WITH THE 20TH Party Congress starting on Sunday, the United States has timed two announcements that are only likely to reinforce the sense in Beijing that Washington is bullying it.
The more recent, the newly published unclassified version of the US National Security Strategy, identifies China as the main threat to US interests, saying it is the only country with both the intent and the means to reshape the international order.
It repeats a phrase used by US Secretary of State Antony Blinken earlier this year, emphasising how the United States must ‘invest, align and compete’ with China, which he described in the same speech as ‘the most serious long-term challenge to the international order’.
US President Joe Biden sees President Xi Jinping as an authoritarian leader who is antipathetical to Western democracy and needs to be checked not only by hard power but also by strengthening the US economy and its political institutions to negate Xi’s narrative that this is ‘China’s moment’..
The earlier announcement was regarding new restrictions on the export to China of US advanced technology, notably chipmaking equipment, published on October 7. These will significantly slow China’s development of advanced semiconductors and dependent technology, a high priority for Beijing for economic development and military applications.
They constitute a significant escalation in Washington’s confrontation with Beijing.
In both technology and security, Biden is making sure that the United States does not soften its focus on China, deflected by Russia’s invasion of Ukraine.
THE TRUMP ADMINISTRATION has moved to close the remaining loopholes through which Huawei Technologies has been able to acquire US-made semiconductors.
This provides something more akin to a knock-out punch than any blow the administration has landed on Huawei to date. Its goal is to sink Huawei’s smartphone and 5G businesses to their knees. Together they generate 90% of the telecom giant’s revenue.
With its latest measures, the US administration has, in short, rewritten its export control laws by expanding the Foreign Direct Product Rule. Now, not only can Huawei not buy US-made chips but cannot buy chips made by non-US firms that have been developed or produced with US technology, including software.
There was a milder, throat clearing version of this in May, which the China hawks in the administration say gave Huawei scope to go through third parties. In addition, a further 38 Huawei affiliates in 21 countries have been added to the Entity List, taking the total to 152 affiliates since Huawei was first included in May 2019.
The list is the US government’s economic blacklist of companies that need a special licence to do business with US firms; a temporary general licence for Huawei, intended to give its US customers time to transition from Huawei kit, expired last week.
Asian, European and even domestic Chinese chipmakers will now have to pick sides. Sharp falls today in the share prices of some of Huawei’s non-US suppliers provide a pointer to how painful that choice may prove to be.
With the latest blow to Huawei, China can be less confident of dominating 5G than it once looked set to be.
However, the new measures also raise business and compliance costs for all technology companies. They will need to monitor the full-length of their value chains from development to the final sale to end-user. For the increasingly active China-hawks in the White House, that will be the cost of collateral damage.
The outstanding question is whether Beijing will back off its recent restraint in the face of their provocations and unleash meaningful retaliation against US companies operating in China.
THE TRUMP ADMINISTRATION is ratcheting up another notch its efforts to prevent China from acquiring US technology that could be used to modernise its military.
There is no lockdown in the rivalry between the two countries.
The US Commerce Department has announced that US companies will henceforth need licences to sell certain items to Chinese companies that supply the People’s Liberation Army. The permits are required even if the export is purportedly for civilian use and the buyer a non-military firm. The new rules also close a loophole that has allowed products that would require an export licence for sale to a military buyer to be exported licence-free to a civilian end-user.
The new rules have been trailed for some weeks, but were formally published today.
The US Commerce Department details the changes thus:
Expansion of Military End Use/User Controls (MEU)
Expands MEU license requirements controls on China, Russia, and Venezuela to cover military end-users in all three countries, as well as items such as semiconductor equipment, sensors, and other technologies sought for military end use or by military end-users in these countries.
Removal of License Exception Civil End Users (CIV)
Removes a license exception for exports, reexports, or transfers (in-country) to civilian end-users in countries of national security concern for National Security- (NS) controlled items.
Elimination of License Exception Additional Permissive Reexports (APR) Provisions
Proposes to eliminate certain provisions of a license exception for partner countries involving the reexport of NS-controlled items to countries of national security concern to ensure consistent reviews of exports and reexports of US items.
The rule change broadens the definition of a military end-user considerably by including the civilian supply chain. US exporters of semiconductors, chip-making equipment and parts for vehicles and aircraft will have to look carefully at their customers and, in turn, their customers’ customers.
The new rules also apply to Russia and Venezuela, if not seemingly Pakistan, Iran and North Korea, all three of which have also been the subject of export-control-violation legal sanctions by the Trump administration.
However, they seem most clearly intended for China. The evolution of the official language used to describe a mandate of the Bureau of Industry and Security (BIS), the agency that administers such export controls, to restrict ‘the rise of destabilizing foreign militaries’ to restricting ‘destabilizing military modernization programs’ is the giveaway.
In truth, it has been hiding in plain sight. US Commerce Secretary Wilbur Ross said flatly last July:
We are alert to China’s civil−military fusion strategy, and understand China’s tenacious pursuit of American technologies it needs to modernize its military. This cannot be tolerated, and we are updating our export control policies to account for this very real threat.
The Export Control Reform Act of 2018, passed with bipartisan support, elevated national security considerations in trade policy as the Trump administration sought to keep emerging and foundational US technologies out the hands of China and its military in particular. The latter is an increasingly difficult task given the relentless narrowing of the boundaries between civilian and military technologies.
That makes rules like the ones newly announced more inevitable but also more of a risk to legitimate trade. The economic impact of the new regulations is unknown at this point. The US Commerce Department is allowing a comment period to gather information on that. The BIS is required to take account of both the economic impact on US firms of its actions and US national security, though the latter is its paramount responsibility. US high-tech exports to China are worth around $2 billion a year.
The expansion of the BIS’s Entity List of companies with which US firms cannot sell sensitive technologies is the other part of that. More than one-quarter of some 200 companies added to the list during the Trump administration are Chinese firms such as Huawei and ZTE.
China Bystander 