Trump Could Expand FDP Rule, Return to 'Vague' Export Control Rules, Analysts Say

Peter Harrell, a former National Security Council official under the Biden administration, said there’s a “perception” that Donald Trump will reenter the White House focusing heavily on tariffs, and he won’t be “an active user of sanctions and export controls on China.” He said that perception is “just flatly wrong.”

Harrell and Martin Chorzempa, a senior fellow with the Peterson Institute for International Economics, noted that Trump used the FDP rule in novel ways during his first term, including to extend U.S. export licensing requirements over certain foreign-made items shipped to Chinese telecommunications company Huawei (see 2008170029 and 2012210044). And while the Biden administration has continued to broaden the scope of the FDP rule -- including in a new set of semiconductor manufacturing equipment controls last week that has been called an “extraordinary expansion” of those restrictions (see 2412030041) -- Harrell said Trump is likely to go further.

“The Biden administration has really built on that approach,” he said during an event last week hosted by PIIE. “I think the Trump administration is further going to expand it when it comes back next month.”

The latest U.S. export controls expand the Bureau of Industry and Security’s FDP rule restrictions for chip manufacturing equipment to capture certain foreign-made equipment that incorporates a semiconductor, “even if it doesn't contain any U.S. components,” Chorzempa said. He said the U.S. is arguing that if certain foreign-made tools have “any chip, any semiconductor, then we're going to control it, because we're going to say that it contains a foreign-made chip that was made with U.S. technology.”

“That's an extraordinarily broad jurisdictional claim,” Chorzempa said, “and I think that their goal here is to make it so hard to get around these restrictions that people don't bother.”

Although this represents a significant expansion of the FDP rule, Martin said the Biden administration has so far been using the restrictions fairly narrowly, comparing them to a “scalpel.” He noted that the latest FDP rule only applies to chipmaking equipment.

But if Trump “really expands the use of these [tools] and tries to use them in a way that really leads to international pushback,” he said, that could convince foreign firms to invest more heavily in the "design-out" of controlled U.S. components from their products.

Chorzempa stressed that he hasn’t seen “evidence” of that yet so far, mostly because the U.S. has strong “choke points” within the global semiconductor supply chain. “But now the market opportunity for someone who could design a non-U.S. chip production facility … that incentive goes up as we make our claims larger,” he said, adding that there are “a lot of Chinese firms spending a lot of money trying to make that happen at the moment.”

He also said a further expansion of the FDP rule could push foreign companies to “decide they don't want to comply with these extraterritorial claims and jurisdiction,” and they might ship their items without a license and claim they weren’t aware of the controls. “And then it'll be really hard to enforce, and it could lead to some major diplomatic battles,” Chorzempa said. “So I think we have to be really, really careful here.”

Harrell, now a nonresident scholar with the Carnegie Endowment for International Peace after leaving the Biden administration in 2022, said he thinks Biden officials are concerned at a “conceptual level” that the FDP rule could cause the “design-out” of U.S. components. But he also said it’s difficult for them to quantify which new export control measure will be the one that hits the “trip wire” and pushes foreign firms to avoid U.S.-controlled items.

“So I worry it ends up becoming one of these risks where you kind of conceptually acknowledge it, but it doesn't really materially factor into your decision-making, because you don't have a way of reducing that conceptual concern to a kind of quantified number you can weigh in a material way,” he said.

Harrell also said that Trump and many of his “hawkish” advisers want broad decoupling between the U.S. and China, and that may translate into broader trade controls. He said he thinks the incoming Trump administration will “focus less on making these nuanced policy arguments,” and instead they’ll embrace a strategy of: “China is our enemy, and we should be cutting things off, and you should be with us.”

Chorzempa also said he can envision a departure from nuance and a return to the “vague rulemaking and chaos” that exporters experienced during Trump’s first term. While U.S. officials under Joe Biden have spent time crafting dense, complicated export regulations to control various chip-related items -- including some rules that trade lawyers and chip firms have called the most complex ever written by BIS (see 2211010042 and 2302020034) -- Chorzempa said the export control rules under Trump were sometimes sweeping and unclear, “and it created this immense chaos right away.”

For the Trump administration, that chaos is a “feature, not a bug” of its China policy, Chorzempa said. “I think what that does is it then creates the sense that dealing with China is very uncertain from a legal perspective, and it can lead U.S. firms to break a lot more ties with China than they would have if they were just complying with some narrow regulation,” he said. “So I think we'll see that.”

Chorzempa and PIIE research analyst Christine Wan also used the event to present a new dataset analyzing and comparing sanctions designations and Entity List additions under both Biden and Trump. Chorzempa pointed to several takeaways from the data, including that the U.S. government “lacks a rigorous evaluation of the economic cost of these measures.” He called on the U.S. to develop a new framework to assess those costs, which can help it determine whether its sanctions and export controls are hurting U.S. companies and supply chains more than they’re helping.