.

  • A very mild requirement is a report from Commerce on which American technologies and companies are at most risk from China’s acknowledged, sustained program of civil-military fusion, and how Commerce has responded and intends to respond. This information should already be readily available, as required in Section 1759 of the 2019 National Defense Authorization Act.

  • Parts of the report may need to be confidential. Transparency can be enhanced through public hearings involving firms cooperating most with China on sensitive technology, such as semiconductors. Firms can explain how China is so important as to be indispensable to sales, yet there is no threat of Beijing coercing them to transfer advanced technology.

  • Proposals to implement export controls in a business-friendly way should be heard. But if the idea is just to sell freely to China because that’s what’s profitable, then advocates are merely pretending to consider the national interest.

  • Congress should consider taking export control authority away from Commerce. It’s the most logical agency for it, but it’s utterly failed to the job. The Departments of Defense and State are more reliable protectors of US technology.

To see more of Scissors’ work on this topic, check out: https://www.aei.org/profile/derek-m-scissors/.