US tries to enlist allies in assault on China’s chip industry

In his first public remarks after the US targeted China’s chip industry with harsh unilateral export controls, a commerce department official said America hoped to strike a deal with allies on more controls in “the near term”.

Speaking at the Center for a new American Security think-tank three weeks after the introduction of the October 7 measures, Alan Estevez, under-secretary of commerce for industry and security, cited talks with the Netherlands and Japan on the imposition of restrictions on the export of chipmaking tools to China.

The Biden administration has been trying to reach a trilateral deal with its allies for well over a year, as part of its strategy to make it much harder for China to develop advanced semiconductors needed for military purposes.

Some were surprised that the US pressed ahead with the October 7 controls before reaching a trilateral deal with Tokyo and The Hague that would complement its broader effort to slow the Chinese chip industry.

The chipmaking tool market is dominated by three US firms — Applied Materials, Lam, and KLA — in addition to Tokyo Electron in Japan and ASML in the Netherlands. Estevez said the unilateral action, which will hit the US groups, showed how seriously Washington was treating the issue.

“We were willing to go this alone as a downpayment and show that we had skin in the game while we’re having the discussions with our allies,” he said.

The three countries have yet to reach an agreement partly because Japan and, particularly, the Netherlands want to make sure their companies are not disadvantaged.

Asked if the US had given the allies a deadline for a deal before it moved unilaterally, Estevez said: “We don’t go into these discussions in a coercive manner. They’re our allies. I will say I like sake and I like Dutch beer.”

Commerce secretary Gina Raimondo later said the Netherlands and Japan would “follow our lead”, but Bloomberg reported that she told industry that it could take as long as nine months.

Estevez and Tarun Chhabra, the White House national security official who drove the October 7 policy, will visit the Netherlands this month to push for an agreement, according to several people familiar with the plan.

The nations were close to a tentative deal earlier this year that would have barred exports of tools capable of making 10 nanometer chips, according to people familiar with the talks. But The Hague was less willing after the US stressed the need to have a lower bar of 14nm — a less advanced chip — which partially matches the October 7 controls.

One person familiar with the issue said Washington felt more urgency to set the threshold at 14nm after Semiconductor Manufacturing International Corp, the top Chinese chipmaker, developed a 7nm chip. Imposing a 14nm threshold would make it harder for SMIC to develop more advanced chips, particularly at a cost-effective production yield.

Another person said The Hague also grew frustrated in September when Jake Sullivan, national security adviser, said in a speech that the US should abandon its existing “sliding scale” approach of staying two generations of chips ahead of rivals and instead try to “maintain as as large of a lead as possible”. His comments suggested Biden was going to take a more aggressive approach than some allies had expected.

The US commerce department and the Dutch government would not comment. Japanese trade minister Yasutoshi Nishimura recently said Tokyo was talking to the US about how to “respond appropriately”.

Martijn Rasser, a technology and national security expert at CNAS, said he was “bullish” about a deal.

“Japan and the Netherlands have the same strategic interests at stake and it’s in their long-term interest to coordinate with Washington to manage the China challenge and the specific military threats in question,” he said.

The Biden team has had success convincing previously nervous European and Asian allies about taking a stronger stance on China. But it remains unclear if Tokyo and The Hague, or other allies, will be willing to go as far as US officials have suggested is feasible.

“Because of the boldness and sweep of these new controls and the hints of more maximalist US objectives to kind of fundamentally contain China’s technology development, these controls are going to test that theory,” said Jon Bateman, a technology expert at the Carnegie Endowment for International Peace.

Emily Kilcrease, a trade and security expert at CNAS, agreed it was unclear if US allies would go along with the new approach outlined by Sullivan.

“One question is whether any partners or allies would implement controls consistent with the new US strategy of keeping China as far behind as possible,” she said. “Is anyone else on board with this aggressive strategy?”

Masahiko Hosokawa, a former Japanese trade ministry official, said the US, Japan and EU countries, including the Netherlands, had been discussing a joint framework for months before the US caught its allies by surprise with the unilateral move. US officials stress that they briefed allies in advance.

“The US jumped the gun due to domestic political circumstances and because its negotiations with Europe were taking longer than expected,” said Hosokawa, a professor at Meisei University.

Hosokawa said Tokyo was aligned with Washington on the broader framework, but cautioned that Japanese legal constraints made it difficult for Tokyo to implement controls without international consensus.

Jim O’Brien, a state department official, recently told the FT that the US was “starting robust discussions” with Japan, Korea, the EU, Canada, and the UK about the appropriate approach for dealing with China.

Another question is whether Washington will try to convince allies to impose other controls, such as replicating a ban the US imposed on its companies and citizens providing services to Chinese chipmakers.

“The new prohibitions will be counterproductive and also ineffective unless the US . . . can convince, at a minimum, the Dutch and the Japanese governments to use their ‘catch-all’ authorities to prohibit their citizens and companies from providing the same types of services and items,” said Kevin Wolf, an export controls lawyer at Akin Gump .

Wolf said Tokyo and The Hague would have the legal authority to impose such controls because of the connection the US government had made between advanced chips and Chinese programs on weapons of mass destruction.

“All that is needed is the political will to use them.”

Additional reporting by Henry Foy in Brussels

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