U.S. Commerce Secretary Calls for Aggressive Enforcement and Funding for China Tech Curbs
The Lede: U.S. Commerce Secretary Gina Raimondo called on lawmakers, Silicon Valley companies, and U.S. allies to step up efforts and funding to stop China from getting semiconductors and cutting-edge technologies key to national security.
What We Know:
- The commerce secretary gave a keynote speech at the Reagan National Security Forum, an annual national defense forum in Simi Valley, California. In the speech, Raimondo said that "China is not our friend" and that it represents "the biggest threat we've ever had."
- Her comments singled out Nvidia Corp. for designing chips specifically for the Chinese market after the U.S. imposed the first round of export restrictions in October last year. Nvidia adapted to the restrictions by designing three new AI chips specifically for the China market that U.S. policy technically allowed for export.
- She lamented the $200 million budget allocated for the department’s enforcement arm, the Bureau of Industry and Security (BIS), to implement U.S. tech export restrictions on China. Raimondo noted that the sum amounted to “the cost of a few fighter jets.” In another funding area, the commerce secretary said that she hopes to make an announcement soon on the first grants to U.S. semiconductor manufacturers under the CHIPS & Science Act.
- Raimondo explained that the Commerce Department has been shifting its strategy from a company-by-company approach towards countrywide blocking of tech sales to avoid having to clamp down on adaptations by chip-making firms. She also noted that it will also be necessary for allied countries to seriously enforce export restrictions on chips and chip-making technology.
The Background: In October this year, the commerce department announced new restrictions on the export of the most advanced chips to China that have become vital in the development of AI. These were largely in response to U.S. chip manufacturers changing designs to their products specifically for the China market under the previous trade curbs. The U.S. government is concerned that the latest technology could be used by China to strengthen its military. Passed in July this year, the CHIPS & Science Act has allocated $39 billion in tax benefits and incentives to the Commerce Department for increasing domestic semiconductor manufacturing.
Likely Outcomes:
- The rhetoric of the commerce secretary this weekend could be seen as abrasive to observers in China and could erase any goodwill built upon during her visit to China in September. Raimondo’s comments explicitly call for tighter pressure on tech exports to China, which hints heavily toward escalation in the U.S.-China chip competition. Her visit earlier this year hinted at an increase in communication and clearer definition of red lines in the countries’ trade relationship, but these comments indicate that the U.S. is likely to actively shift the goal post. This could lead to a volatile tech trade landscape in the future.
- While CHIPS Act benefits will probably be awarded soon to U.S.-based firms, it is likely that these companies will experience a net-loss from U.S. export restrictions due to the value of their sales to the China market. On the Western consumer’s end, the severing of Chinese manufacturing from the access to key technological components may lead to higher prices and muted supply. Chinese firms may focus on friendlier markets for the products they can manufacture at scale.
- All sides are looking toward Southeast Asia as a middle ground for manufacturing and critical resources. Moving forward, it is likely that the U.S. and China will both rush into more deals in this sector and many others as a region of opportunity.
Quotables:
“I think everybody here knows the fact that our national defense is more than guns, missiles, tanks and drones. It’s technology, it’s innovation…You cannot be a strong nation that defends itself unless you have the most competitive economy in the world. Economic prosperity and opportunity matters every bit as much as pure military might. To protect our national security is to stay in our place in the world…Every day China wakes up trying to figure out how to do an end run around our export controls, which means every minute of every day, we have to wake up tightening those controls and being more serious about enforcement with our allies…Come on! If we’re serious, let’s go fund this operation like it needs to be funded so we can do what we need to do to protect America.” – Gina Raimondo, U.S. commerce secretary
"[This] will hardly win the trust from China and the rest of the world, and reveals the deep-seated Cold-War mentality and hegemonic mindset of some in the US. China never bets against the US, and has no intention to challenge or unseat it. The US needs to have a right understanding of China...stop viewing China as an enemy, correct the wrong move of carrying out major-country confrontation under the pretext of competition, and avoid saying one thing and doing another...Going against the rules, principles and laws of free trade market is like building a dam of sieves—no matter how hard you try, the water will run through the sieves to where it is heading." – Wang Wenbin, spokesperson for the Chinese Foreign Ministry
Good Reads:
Raimondo Says Commerce Needs More Money to Halt China Chip Drive (Bloomberg)
US Commerce Chief Warns Against China 'Threat' (Barron’s
‘Game on’: Raimondo calls for beefing up tech export controls to counter China (Breaking Defense)
China Rips US for ‘Enemy’ Stance After Raimondo Remarks (Bloomberg)