Our So-Called Foreign Policy: For Banning All U.S. High Tech Sales to China

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Biden administration, China, Chips Act, Defense Department, export controls, national security, Our So-Called Foreign Policy, semiconductor manufacturing equipment, semiconductors, tech

Just as my good buddy Ace recently gave me a great idea for a post on U.S. Ukraine policy, my equally good buddy Swifty (a finance guy) yesterday gave me an equally great idea – about how to ensure that U.S. curbs on sales of high tech equipment to China really put the hammer on the semiconductor industry being built in the People’s Republic. And interestingly, it mirrors an idea that I proposed many years ago for America’s human rights policy – government compensation for American-owned firms that lose business due to such limits.

In recent months, Washington has made major – albeit incredibly belated – progress in cutting off such American aid to Chinese tech manufacturers, whose burgeoning capabilities of course will boost China’s military power and potential. Important restrictions on what U.S.- and foreign-owned businesses can supply to China’s microchip entities are contained both in the bill signed by President Biden to boost semiconductor manufacturing in the United States, and in a sweeping set of restrictions on what both U.S.- and foreign-owned firms can supply to China’s microchip entities.

But even if these new policies are adequately enforced – always a big question surrounding American efforts slow China’s tech progress – they suffer two related weaknesses stemming from their tight focus on the highest end semiconductors and the equipment needed to make them. First, the vast majority of chips in use today – including in military systems – are lower-tech, so-called “legacy” chips, and China’s growing presence in the global market for these devices can create dangerous vulnerabilities itself.

Second, any sales of the machinery and software needed to make these legacy chips is bound to wind up helping teach Chinese scientists and engineers how to make their more advanced counterparts.

And this is where Swifty’s idea comes in. As he noted, it needs to be America’s goal to cripple China’s ability to make any type of semiconductor, and to completely shut down its learning opportunities. The big obstacle to imposing the broader controls needed to achieve this goal? The fact that this step would drive U.S.-owned companies that make semiconductor manufacturing equipment out of one of their biggest markets.

Swifty’s recommendation? Compensate them for these losses – at least until they can recoup them by selling to friendly countries to which chip production that’s under pressure from U.S. restrictions moves from China. He adds that such payments would be eminently affordable.

After all, even though the China market is enormously important to these firms, the China revenues they say they’ll lose are drops in the bucket compared with the mammoth scale of overall U.S. government spending, and even of the U.S. defense budget. (For some company-specific figures, see, e.g., here and here.)

That last point is particularly critical. For knee-capping China’s tech prowess is vital to U.S. national security. So think of these payments as defense spending – since it’s at least as important to prevent China from deploying lots of high tech weapons on the battlefield in the first place as to develop ways to fight them on the battlefield.

This national security perspective also matters greatly for dealing with another possible outcome of this greatly escalated U.S. strategy of denial – sabotage by American allies whose tech companies try to take advantage of U.S.-owned firms’ exit from China. Although the Biden administration has given some of them temporary exemptions, so far, the rest seem to be abiding by the new Biden administration rules – even in one case in which a loophole may well exist. But if they balk at wider restrictions, they should be told that their actions could wind up enabling Chinese forces to kill Americans in combat, and that they can’t expect continued U.S. protection if they persist. 

Way back in the early 1980s, I wrote that if the United States was serious about human rights policy, compensation should be paid to American-owned companies that lose foreign business in dictator-ruled countries subjected to U.S. economic sanctions. If Swifty’s similar approach isn’t used for China tech policy, it’ll be difficult to claim that the nation is serious about its national security.        

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Our So-Called Foreign Policy: Is Biden Learning the Limits of Multilateralism?

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Afghanistan, alliances, allies, America First, ASML, Biden, Biden administration, Blob, China, Chips Act, Europe, export controls, Japan, multilateralism, NATO, North Atlantic treaty Organization, oil, oil price, OPEC, Our So-Called Foreign Policy, Saudi Arabia, semiconductors, South Korea, Taiwan, Ukraine War

Remember the buzz worldwide and among the bipartisan globalist U.S. foreign policy Blob that Donald Trump’s defeat in the 2020 presidential election heralded the start of a new golden age of America’s relations with its longstanding security allies?

Remember how President Biden himself pushed this line with his claim that “America is back” and that Washington would end the supposed Trump practice of denigrating and even rupturing these relationships, and resume its post-World War II strategy of capitalizing on these countries’ strengths and fundamental agreement with vital American interests to advance mutually beneficial goals?

Fast forward to the present, and it’s stunning how thoroughly these American globalist hopes – and the assumptions behind them – have been dashed.

The latest example has been Saudi Arabia’s rejection of Mr. Biden’s request to delay an increase in oil prices announced by Riyadh and other members of the OPEC-Plus petroleum producers cartel. It’s true that few Americans currently view the Saudis as ideal allies. Continuing human rights abuses and especially evidence that its leaders ordered the assassination of a dissident Saudi-American journalist – and coming on top of revelations of Saudi support for the September 11 terrorists and Islamic extremism more broadly – will do that. Indeed, candidate Biden had even promised to make Saudi Arabia as a “pariah.”

But follow-through? Forget it – largely for fear of antagonizing the Saudis precisely because of their huge oil production and reserves, and because the President evidently still viewed them as a key to countering Iran’s hegemonic ambitions in the energy-rich region.

