Last week President Biden nominated Alan Estevez to head the Department of Commerce’s Bureau of Industry and Security (BIS). The decision will largely shape the outcome of the United States’ power struggle with China.
If confirmed by Congress, Mr. Estevez will inherit the tall order of managing strategic trade controls, a critical line of defense to prevent America’s adversaries from acquiring and weaponizing sensitive U.S. made technologies. The position requires a deft hand to decide when national security implications trump industry interests (read: profits).
By most accounts, Mr. Estevez—a dark horse among potential nominees—has a background well suited to the position. A 36-year veteran of the Pentagon, Mr. Estevez held several senior leadership positions, including Principal Deputy Undersecretary of Defense for Acquisition, Technology and Logistics under President Obama. In that role, he oversaw supply chain security, logistics and material readiness—fitting experience to lead the agency charged with protecting U.S. technological advantages.
President Biden’s pick of Mr. Estevez further signals his Administration’s commitment to preventing the Chinese government and its proxies from exploiting trade with the U.S. to bolster the country’s military. Last month President Biden signed an executive order banning U.S. investment in 59 Chinese companies with ties to the People’s Liberation Army. This month the U.S. Commerce Department added another 14 Chinese companies to the U.S. Entity List. Mr. Estevez’s nomination, notably his breadth of experience in supply chain security, suggests all tools are on the table.
However, little is known about Mr. Estevez’s positions on China, particularly the government’s Military-Civil Fusion strategy and its ambitions to dominate modern technology markets. The U.S. Senate Banking Committee, which will oversee Mr. Estevez’s confirmation, could ask direct questions about the export controls to prevent Chinese state-owned companies from stealing sensitive dual-use technologies.
During a roundtable forum last week hosted by China Tech Threat, which coincided with the White House’s announcement, four former BIS directors— William Reinsch (Clinton), Mario Mancuso (George W. Bush), Eric Hirschhorn (Obama) and Cordell Hull (Trump)—roundly agreed that semiconductors, which are among the top U.S. exports, must be a priority.
Semiconductors are “clearly at the top of the list” of the Chinese government’s interests, Mr. Mancuso said. “For a long time there has been an unwillingness to call out the Chinese government on its activities,” but the BIS’ use of export controls is “evidence of the U.S. showing up in a very important struggle… and just the tip of the iceberg.”
“China has demonstrated its determination” to “produce their own technologies without relying on U.S. equipment,” Mr. Reinsch added, which puts a greater burden on our licensing authorities. “The dilemma in the semiconductor sector… is that China is simultaneously the biggest threat and the best customer.”
As I noted last fall, U.S. semiconductor manufacturing equipment (SME) makers, which provide the tools to produce sophisticated chips, have enjoyed windfall sales to China. Chinese spending on SME grew an astonishing 50 percent in 2019, according to an Applied Materials earnings call last year. Lam Research ships more equipment to China than any other country, about half of which go to state-owned companies working with the country’s military.
“[SME makers] don’t care where demand is coming from,” Risto Puhakka, President of VLSI Research, said. “As long as the ducks are quacking they are generally not concerned where the end market resides.” That assessment was reinforced by Lam Research’s CFO, who admitted China’s demand “has to be satisfied by somebody.”
But as Mr. Hirschhorn told me during last week’s forum, “You don’t balance national security with sales—you can’t.” In other words, at some point the United States’ national security interests must be put ahead of companies’ short-term profits, which likely will require federal controls. Foxes cannot guard the hen house.
The four former BIS directors agreed that stopping the flow of dual-use technologies into the hands of Chinese state-operated companies will require a two-pronged approach. First is multilateral cooperation among likeminded democratic nations.
“It doesn’t do us much good if six countries make something, and we’re the only ones who are refusing to sell it to China,” Mr. Hirschhorn explained. “Multilateralism is the only thing that will work. Otherwise it’s the equivalent of damming half a river.”
The second priority must be increasing investment in U.S. chip design and production capabilities, which is necessary to match China’s spending into its semiconductor industry. The CHIPS Act, which was introduced by Senator Mark Warner (D-VA) and Senator John Cornyn (R-TX) and earned President Biden’s support, seeks $50 billion of investment in U.S. chipmaking capabilities. Some experts argue that even more is needed.
These efforts will take time. In the interim, export controls provide a key policy lever to stop China’s acquisition of sensitive U.S.-made technologies, which elevates the role Mr. Estevez may assume. Mr. Hull summed it up well: “Export controls are one leg in a whole-of-government approach”—but an important leg.
*This piece was originally published in Forbes.