US Should Take More Balanced Approach on Chip Controls, Report Says

Aggressive new U.S. export controls on advanced computing chips and the equipment to manufacture them are having unintended side effects and may be causing more harm than good for Western companies, a Brussels-based think-tank said.

The controls, which the Bureau of Industry and Security released in October 2022 and expanded a year later (see 2310170055), are designed to prevent China from obtaining critical technology to enhance its military capabilities. Last year's revisions "expand the criteria for restricted chips, including performance metrics and intended use, and extend the geographic scope to cover additional countries, aiming to limit the diversion of technology through third countries," the European Center for International Political Economy (ECIPE) wrote in a new report.

But many American and European companies already have “felt the sting of these policies, with significant revenue streams at risk due to restrictions on sales to China," said the report, "Time to Rethink Export Controls for Strengthened U.S.-EU Cooperation and Global Trade Rules." Netherlands-based ASML, for example, has reported that the controls have crimped the sale of its lithography machines to China, a key market (see 2310200034, 2401020012 and 2401020012).

China, which European chipmakers rely on for raw materials, has responded to the controls by imposing export restrictions on gallium and germanium (see 2307050018), though an EU official said in October that the union had received assurances that Beijing would grant export licenses for shipments of the two metals to European businesses (see 2310030035).

The U.S. Semiconductor Industry Association said in December that China had seen a sharp uptick in domestic orders for chips and chipmaking equipment following the most recent U.S. controls, potentially jeopardizing sales to the American semiconductor industry’s largest market (see 2312130052). U.S. chipmaker Nvidia has said the controls will affect some of its products (see 2310180013).

Additional U.S. controls could further hurt Western companies and invite more Chinese retaliation, the ECIPE report said. They also could spur protectionist measures in Europe and encourage European companies, such as those in automotive, chemical and smart manufacturing, to redirect investments toward China, "thereby weakening the EU’s strategic autonomy."

"The situation also endangers joint research efforts between the EU, the U.S. and China on cutting-edge technologies by making European access to essential U.S. technology contingent on policy compliances," the report said. "Such actions would exacerbate global technological disparities and resource distribution, impacting the pace and scope of research cooperation and technological advancements worldwide."

The report recommends that the U.S. work with the EU to adopt a more “nuanced approach” that balances national security concerns with the need to remain economically competitive.

“Tight U.S. export controls risk handing market dominance to competitors, especially Chinese firms, who can undercut prices and capture global market share,” the report said. “Such a scenario underscores the need for the U.S. to collaborate closely with international partners to ensure that export controls are both effective and non-detrimental to vital economic policy objectives.”

The Biden administration has defended its approach. A BIS official said in November that while the agency prefers to implement chip controls alongside allies, national security concerns meant that it couldn’t afford to delay its most recent controls as other nations considered them (see 2311150029).