As for Saudi Arabia, it and much closer allies (including in Europe) were far from enthralled with how Mr. Biden pulled U.S. forces out of Afghanistan – which they charge took them by surprise and seemed pretty America First-y.

Under President Biden, the United States appears to have performed better in mustering allied support for helping Ukraine beat back Russia’s invasion. But look beneath the surface, and the European contribution has been unimpressive at best, especially considering that Ukraine is located much closer to the European members of the North Atlantic Treaty Organization (NATO) than is the United States.

In particular, according to Germany’s Kiel Institute for the World Economy, which has been tracking these developments since the war began, to date,

 “The U.S. is now committing nearly twice as much as all EU countries and institutions combined. This is a meagre showing for the bigger European countries, especially since many of their pledges are arriving in Ukraine with long delays. The low volume of new commitments in the summer now appears to be continuing systematically.”

In fact, European foot-dragging has reached the point at which even Mr. Biden’s Treasury Secretary, Janet Yellen, has just told them (in diplospeak of course) to get on the stick.

Apparently, America’s allies in Asia as well as Europe have hesitated to get behind another key initiative as well: Slowing China’s growing technological progress in order to limit its potential militar power.

In a September 16 speech, White House national security advisor Jake Sullivan confirmed that the United States had officially doubled down on this objective:

“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.”

And on October 7, the United States followed up by announcing the stiffest controls to date on doing business with Chinese tech entities – controls that will apply not only to U.S.-owned companies, but to other countries’ companies that use U.S.-owned firms technology in high tech products they sell and high tech services they provide to China.

Including these foreign-owned businesses in the U.S. sanctions regime – as well as in parallel efforts to rebuild American domestic capacity and marginalize China’s role in these sectors – is unavoidable for the time being, since the domestic economy long ago lost its monopoly and in some cases even its presence in the numerous products vital to semiconductor manufacturing in particular.

But as the Financial Times reported last month, a year after Washington drew up plans to create a “Chip 4” initiative to work with Taiwan, Japan, and South Korea to achieve these goals, “the four countries have yet to finalise plans even for a preliminary meeting.”

The prime foot-dragger has been South Korea, which fears Chinese retaliation that could jeopardize its massive and lucrative trade with the People’s Republic. But the same article makes clear that Japan harbors similar concerns.

Also unenthusiastic about the U.S. campaign is the Dutch manufacturer of semiconductor production equipment ASM Lithography (ASML). ASML’s cooperation is crucial to America’s anti-China ambitions because it’s the sole global supplier of machines essential for making the world’s most advanced microchips.

So far it’s been playing along. But similar complants about possibly losing business opportunities in China – which may account for nearly half of the world’s output of electronics products along with much of its production of less advanced semiconductors – have already persuaded the Biden administration to give some South Korean and Taiwanese microchip manufacturers a one-year exemption from the new export curbs. Could ASML try to win similar leniency?

In fairness, the Biden administration hasn’t wound up placing all its foreign policy bets on alliances and securing multilateral cooperation. Indeed, its new National Security Strategy re-states the importance of rebuilding American economic strength as a foundation of foreign policy success; the legislation it successfully sponsored to bolster the United States’ semiconductor and other high tech capabilities put considerable money behind that approach; and to its credit, it announced the new China tech curbs even after it couldn’t initially secure adequate allied cooperation – assuming, correctly, that an act of U.S. leadership could bring start bringing them in line.

Hopefully, a combination of these rifts with allies and its recognition of the importance of maintaining and augmenting national power mean that President Biden at least is learning a crucial lesson: that supporting multilateralism and alliances can’t be ends of a sensible U.S. foreign policy in and of themselves. They can only be means to ends. And although they can obviously be valuable in many instances, the best ultimate guarantor of the nation’s security, independence, and prosperity are its own devices.       

Making News: Podcast Now On-Line of National Radio Interview on Reviving U.S. Semiconductor Making…& More!

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antitrust, Biden, CBS Eye on the World with John Batchelor, China, Chips Act, competition, conservatism, Gordon G. Chang, infotech, innovation, Jobs, manufacturing, microchips, near-shoring, reshoring, semiconductors, tech, Trade, {What's Left of) Our Economy

I’m pleased to announce that the podcast is now on-line of my appearance on last night’s nationally syndicated “CBS Eye on the World with John Batchelor.”

Click here for a timely discussion with John and co-host Gordon G. Chang, about whether a massive new array of subsidies and incentives just signed into law by President Biden will indeed revive American microship production, and prevent U.S.- and foreign-owned semiconductor companies from setting up state-of-the-art operations in China.

In addition, it was great to see IndustryToday.com reprint (with permission, as required!) my recent post on some of Mr. Biden’s factually challenged claims about the economy’s performance during his presidency. Here’s the link.

Finally, I’m honored to have been invited to speak at a big conference to be held in Miami, Florida on the future of American conservatism – including what it should be. My talk, on “An America First Approach to Trade and Competition,” is so far scheduled for Sunday, September 11. But sometimes these plans get reshuffled, so I’ll post any updates as soon as they become available. In the meantime, click this link for the rest of the agenda, and the all-star cast of speakers that’s been lined up, at this link. 

And keep checking in with RealityChek for news of upcoming media appearances and other developments.