US, China Not in a ‘Cold War,’ but ‘Trend Lines’ Worsening: ex-BIS Head

As former head of the Commerce Department’s Bureau of Industry and Security in the final year of the Trump administration, Hull said the “pretty significant export controls” that the U.S. imposed on Huawei and other Chinese tech firms were sanctions “for which I had a front-row seat.” Washington views Beijing as pursuing a campaign of “exporting widespread techno-authoritarianism” globally, and that’s “an issue of bipartisan concern here in the U.S.,” he said.

From the U.S. “perspective,” China’s tactics are “largely unaligned with our values,” said Hull. “Bottom line, I think the trend lines are worsening” between Washington and Beijing, he said. “I don’t see a chance for a mending of the fences anytime soon.”

The Chinese government also has “embraced” a strategy of “dual circulation,” in which it’s trying to “wean China off of Western technologies,” seeking to “insulate its technological sphere” from the “influence” of U.S. and other Western economies, “in large part because of export controls and sanctions,” said Hull. Beijing also is seeking to recruit other countries to become “more intertwined with the Chinese system,” he said. Those policies are further exacerbating U.S.-China tensions, he said.

Hull doesn’t think “we’re in a Cold War” with China “at this moment,” and won’t become involved in one, “absent” something happening that would be “catastrophic,” he said. The economies of the U.S. and China "are much too intertwined" for there to be "as sharp a break" with China as there was with the Soviets during the four decades of the Cold War, he said.

BIS export controls against the Chinese tech sector have taken a more “relatively moderate” and “judicious course” in the first year of the Biden administration than under President Donald Trump, said Douglas Fuller, an Asian and international studies associate professor at the City University of Hong Kong. The "good" result of keeping export controls "targeted" is that it "created a fair amount of predictability,” he said.

Though new firms and Huawei affiliates were added to the BIS entity list under Biden, “there haven’t really been major surprises in terms of structure,” said Fuller. “These narrow controls are much more sustainable because they have buy-in from the private sector in the U.S., they have buy-in from our relevant allies, and frankly they have buy-in from a lot of private firms in China.” If the U.S. “went the route of expanding radically” its export controls on Chinese tech firms, U.S. allies would “object vociferously” because many companies in Asia and Europe would be caught in the wave of exposure, he said.

Fuller thinks it would be prudent for the U.S. to “use its resources to build up alternative capacity” of wafers domestically as the best hedge against disrupting the global chip supply should the Chinese invade Taiwan, he said. Taiwan Semiconductor Manufacturing Co. produces most of the world’s wafers in the most advanced leading-edge nodes.

There’s production capacity at TSMC that the U.S. “just can’t make up in anything measured in less than a decade,” said Christopher Miller, director of FPRI’s Eurasia Program. TSMC’s capacity is “not irreplaceable, but very, very, very expensive to replace,” he said. Spending money to upgrade U.S. military capabilities in the Strait of Taiwan would be “the most cost-effective way of preventing military escalation scenarios from causing problems in the chip supply chains,” he said.