Douglas Fuller is an associate professor of international economics, government and business at Copenhagen Business School and the author of "Paper Tigers, Hidden Dragons: Firms and the Political Economy of China's Technological Development."
U.S. President Joe Biden last month touted the $280 billion CHIPS and Science Act as key to bringing semiconductor manufacturing "back home" in the face of Chinese efforts to "move way ahead of us."
Yet while the law is likely to provide a boost to U.S. domestic semiconductor production, a parallel effort to further restrict China's access to American chipmaking technologies looks likely to backfire.
Until now, U.S. allies involved in semiconductor technology -- principally Japan, the Netherlands, Taiwan and South Korea -- had little reason to invest in creating chip fabrication plants, known as fabs, or electronic design automation (EDA) software free of American technology.
Targeted U.S. export controls meant these allies did not have to choose between serving China's commercial market and assuaging American security demands. The loss of a few specific customers, such as Huawei Technologies, represented a mere blip given that the global semiconductor production market, including China, remained in robust health.
At the same time, other private Chinese technology companies such as Alibaba Group Holding and Baidu that have been trying to design their own chips have been content to make use of overseas fabs or foreign-owned chip foundries in China. They had little motive to drop overseas suppliers such as Taiwan Semiconductor Manufacturing Co. (TSMC), given that building up indigenous equivalents looked daunting and arduous.
By not radically expanding export controls during its first 18 months in Washington, the Biden administration has created, or perhaps stumbled, upon a rather Machiavellian strategy of keeping allies and implicit accomplices in China working toward the country's continued technology dependence on the U.S. and other techno-democracies.
But the U.S. Department of Commerce's announcement of proposed export controls on EDA tools just three days after Biden signed the CHIPS Act threatens to dismantle the de facto united front that has helped to preserve the allies' technological lead over China, just as the chip industry itself may be heading into a cyclical downturn amid slowing global economic activity.
If finalized despite industry opposition, the new controls would restrict the export to China of EDA tools for a new technology known as gate-all-around field-effect transistors (GAAFET) being introduced for production of the latest generations of microchips. The Biden administration is also said to be looking at restricting shipments of capital equipment to produce older generations of chips.
This kind of broad measure is likely to be effective in the short term but would create precisely the required domestic coalition of tech companies and state interests that China needs to create alternatives to the know-how of techno-democracies in the long term.
Commerce Department officials describe the planned EDA controls as multilateral on the basis of an agreement reached last December among the 42 states that are part of the techno-democracy alliance known as the Wassenaar Arrangement.
It is unclear how solid consensus on this issue is, however, especially as Wassenaar members have yet to align their individual export controls. Involved companies, moreover, argue that it will be hard to determine which EDA software would fall under the new controls.
The push to restrict China's access to older generations of chipmaking equipment has gained traction due to news reports in July that Shanghai-based Semiconductor Manufacturing International Corp. (SMIC) had begun production of chips based on what is known as 7-nanometer technology despite U.S. export controls.
While it appears SMIC did manage to produce a small batch of 7-nm chips for bitcoin mining chip company MinerVa, this may not have been such a breakthrough feat.
SMIC appears to have used chip etching equipment based on older, deep ultraviolet (DUV) technology in place of the extreme ultraviolet (EUV) lithography machines to which it has been denied access. But according to chip fab experts, the inefficient, jury-rigged process will be commercially unsustainable for SMIC.
While the Netherlands' ASML, the world's preeminent maker of lithography equipment, has been willing so far to forego EUV sales to China, given its overflowing orders from other customers, pressuring it to halt DUV sales to China could be too big an ask.
At the same time, leading chip foundry companies such as TSMC and Samsung Electronics could suddenly find it worthwhile to create advanced fabs free of American technologies to serve the Chinese market should Washington push ahead with more controls. One could imagine large Chinese customers, leading foundries and non-American capital equipment makers, including some from Japan, working together to create advanced fabs.
There are some glimmers of hope, however, that the American government will not undermine its de facto coalition through overly broad fabrication controls. Some industry figures in South Korea say they have been told Washington will continue to allow them to continue to buy American equipment for fabs in China.
Buffeted by a clash of domestic and international interests, the Biden administration might just be lucky enough to maintain its clever strategy despite the worst efforts of some members of the government.