In the context of the ongoing technological rivalry between the United States and China, U.S. export controls are under scrutiny.
These controls have been implemented by the U.S. government to prevent China from acquiring advanced domestic technology.
The Department of Commerce, for instance, has the ability to prohibit domestic firms from exporting specific technologies to certain Chinese entities such as Huawei and Semiconductor Manufacturing International Corporation (SMIC).
The overarching goal of these export controls is to protect the technological competitive edge of the U.S. economy and limit the transfer of dual-use technologies that might benefit China and its military capabilities.
However, critics, including Marco Macchiavelli from the University of Massachusetts Amherst, argue that export controls may inflict more harm than good on domestic firms that produce these critical technologies.
Research conducted by Crosignani et al. (2024) reveals that U.S. firms lose significant revenues when their Chinese customers are placed under export controls, subsequently harming their profitability and stock market capitalization.
Domestic firms face difficulties in finding alternative customers to compensate for the lost sales from China, which complicates the effectiveness of these controls.
Given the negative impact on domestic firms, it raises important questions about whether the U.S. government should incentivize the reshoring of critical high-value segments of the supply chain back to the United States.
Many remain concerned that while providing incentives to national champions such as Intel, taxpayer resources might be wasted on inefficient production capacity, further disadvantaging U.S. competitiveness.
The context of how export controls work involves several layers of complexity.
Firstly, circumvention is a major challenge.
Many non-U.S. firms produce machinery that is essential for the production of advanced technologies.
For instance, ASML, the leading manufacturer of lithographic tools required for advanced microchips, was previously selling machines to China until the U.S. government successfully coordinated with the Dutch government to stop these exports.
Furthermore, circumvention occurs through methods such as establishing front companies that acquire restricted technologies under false pretenses, which can then be rerouted back to the same Chinese firms impacted by export controls.
While reexporting restricted items constitutes a violation of regulations, enforcement remains a complex issue.
Recent evidence even suggests that some AI chips, which are under export restriction, have been smuggled to China, raising further concerns.
Second, there is the potential blowback effect that could undermine the intended benefits of the export controls.
As these controls may inadvertently accelerate China’s decoupling from the U.S. and enhance its efforts toward indigenous innovation, it stirs fears that the country could replace U.S. technologies with domestic alternatives more swiftly than anticipated.
Some anecdotal evidence indicates that China is advancing in its technological capabilities at an alarming rate.
For instance, after struggling post-controls in 2019, Huawei surprised markets in 2023 with the launch of a new phone equipped with advanced chips.
Similarly, the AI sector saw disruptions when DeepSeek demonstrated competitive outputs at drastically lower computational costs.
The existential question remains: what is the primary goal of these export controls?
China has demonstrated remarkable efficiency in scaling manufacturing, making it a crucial partner for U.S. companies, including giants like Apple.
The rationale behind U.S. countermeasures largely stems from concerns over consistent espionage tactics employed by China to appropriate intellectual property from U.S. corporations, government laboratories, and academic institutions.
An effective economic strategy with respect to China should aim to preserve technological synergies while ensuring robust domestic intellectual property protections.
Moreover, the implementation of export controls complicates U.S. leverage over China, as these measures appear self-defeating by diminishing domestic standing while simultaneously fostering Chinese technological independence from American economic benefits.
On the contrary, proponents of export controls, including Navin Girishankar and Matt Borman from the Economic Security and Technology Department, argue that abandoning export controls would signify a retreat from the imperative tech race against adversarial forces, primarily China.
They assert that the threats posed by China are more multifaceted than those faced during the Cold War, as Beijing’s civil-military fusion strategy aggressively seeks to convert commercial breakthroughs into military advancements directed at America and its allies.
The growing competitive landscape in technology, characterized by China’s robust research capacity and innovation, further entrenches concerns regarding economic security.
China’s integrated presence in global technology markets allows it to utilize detrimental tactics such as IP theft and coercive partnerships to gain an advantage in cutting-edge technology development.
Critics of export controls often overlook the substantial national security threats that endanger the security of U.S. technology, assets, and the motivations for American firms to thrive in the competitive landscape.
While Macchiavelli highlights the negative impact of export controls on domestic profitability, taking this aspect in isolation ignores the broader implications of allowing unfettered access to advanced technologies by foreign competitors.
The paramount risk is not merely the immediate loss of revenues due to export restrictions but allowing foreign companies access to the same technology that could be used to develop substitutes and compete directly with U.S. products in the future.
Therefore, effective export controls must be synchronized with allied efforts to prevent circumvention and bolster American technological leadership against Chinese competition.
Macchiavelli raises valid concerns regarding circumvention, but these challenges should not be used as grounds to dismiss the effectiveness of export controls entirely.
Without these controls, Chinese firms would face no barriers in accessing critical technologies, thus expediting China’s technological advancements.
In fact, evidence suggests that although circumvention occurs, the end result is increased costs and delays for PRC developers, as they are forced to pay inflated prices for acquired technologies from smuggled sources.
Even with considerable government subsidies, the progress of indigenous Chinese chip production capabilities remains hindered, particularly when allied export limitations compound the obstacles.
Additionally, Macchiavelli’s assertion that controls might accelerate Chinese innovation around these barriers is noteworthy.
However, this notion fails to consider that China’s pursuit of technological independence predates current export controls and forms a core aspect of its strategic initiatives like “Made in China 2025.”
In contrast, the evidence suggests that U.S. export controls provide vital time for the U.S. to maintain its technological leadership and make the necessary investments in innovation.
Critically, while export controls serve a purpose, they should not be misconstrued as a comprehensive strategy.
These controls should be deployed alongside clearly defined goals and in conjunction with other economic measures to enhance national security.
Macchiavelli’s skepticism about industrial policy and support for national champions generates a valuable discussion regarding the optimal mix of strategies to safeguard U.S. innovation and technology.
Furthermore, the significance of export controls extends beyond the U.S.-China framework.
Since 2022, these controls have effectively hampered Russia’s precision missile capabilities by increasing production costs and compelling reliance on inferior substitutes.
Though Russia may still secure chips through Chinese sources, the broader conversation indicates that in the current landscape of diverse technology threats, U.S. export controls are increasingly necessary.
Export controls, as economic instruments, ought to be fair and adaptable.
To be successful, they must evolve to address modern challenges associated with AI, quantum computing, biotechnology, and advancements in manufacturing.
Comprehending the true dimensions of these controls’ contributions to U.S. economic and national security is essential to preserving technological superiority.
image source from：csis
