Washington should tighten its export controls by adding inspection staff and plugging loopholes to slow Beijing’s chipmaking advances and curb evasion efforts with support from allies such as the Netherlands and Japan, US lawmakers and experts said on Thursday.
Such actions should be deployed, including empowering the Bureau of Industry and Security (BIS) to close trade loopholes and also targeting China’s national champion firms in the semiconductor sector as well as their US subsidiaries, according to a public hearing organised by the US House Committee on Foreign Affairs.
The proposals arrived as the administration of US President Donald Trump agreed on a one-year pause on export control, including the suspension of the 50 per cent affiliate rule that would significantly increase its export control targets, in exchange for China’s rare earth export relaxations.
Members of the committee argued that such a truce could give Beijing time to have workarounds and eventually challenge Washington’s leadership in high-end chips and AI, two core areas of bilateral tech rivalry.
“The [Trump] administration turned export controls into a concession that can be negotiated away,” said Sydney Kamlager-Dove, a Democratic congresswoman representing California, pointing at the Nvidia Blackwell chips sales to Saudi Arabia announced a day earlier.
“Pausing the 50 per cent affiliates ruling gives Chinese entities a year to create workarounds,” she said at the hearing titled Export Control Loopholes: Chipmaking Tools and Their Subcomponents.
Worries have risen sharply over whether Beijing could narrow the tech gap with Washington by advancing the making of domestic chipmaking tools, following the tariff truce and export control pause reached between Chinese President Xi Jinping and Trump in late October.
The US imposed a high-end chip sales ban on China in 2022, already putting hundreds of Chinese firms on its entity list, which denies them access to American parts, staff and technologies. It also works together with the Netherlands and Japan, the world’s two major producers of advanced chipmaking machines, to limit Beijing’s acquisition of chipmaking tools and components.
The Netherlands, home to photolithography machine giant ASML, just concluded a fight over the control of semiconductor firm Nexperia with China. Japan, on the other hand, is having a bilateral diplomatic row because of the Japanese prime minister’s comments on Taiwan.
Beijing has been making steady progress towards breaking the US stranglehold by either importing chipmaking equipment in advance or stepping up domestic research and development.
“What I will say is that I think the foreign direct product rule is worth considering codifying in legislation. And I would also say the country controls are likely more appropriate than entity controls for a lot of these technologies,” said Michael McCaul, a Republican congressman from Texas.
Foreign direct product rule is a mechanism that allows the BIS to impose export controls on foreign-made goods if they contain or are directly made with US technology.
However, McCaul added: “I’m worried, on the advanced chip level, we’ve already [seen] the horses out of the barn. The damage is done. They’re building a very high level legacy capacity of chips to counter our advance.”
Such concerns were echoed in the annual report released by the US-China Economic and Security Review Commission earlier this week, in which it flagged that China has emerged as a global hub for foundational chip fabrication with heavy state support, with production capacity rising 250 per cent from 1.2 million wafers a month in 2015 to 3.0 million in 2023.
The commission recommended that the US Congress strengthen the BIS’ ability to track the end use of export-controlled advanced chips and shift the export-control framework for such chips from a traditional “sell” model to a “rent” model.
Dean Ball, senior fellow of the San Francisco-based Foundation for American Innovation, said the US can stop chipmaking tools from flowing to China through diplomatic efforts or enhance the implementation of the foreign direct product rule.
“Both options should be on the table with an aim toward resolving as many of these gaps as is feasible in the near term,” he said.
Kevin Wolf, a partner at Akin Gump Strauss Hauer & Feld LLP and former assistant secretary of commerce for export administration at BIS from 2010 to 2017, supported the proposal to add more staff to enforce US export controls.
Currently, overseas chipmaking export control relies on the implementation of foreign governments, and there are only two US officers specifically dealing with export control on China, he testified at the hearing.
However, Wolf added that working with the allies remains key to closing trade loopholes.
Chris McGuire, a senior fellow for China and emerging technologies from the Council on Foreign Relations, suggested countrywide controls on China with an expanded set of tools.
“[We should impose] a global licence requirement, at least on [an] expanded set of countries, that allows us to make sure that they’re not diverting the chips into China,” he said. -- SOUTH CHINA MORNING POST
