Expect more China-related tech crackdowns, U.S. official says

Weeks after enacting the strictest curbs yet on technology exports to China, the U.S. official overseeing the measures suggested they could soon get tougher, as his team pursues support from allies and considers restrictions on other types of technology.

The remarks from Alan Estevez, Commerce Department undersecretary for industry and security, come as semiconductor companies from the United States and other Western nations continue cutting or suspending lucrative trade with China – often their biggest export market – to comply with new restrictions aimed at depriving Beijing of computer chips for its military.

The U.S. goal is not to bring about the “economic destruction of China” or a full decoupling of trade, Estevez said at a briefing at the Center for a New American Security.

But he said the Biden administration is “not done” considering additional technology exports to regulate.

“I also keep getting asked ‘When will that China review be done?’ And that China review will be done when the Chinese change their behavior,” Estevez said.

“So we are going to continue to look at not just what we did with semiconductors, but other areas that the Chinese are using to threaten the United States and its allies.”

Areas “on my radar” for possible additional export controls, Estevez said, include quantum computing, biotechnology and artificial intelligence.

“We’re not done,” he said. “There’s other things to be done with other technologies. … As technology moves, we’re going to stay with it.”

The latest rules, enacted Oct. 7, restrict sales to China of advanced computer chips and the equipment needed to manufacture them.

Estevez said the administration is close to getting allies to join the restrictions, which would further cut China’s access to Western technology.

“It’s not just me, it’s the national security adviser, the secretary of commerce are all on the phone working this,” he said. “So we expect to have a deal done in the near term.”

The restrictions are causing a major hit to U.S. tech companies, which have come to rely on China as a large export market.

KLA Corp., a California-based company that sells chip-manufacturing equipment, this week said the restrictions could deprive it of $600 million to $900 million in sales next year, equal to as much as 10% of the company’s revenue in its fiscal year that ended in June.

China is the company’s largest market, representing 31% of sales, while North America makes up only 9%.

In recent days, another big equipment supplier, the Dutch company ASML, told its U.S. employees to stop installing or servicing equipment at any Chinese chip factory while it sorts through the new rules.

And California-based Applied Materials said the export restrictions will prevent it from completing sales of roughly $400 million in the fourth quarter.

Estevez said his job is to protect national security “regardless of the impact” on trade. U.S. tech executives have not complained, he said.

“No one has come to me and said, ‘This is going to ruin my business. How could you do that in the name of national security?’ ” he said. “In fact, most of them come and say, you know, ‘We’re good Americans. We understand.’ ”

But the Information Technology Industry Council, a trade association for tech companies, said it hoped the administration would “work with industry” on any new restrictions.

Rob Strayer, executive vice president of policy at the group, said this would “ensure that any proposed export controls are targeted and tailored to the security threat at issue, agreed to at the multilateral level and do not undermine U.S. leadership on innovative technologies.”

The export controls enacted so far aim to slow China’s ability to produce high-end semiconductors that have dual uses in commercial and military technology – and even some applications in weapons of mass destruction, the Biden administration said.

For now, China lags behind Taiwan, South Korea and the United States in manufacturing the most advanced chips.

Even as the United States asks allies to adopt similar controls, the U.S. restrictions already place curbs on their trade with China.

The rules bar “U.S. persons” – including American citizens and U.S. green-card holders – from supporting the production of advanced chips in China, unless they receive a U.S. government license.

That applies to the many U.S. employees who work for European and Asian companies.

The Biden administration is also barring any factory worldwide from supplying China with certain chips if that factory uses U.S. technology in its manufacturing process, as most chip factories do.

Taiwan, the world’s biggest manufacturer of chips and a major supplier to China, has said it will abide by the U.S. rules.

The Chinese Embassy in Washington called the restrictions “sci-tech hegemony” and accused the United States of seeking “to hobble and suppress the development of emerging markets and developing countries.”

Industry experts have expressed concern that the restrictions will only spur other countries to engineer U.S. technology out of their systems, and encourage China to develop its own semiconductor industry faster.

Estevez said he would never “discount Chinese ingenuity and capability” but believes that the restrictions are broad enough to slow China down.

“And of course we need to ensure that we, the United States and our allies, advance the technology to stay ahead,” he said. “There’s an offense and a defense game to this.”