US Sanctions, Export Restrictions on China May Deal Blow to US Industry, Experts Say
The U.S. government decision to increase license requirements for certain foreign exports to Huawei may damage U.S. companies more than Huawei and China, experts said. The same may be true for sanctions being prepared against China for interference with Hong Kong’s autonomy (see 2005220011), the experts said, which may present a large challenge for U.S. businesses. “If the administration follows through on the kinds of threats that they’re talking about … it will have a hugely negative impact on U.S. companies operating there, it will have a hugely negative impact on the people of Hong Kong, and it will have a minuscule effect on China,” said Nicholas Lardy, a Chinese economy expert at the Peterson Institute for International Economics.
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Lardy, speaking during a May 27 webinar hosted by the National Committee on U.S.-China Relations, said U.S. sanctions under the 2019 Hong Kong Human Rights and Democracy Act (see 1911290012) would wrongly target Hong Kong for a problem driven by Beijing. If, for example, the U.S. revoked Hong Kong’s special customs status, the move would mainly damage U.S. companies operating in the region and Hong Kong businesses, Lardy said. The State Department certified on May 27 that Hong Kong no longer warrants special treatment under U.S. laws.
“If we go down this road, the main loser is going to be U.S. companies and the citizens of Hong Kong,” Lardy said. “I don't know why we want to punish the citizens of Hong Kong for something that the government in Beijing is doing.” Two U.S. senators are working on a bill they say will mainly target Chinese officials and banks instead of Hong Kong (see 2005260031).
Other U.S. restrictions, such as the amendment of the direct product rule earlier this month (see 2005150058), may also backfire, said Yao Yang, an economic professor at Peking University. Further restrictions on semiconductor exports will “force” China to develop its own chip industry, reducing China’s reliance on U.S. goods, Yao said. “China can put tons and tons of money into that business. Maybe not in three years -- but definitely in five years or at latest seven years -- China can catch up,” Yao said. “And that’s not good for American companies.”
In addition, the increased U.S. license requirement for foreign exports to Huawei may not have its intended impact on shipments from the Taiwan Semiconductor Manufacturing Company to Huawei, Lardy added. The Commerce Department rule allows TSMC, which earlier this month agreed to build a chip factory in Arizona (see 2005150033), to continue to deliver certain items to Huawei that were already “on order,” Lardy said. “We don't know how big those orders are,” he said. “[Huawei is] likely going to continue to get very substantial shipments.”
While State Department officials have said TSMC will not be granted unfair incentives that would disadvantage the U.S. semiconductor industry (see 2005200030), Lardy said he suspects the company will be granted licenses for shipments to Huawei. If TSMC’s license applications are not granted, the company may slow production on its U.S. facility, Lardy added, which could present a bad look for the administration’s effort to reshore the semiconductor industry, especially during an election year. “My forecast is if they don't get licenses, they will slow-walk it, and maybe even completely walk away from it,” he said. “TSMC is in a stronger position than most people recognize.”