With the US midterm elections around the corner and the 2024 presidential race set to unfold after that, the White House is preparing the next phase of its China strategy, with a focus on preserving US technological leadership. The recently passed CHIPS and Science Act, which aims to revitalize US semiconductor manufacturing, forms the offensive prong of the Biden administration’s strategy. Now for the defensive components. From list-based export controls on specific technologies to the buildout of outbound investment screening, the White House is putting together a playbook with important implications for a range of actors—including US industry and America’s allies abroad. Among the key questions: Where should the US draw the line when defining technologies as “leading edge”? How far should it go in using “long arm” provisions that target certain Chinese entities? And what role should human rights, supply chain resilience, and data privacy concerns play in technology restrictions under a broader national security umbrella?
The summer was full of clues about the White House’s fast-evolving agenda on tech controls:
These developments show that a more coherent US strategy on technology controls is taking shape, but one which risks verging into more extreme regulatory territory. A White House shift toward more list-based technology controls—against the backdrop of rising US frustration over the readiness of key allies to restrict tech exports and domestic political incentives to out-maneuver the Republicans on China policy—is likely to give rise to more trade volatility, including in global semiconductor supply chains.
An important policy debate in Washington in recent years has been over how best to design export controls, both in terms of technology subsets and thresholds for defining “leading edge” technologies. The BIS has fended off repeated demands by lawmakers to issue a master “emerging and foundational technology list”. Meanwhile, the White House Critical and Emerging Technology List remains alarmingly broad. However, the executive order issued by the White House offering guidance to CFIUS, Sullivan’s recent remarks, and the leaks on the White House’s upcoming outbound investment screening order point to a narrowing priority list for critical technologies that includes: advanced semiconductors, artificial intelligence, and quantum computing (large-capacity batteries and biomanufacturing are also growing areas of focus.) These technologies will likely be the focus of new export controls and investment screening.
Broadening beyond entity-focused technology controls
The recently disclosed BIS restrictions on AMD and NVIDIA AI computing chips confirm a new focus on a smaller list of critical (or, to use Sullivan’s terminology, “force-multiplying” technologies.) Although NVIDIA was granted a license to fulfill pending orders for US customers, the intent was clear: Commerce is focusing on a number of cutting-edge technologies that it wants to keep out of China’s hands.
This could mean a shift in emphasis away from entity listings (an exasperating cat-and-mouse game of BIS chasing down spinoffs in labyrinthine party-state business ecosystems) to broader technology-based controls based on potential military end-use and applied against countries of concern, such as China and Russia. Ad hoc entity listings will remain a tempting shortcut for policymakers to ratchet up sanctions and score political points, but a deeper foray into list-based technology controls can have a much broader impact on transactions related to dual-use technologies.
As the White House sharpens its focus on “force-multiplying” technologies, the next logical step will be for Commerce to better define military end-use and end-users in justifying list-based technology controls. This could impose a much heavier regulatory burden on companies to make a determination on end-use if their products fall into a military-civil fusion tech ecosystem.
Defining “leading-edge” and “chokepoints” for advanced chips
The US administration is also creeping closer to defining thresholds for what constitutes the “leading edge” in “advanced” semiconductors:
The signs so far suggest the White House wants to freeze China’s capabilities in place at 14nm (chips that China’s SMIC is capable of producing) at a time when multilateral controls are geared toward more advanced technology thresholds (5nm and below). The White House is consciously taking a more rigid approach toward defining the leading edge. As US National Security Advisor Jake Sullivan stated in a September 16 speech:
“On export controls, we have to revisit the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies. We previously maintained a ‘sliding scale’ approach that said we need to stay only a couple of generations ahead. That is not the strategic environment we are in today. Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.”
It can be reasonably inferred from the Sullivan comments and recent reporting on emerging controls that the Biden administration intends to set a more stringent threshold at 14nm in order to prevent advances in China’s logic chip development instead of designing semiconductor export controls to keep pace with innovation. Such an approach is designed to give the United States “as large of a lead as possible,” but it comes with important side effects. For example, the US administration is also trying to target perceived chokepoints in the semiconductor supply chain to hamstring China’s indigenous chip development. Semiconductor manufacturing equipment (SME) is a growing area of focus for this chokepoint strategy. But many SME components are not specially designed for sub-14nm production, and are used for producing both leading edge and legacy node chips. Wider ripple effects in semiconductor supply chains can therefore be expected if a blunt 14-nm standard is applied across export controls.
Lithography—a complex patterning process in chip fabrication—attracts the most attention in the SME chokepoint debate. Dutch firm ASML’s current generation of extreme ultraviolet (EUV) lithography machines uses a wavelength of 13.5nm. These machines are already restricted from export to China. But SMIC is reportedly producing at sub-10nm, using less-advanced deep ultraviolet (DUV) machines. There is a big difference between developing prototypes and producing leading-edge chips at scale. However, SMIC’s recent progress has nonetheless reinvigorated the US policy debate on whether the SME threshold should be lowered to restrict DUV as well. Such a restriction would stray further from “leading edge” controls.
The Biden administration has made a concerted effort to coordinate technology controls with its partners to avoid alienating allies and ceding market share to foreign competitors. To this end, it has created arrangements like the US-EU Trade and Technology Council, Indo-Pacific Economic Forum working groups, and the emerging CHIP4 alliance (including the United States, Japan, Taiwan, and South Korea) to try to harmonize technology development and controls.
Progress has been predictably slow, however. US tech partners are ready and willing to join the strategic conversation (partly out of fear of missing out) but would rather focus these forums on constructive themes (coordinating development) than on restrictions that risk provoking a backlash from Beijing or raising costs for businesses.
Slow progress on the multilateral front risks feeding US anxiety over technology competition with China, driving it toward broader controls, with an extraterritorial flavor. The areas we are watching as we assess the potential for US long-arm provisions include:
The White House is trying to balance its strategic goal of advancing US technology leadership with the political objective of getting out ahead of the Republican agenda on technology controls should Congress flip in November. As a result, we can expect a flurry of policy announcements this fall that underscore a “tough on China” approach.
The Biden administration would prefer to put the focus on export controls in its China strategy and avoid potentially provocative measures (such as the Taiwan Policy Act being developed in Congress) which could ratchet up tensions with Beijing. By quickening its pace on technology and related investment controls, the White House hopes to build an unassailable lead in the technology race with China and establish limits for US policymakers. This approach is based on several, still untested, assumptions:
The White House is moving beyond its mop-up of Trump-era policies to action on technology controls targeting China. In developing a more coherent framework for designing those controls, the Biden administration is taking a big step forward in defining the policy debate. But the pressure of election cycles can lead to policymaking that creates big spillover effects. As the US quickens its pace on tech controls, we are likely to see a ripple effect on US-China relations, existing US dialogues with like-minded technology partners, and on private industry in the months ahead.