Are America’s allies the holes in its export-control fence?

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Are America’s allies the holes in its export-control fence?

The Economist | October 16, 2023

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America makes no bones about wanting to stop China, its autocratic rival for geopolitical supremacy, from getting hold of advanced technology. On October 17th American officials extended restrictions on sales to the country of advanced microchips used in training artificial-intelligence (ai) models. This is the latest set of export controls designed to prevent cutting-edge tech that America helped create, meaning most of it these days, from making its way to the Chinese mainland. It also seeks to close a loophole, which allowed Chinese firms’ foreign subsidiaries to procure chips that their parents were barred from purchasing.

The loophole is almost certainly not the last one that will need closing. Just this month America itself created room for a few more. Last year it imposed sweeping restrictions that cut off people and firms in China from many advanced technologies of American origin, including types of cutting-edge chips, the software to design them and the tools to manufacture them. On October 9th it granted two South Korean chipmakers, Samsung and sk Hynix, indefinite waivers to install equipment that falls under these restrictions in their factories in China. Four days later TSMC, Taiwan’s chipmaking champion, also received a dispensation. The carve-outs were secured (and announced) by governments in Seoul and Taipei, which are keen to protect their domestic firms’ vast commercial interests in China. They also shine a light on the knotty nature of the American-led global export-control regime.

American sanctions’ global pretensions depend on the co-operation of allies. In principle, democratic governments in Asia and Europe are similarly wary of China, and are devising their own export controls. In practice, their policies are not always aligned with Uncle Sam’s. The result could be a mesh of rules that, once in place, would impose costs on technology companies without doing much to bolster national security in the way that the regimes’ architects envisioned.

Various national regimes diverge in other meaningful ways. American allies in Europe and Asia have not sought to copy the extensive, extraterritorial reach of American sanctions. As a result, Asian and European companies that wish to continue selling technology to Chinese customers can in theory establish subsidiaries in places without strict export controls (at least as long as these firms do not rely on American inputs).  The situation in Europe is complicated further by the division of responsibilities between national governments and the European Union.

Things get blurrier still when it comes to enforcing the rules. In most countries the bureaucratic capacity to police export-control regimes is limited.  The result is a mishmash of opaque rules and fitful enforcement actions. Manufacturers of sensitive technologies are left guessing about what business they can and cannot do with Chinese firms.  Lack of co-ordination may also explain why the system is not keeping high tech out of China as intended.  America’s efforts to co-ordinate some of its anti-Chinese restrictions have so far been much more piecemeal.  

3 key takeaways from the article

1. America makes no bones about wanting to stop China, its autocratic rival for geopolitical supremacy, from getting hold of advanced technology. It also seeks to close a loophole, which allowed Chinese firms’ foreign subsidiaries to procure chips that their parents were barred from purchasing.  The loophole is almost certainly not the last one that will need closing. Just this month America itself created room for a few more. 
2. American sanctions’ global pretensions depend on the co-operation of allies. The result could be a mesh of rules that, once in place, would impose costs on technology companies without doing much to bolster national security in the way that the regimes’ architects envisioned.
3. America’s efforts to co-ordinate some of its anti-Chinese restrictions have so far been much more piecemeal.  

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(Copyright lies with the publisher)Topics:  China, USA, Free Trade