Summarizing CSET on Security Without Collateral Damage

Saif M. Khan is a leading tech policy expert with a background in intellectual property law and an education in physics. A Research Fellow at Georgetown’s Center for Security and Emerging Technology (CSET), he studies AI policy, semiconductor supply chains, China’s semiconductor industry and U.S. trade policy. Khan has written many, highly detailed reports which reflect on the importance of export controls and the Bureau of Industry and Security (BIS). He recently told China Tech Threat:

“It is important for policymakers to have a deep understanding of both the complexities of export control regulations as well as the relevant technologies and supply chains to ensure export controls are crafted in a targeted way to achieve their intended security goals while minimizing collateral effects. This is especially true in the domain of semiconductors, where supply chains are incredibly complex. For semiconductors specifically, it is also important to recognize the immense security concerns over China’s attempts to rework global supply chains in its favor.”

Khan’s latest report, China’s Progress in Semiconductor Manufacturing Equipment: Accelerants and Policy Implications (March 2021 with Will Hunt and Dahlia Peterson), offers a security checklist for the future head of BIS. Working with allies and with the tools of BIS, the US can leverage China’s dependence on advanced chips and counterbalance China’s violation of human rights and its threats to international security. The reports specifically recommends:

  • Continue screening foreign investments in semiconductor manufacturing equipment (SME) firms and work with allies to harmonize investment screening practices. This will prevent Chinese firms from strategically acquiring companies possessing sensitive tacit and explicit knowledge and transferring that knowledge back to China.
  • Tighten and control the export of technical data to China which would reduce China’s access to explicit knowledge.
  • Reduce China’s access to critical components required to build advanced SME by imposing export controls on these components. Examples include specialized light sources, laser amplifiers, and optics used to build extreme ultraviolet (EUV) and specialized light sources used to build argon fluoride immersion photolithography tools. China is already attempting to indigenize photolithography components, but robust controls would ensure Chinese firms cannot short-circuit this years-long and expensive process by importing these components instead. The US and allies need to coordinate on this.
  • Work with allies to control the export of SME, especially any SME that China has yet to acquire. These controls would deny China the ability to reverse-engineer SME, an important source of explicit knowledge. Controls on SME would also slow the development of advanced Chinese fabs, weakening China’s semiconductor ecosystem.
  • Prioritize assessment of SME component chokepoints, their value-add to SME, and vectors of technology transfer. These assessments would reveal additional policy options, including further SME components to target with export controls.
  • Study and promote transparency on Chinese government subsidies for SME. If such subsidies are found to be illegal under World Trade Organization (WTO) rules, the United States can consider challenging them. At a minimum, the United States and its allies can consider reducing export controls if China reduces its subsidy programs.
  • Work with allies to promote continued SME innovation through investments in R&D and workforce development. For now, leading SME firms based in the United States and allied countries enjoy an incumbency advantage: unlike Chinese SME firms, they have access to critical product feedback and revenues derived from sales to leading global semiconductor fabs. Workforce and R&D investments would help accelerate the pace of SME innovation, allowing US and allied firms to sustain their incumbency advantage in the years ahead.

While BIS may have the tools and authority to impose restrictions, US companies still find work arounds, as China Tech Threat describes in its recent paper with the Coalition for a Prosperous America. For example, semiconductor equipment manufacturers like Applied Materials, KLA, and Lam Research sell to Yangtze Memory Technologies (YMTC) and ChangXin Memory Technologies (CXMT), companies which should be designated as Military End Users, if not Entity List actors, for their ties to the Chinese military. But as the CFO of Lam Research said, China’s demand “has to be satisfied by somebody.” This underscores the need for tough enforcement by BIS to ensure Americans’ security as US some companies inevitably prioritize their profits above Americans’ security.