The House Intelligence Committee held a hearing on the subject of microelectronics and national security. The witnesses included the Center for Security and Emerging Technology’s Will Hunt, Semiconductor Industry Association’s David Isaacs, and former Deputy Under Secretary of Defense for Research and Engineering, Dr. Lisa Porter.
The hearing was yet another opportunity to shine light on the critical topic of the U.S semiconductor equipment manufacturing (SME) market and the government’s role in it. However, at China Tech Threat, we were concerned with a variety of comments, most notably from Dr. Porter, that encouraged noninterference in the market, even when national security concerns are of grave consideration for the protection of all Americans. It appears that Dr. Porter is espousing a view of perfect competition, but that is an economic model which requires homogenous goods, perfect information, and ease of market entry and exit. When it comes to China, none of those conditions hold. Moreover, the model presumes that market actors are not military adversaries; whereas the U.S. and China are.
As China Tech Threat has explored, through its research and reports, export controls are a critical element of the SME industry and vital in keeping critical technology out of the hands of our largest adversaries and their militaries.
However, Dr. Porter, a noted defense leader, appears to misunderstand the purpose of these export controls. She asserts, “Intervention through the use of export controls to try to prevent technology transfer often backfires in two important ways. It incentivizes others to build indigenous capability and it shelters our companies from international competition, while limiting their access to global markets.”
This over simplified explanation of export controls could lead to a dangerous misunderstanding of their use and, most notably, China’s reaction to them. Specifically, while restricting supply could create incentives to build indigenous capacity, this is all a matter of degree. China is not interested in competing with best-in class technology. They want the cheapest technology. For example, China is not interested in making thinner wafers if they can merely compete on cheaper wafers. The US can and does face competition from Japan, South Korea, Netherlands, but these countries are our friends, not adversaries. We would not restrict supply to them; we are competing vigorously.
Export controls are an important tool of statecraft used since the American revolution. In the 20th century, they have become more sophisticated to incorporate arms and weapons of mass destruction components . If anything, the enforcement of export controls is likely too weak. In fact, Congress updated and strengthened this regime in 2018 at the behest of voters, but the relevant agency, the Bureau of Industry and Security at the Department of Commerce has not implemented the law fully. For example, there is preponderant evidence that semiconductor fabs Yangtze Memory Technologies (YMTC) and ChangXin Memory Technologies (CXMT) should be designated as Military End Users, if not Entity List actors, for their ties to the Chinese military, but firms like Applied Materials, KLA, and Lam Research continue to provide them cutting edge technology.
As Mr. Hunt noted in the hearing, China remains a threat in this area: “The United States’ large pool of foreign-born talent also raises the possibility of espionage. The Chinese Government in particular has a vast infrastructure devoted to transferring S&T knowledge from the United States and other countries to China.”
Moreover, Mr. Isaacs summarized this point, saying, “We have fundamental vulnerabilities in manufacturing and materials and other parts of the supply chain. And part of that is due to the fact that our global competitors are heavily investing in this area. They are seeking to displace U.S. leadership.”
The hearing clearly showed that the threat of China in the SME space is important and growing. In response to this threat, not using export controls is a mistake. We encourage Dr. Porter to think beyond abstract economic theory to the actual measures which can ensure the privacy, prosperity and safety of Americans.