President Biden’s nominee to lead the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) will need to advance offensive and defensive measures to curtail China’s ambitions to dominate modern technology markets. That was among the participants’ recommendations during today’s virtual roundtable, “Let the Chips Fall at BIS?”
The event, hosted by Dr. Roslyn Layton, featured Emily de La Bruyère, Senior Fellow at the Foundation for Defense of Democracies; Stephen Ezell, Vice President of Global Innovation Policy at the Information Technology & Innovation Foundation; and Will Hunt, Research Analysist at the Center for Security and Emerging Technology.
The event coincided with the release of the White House’s 100-day supply chain review report. Among the findings, the report highlights the Chinese government’s “massive subsidy campaign to develop its domestic semiconductor capability” and state-sponsorship of key industries that exploit “gray areas in international trade rules.”
The White House report is a “fantastic early step” to strengthen U.S. supply chain security, said de La Bruyère. But, she cautioned, China’s approach to semiconductors, particularly, does not simply revolve around subsidies. “China is weaponizing industries. It explicitly encourages companies to go out and integrate into industry chains to achieve positions of power.”
The BIS—which Dr. Layton calls the “most important agency most Americans have never heard of”—will play a leading role in countering the Chinese government’s ambitions and protecting U.S. leadership.
“China understand how important dual use technologies are,” explained Hunt. “The United States and its allies have ‘incumbent advantages,’” especially in upstream inputs, like semiconductor manufacturing equipment. U.S. policymakers ought to consider tighter controls in those areas, which will have an “eco-system wide” effect, he says.
“If we can apply narrow controls on input, which may hurt U.S. companies a little bit in the short term, it will have lasting national security benefits—which benefit businesses in the long-term.”
Participants roundly agreed that BIS must balance economic interest with national security, even though economic interests historically have often held greater weight in the policymaking process.
It’s important that U.S. policy “treat the causes rather than the symptoms,” Hunt says. He points to U.S. semiconductor manufacturing equipment (SME) makers like LAM, KLA and Applied Materials, which generate significant profits through sales to Chinese companies. ““The more multilateral, more rules-based approach that hopefully the Biden administration is going to deliver on is a really important way to increase level of certainty.”
China employs an “all-of-the-above” strategy to build its technological capabilities, Hunt cautioned. He points to the Chinese government’s “standing up companies like [Yangtze Memory Technologies] YMTC to go out and steal cyber information technology.”
The United States’ “piecemeal” export control framework, added de La Bruyère, has allowed Chinese companies to find workarounds. “It’s great that we are identifying this kind of thing, but it’s not just YMTC. Changxin Memory Technologies is equally propped up and potentially equally connected to the [People’s Liberation Army]… As long as we focus on a list or one industry, China will find workarounds.”
President Biden’s nominee to lead the BIS should “think differently than we have in the past and not be caught in old frameworks,” says de La Bruyère. The Administration’s nominee should have “a proactive vision for industry.”
Hunt cautioned that it will be a balance of finding a leader with new vision, who can also continue to build on ongoing transitions and “scale up the resources to meet current challenges.”
Ezell added that Congress should also pay attention to the 70-plus unfilled position at the agency, which are critical to carrying out the agency’s mission.
The participants all agreed that the private sector and U.S. allies must be part of the solution to China’s growing presence in technology markets. “Washington is not sufficient in its own,” said de La Bruyère.
Policymakers can learn from other industries, added Ezell. “The biggest challenge is that over the long-term, China wants absolute advantage, including in semiconductors. Finding creative ways to deal with that challenge is fundamental.”