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

As former head of the Bureau of Industry and Security in the final year of the Trump administration, 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,” Hull said. 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,” Hull said. “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 political dynamics on both sides of the Pacific make it nearly impossible that that will happen in the short or medium term.”

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,” Hull said. Beijing also is seeking to recruit other countries to become “more intertwined with the Chinese system,” evidenced by its more active participation than in the past in international standards-setting bodies, 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. “We live in a more globalized world, and the economies are much too intertwined for it to be as sharp a break as it was” during the Cold War with the Soviets, he said. “I don’t want to give the impression that all hope is lost. Both sides are pretty clear-eyed about where the other party is.”

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

Though new firms and Huawei affiliates have been added to the BIS entity list under Biden, “there haven’t really been major surprises in terms of structure,” Fuller said. “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 Company produces a majority of the world’s wafers in the most advanced leading-edge nodes. Even in a failed Taiwan invasion attempt, “there's not much the U.S. can do” to protect the global semiconductor supply chain against disruption, he said.

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. “You’re probably better off investing more in capabilities to deter the Chinese from trying something.”