Regulatory intelligence for US exporters

US Needs New Approach to Semiconductor, 5G Competition With China, Experts Say

It's not enough to just restrict sales of chips to Huawei, and convince allies not to use the Chinese company in their 5G networks, experts said at a Senate Banking Committee Economic Policy Subcommittee hearing on July 22. Rather, they testified, both 5G and export controls should be looked at more broadly. Martijn Rasser, senior fellow in the Center for a New American Security's Technology and National Security Program, said that 5G networks will be essential to all that the U.S. does in technology, so getting 5G right is urgent.

Rasser said a lot of the discussion is around the U.S. buying an equity stake in Nokia or Ericsson, or creating its own “national champion” company in telecommunications equipment. He said either approach is “nibbling at the edges of the question.” He said that Chinese industrial policies make it very expensive to subsidize a U.S. company so that its equipment is cost competitive.

Tim Morrison, senior fellow at the Hudson Institute, said the way to win the economic competition with China is through a trade agreement similar to the Trans-Pacific Partnership, but his vision of it would leave the developing countries out, except Mexico, and add the United Kingdom and South Korea. He said integrating those countries into a free trade alliance, similar to the NAFTA region, would promote the rule of law.

Michigan State University economics Professor Lisa D. Cook, who agrees that intellectual property theft is a problem in China, said it's ironic, because Chinese inventors are receiving more and more U.S. patents to protect their own innovations. “On the other hand, when I was in China,” she said, the people she met with told her that China “is a developing country it deserves to have intellectual property rights abrogated.”

When asked how the U.S. can stop relying on China for cheap but essential goods such as syringes and antibiotics, Morrison replied, “Unfortunately, we didn’t get into this mess overnight, and we're not going to get out of it overnight.” He said the Export-Import Bank should be harnessed to serve as a sovereign welfare fund of sorts, and that the Defense Production Act should also be put into play to make sure all that's needed for a massive vaccine deployment is made in either the U.S. or allies such as Mexico or Japan.

The witnesses criticized the current export control regime as fragmented and not strategic enough. Morrison said splitting the responsibilities between the State and Commerce departments creates complexities and gaps.

Rasser said putting export controls on semiconductors isn't as effective as putting them on semiconductor manufacturing equipment. He said that the U.S., Japan and the Netherlands manufacture 90% of semiconductor foundries, the term for the multimillion-dollar machines that fabricate chips. If they all agreed not to sell to China, and pooled resources to build new foundries outside China, that would protect the U.S. edge in the technology, since even if China was able to steal an American design, it would have no way to manufacture it.