Regulatory intelligence for US exporters

US Semiconductor Export Controls 'Falling Short,' Researchers Say

The U.S. should be doing more to restrict Chinese semiconductor companies from buying U.S. equipment, which is strengthening China’s military and ceding U.S. technology leadership, researchers said. Although the U.S. should bolster domestic policies to help the semiconductor industry -- including through supply chain, manufacturing and research incentives (see 2102240052) -- the researchers said the Commerce Department’s export controls include loopholes for companies that sell advanced technologies to China.

“U.S. policy, however well-intentioned, is falling short of what is required to stand up an American-owned, advanced chip manufacturing capability in the U.S.,” Coalition for a Prosperous America and China Tech Threat researchers said in their March 22 report. “While financial incentives are important, they are not sufficient to strengthen U.S. leadership in chip manufacturing.”

U.S. companies are “playing into Beijing’s hands” by continuing to sell semiconductor manufacturing equipment (SME) to Chinese companies, the report said. While American suppliers may think they are exporting to civilian businesses, it’s becoming increasingly difficult to distinguish between China’s military and commercial sector, the report said.

The researchers said companies such as Lam Research, KLA and Applied Materials have “enjoyed record revenue and profits” from shipping to China, adding that many semiconductor companies have “actively found ways around the export controls.” Although the companies are seeing skyrocketing revenues, they also are helping to strengthen a formidable U.S. adversary and may eventually see their intellectual property stolen by their Chinese customers, the report said. “In this pursuit of short-term sales and profit,” it said, “the aforementioned American SME makers are naive.”

Their “soaring” sales to China also underscore that “export controls are not working effectively,” the researchers said. “Those companies do not care where they sell as long as they are making a profit.” Although Commerce and the Bureau of Industry and Security have added many Chinese companies to the Entity List, the report said some semiconductor fabs, or chipmaking facilities, with ties to the Chinese military, such as ChanXin Memory Technologies and Yangtze Memory Technologies, haven’t been restricted. “This reflects a reluctance to implement export controls on certain entities because they are perceived as important to U.S. firms, despite the threat they pose to Americans’ security and the fact that trade with them violates U.S. and international law,” the report said.

A BIS spokesperson declined to comment. Commerce Secretary Gina Raimondo recently met with the U.S. semiconductor industry to discuss increasing investments in domestic manufacturing and innovation (see 2103190070).