'No line to be drawn' in tech war with China, says former Commerce Department BIS official

Misha Lu, DIGITIMES Asia, Taipei 0

Credit: AFP

US-China relations hit a new low in February as Washington added six Chinese companies to its Entity List in connection with the balloon incident. To complement the export controls against the Chinese chip industry introduced by the US in October 2022, Washington has been in negotiations with allies like Japan and the Netherlands to tighten the screw on China's civil-military fusion program, with recent announcements suggesting that China won't be able to obtain advanced immersion lithography machines from the Netherlands-based ASML.

Though the latest technology war between the US and China has long been underpinned by military and defense considerations, on the forefront one finds the US Department of Commerce, specifically the Bureau of Industry and Security (BIS) that publishes the Entity List.

Talking to DIGITIMES, Nazak Nikakhtar, who served as the Assistant Secretary for Industry and Analysis between 2018 to 2021 while also fulfilling the duties of the Under Secretary for the BIS, saw the possibility of wider sanctions against China in the future to close current loopholes. Currently, Nikakhtar serves as a senior fellow at Krach Institute for Tech Diplomacy.

"There are specific gaps in the rules and those will inevitably be fixed after reports are made public about China's continued acquisition of sensitive semiconductor technology," said Nikakhtar. "A number of companies have received exemptions from compliance with the new export control rules so that will need to be addressed as well."

"We have to be stronger relative to all of our adversaries"

The process to sanction Chinese military industrial complex revved up several years ago when Washington began imposing more severe restrictions on Chinese military-industrial complex entities through Entity List designations, outbound capital flow restrictions, and National Defense Authorization Act (NDAA) designations, Nikakhtar noted.

To contain Chinese military technology development, the former Under Secretary believes that import restrictions are also an option to starve the Chinese military-industrial complex of export revenue. "The development of better sanctions authorities to target malign activities in the PRC will be pursued in the near term, I believe," said Nikakhtar.

When asked where the US would draw the line and declare victory as restrictions against the Chinese chip sector continue to pile up, Nikakhtar indicated that "There is no line to be drawn."

"We have to be stronger relative to all of our adversaries that have declared their intent to harm the United States, individually or collectively," stressed the former head of the BIS. The view coincided with the remark made by a former high-ranking TSMC official who observed that recent US sanctions have been more driven by gaining a relative upper hand instead of gaining true technological leadership.

As the US rallies Japan and the Netherlands to join forces in strengthening the semiconductor equipment sanctions against China, Nikahtar observed that US allies don't always share the same sense of urgency felt in Washington. "I would prefer that our allies appreciate the threats in the same way as the US and understand the need to act quickly," she said.

According to Nikakhtar, US allies don't need to leverage export controls per se to restrict technology transfer to China. "They may opt to impose technology transfer restrictions through other legal mechanisms, consistent with their own domestic regulations, but inaction is not an option."

Martijn Rasser, a senior fellow and director at US think tank Center for a New American Security and a former senior intelligence officer at the CIA, noted to DIGITIMES that "US officials made their case with the Hague and Tokyo. The Netherlands and Japan will take action as sovereign states in accordance with their national interests and their national security priorities."

An Indo-Pacific supply chain strategy has yet to take shape

However, when asked if there's a need for a binding international framework to better coordinate export controls, especially as the Wassenaar Arrangement is non-binding, Nikakhtar lamented that the notion that an enforcement tool is needed to compel allies to act in mutual national security interest is "quite disappointing."

Similarly, when it comes to the US-initiated "Chip 4 Alliance" that also includes Taiwan, Japan and South Korea, the former Under Secretary regards allies' commitment to be crucial, indicating that if US allies permit China to acquire their industries through FDI, for example, "then the framework of an alliance will become brittle very fast."

With the passing of the CHIPS Act and Washington's various efforts to boost supply chain resilience, Nikakhtar noted the optimism within the country. Nevertheless, many challenges remain to be overcome, including if the new fabs can find enough educated workforce and have enough raw materials to produce chips. Indeed, as a former TSMC official once observed, the best and brightest of US semiconductor talents often don't go into the chip fabrication sector.

In addition, Nikakhtar cautioned against competition from China's low-price dumping strategy, "We may need import restrictions to prevent Chinese predatory pricing practices to undermine the investments that US and allied companies are making in the US," suggested Nikakhtar.

Regarding the possibility of formulating an Indo-Pacific strategy for supply chain resilience, the former head of BIS commented "We are far from that," pointing to the current US focus to contain China. However, Nikakhtar believes that coordinated supply chain resilience efforts will come next. "They are in the process of developing, but it will take longer."

Credit: ROKK Solutions

From 2018 to 2021, Nazak Nikakhtar served as the US Department of Commerce's Assistant Secretary for Industry & Analysis at the International Trade Administration (ITA). Nikakhtar also fulfilled the duties of the Under Secretary for Industry and Security at Commerce's Bureau of Industry and Security (BIS). In these roles, she shaped America's international trade and national security policies as the U.S. Government's top official for trade policy and economic competitiveness, supply chains, and export controls on dual-use items and technologies. Credit: ROKK Solutions

A special thanks to ROKK Solutions for arranging the interview