America’s Risky New China Policy

Washington has a bold plan to restrict Beijing’s semiconductor imports. The world needs to talk about it.

By , the editor in chief of Foreign Policy.
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Last month, a small U.S. federal agency released a regulatory filing that has gotten relatively little media attention—especially in the context of its immense global ramifications. The U.S. Commerce Department’s Bureau of Industry and Security announced worldwide limits on China’s ability to import advanced semiconductors. The strict new rules—which countries and companies are scrambling to comply with—go beyond any previous attempt to curtail China’s technological progress and ambitions.

Writing in Foreign Policy a week after the filing, Jon Bateman described Washington’s move as a watershed moment in U.S.-China relations that “all but guarantees a continued march toward broad-based technological decoupling.” He added that the “increasing boldness of U.S. unilateral actions, and Washington’s open embrace of a quasi-containment strategy, … may finally set in motion forces beyond the control of U.S. national security leaders.”

Bateman is a senior fellow in the Technology and International Affairs Program at the Carnegie Endowment for International Peace. Previously, he was a special assistant to then-Chairman of the Joint Chiefs of Staff Gen. Joseph Dunford and served as the director for cyberstrategy implementation in the Office of the Secretary of Defense. I spoke with Bateman on FP Live, the magazine’s forum for live journalism, to discuss the ramifications of the latest policy changes since the publication of his essay. What follows is a condensed and edited transcript. FP subscribers can watch the full, 30-minute interview at the top of this page.

Last month, a small U.S. federal agency released a regulatory filing that has gotten relatively little media attention—especially in the context of its immense global ramifications. The U.S. Commerce Department’s Bureau of Industry and Security announced worldwide limits on China’s ability to import advanced semiconductors. The strict new rules—which countries and companies are scrambling to comply with—go beyond any previous attempt to curtail China’s technological progress and ambitions.

Writing in Foreign Policy a week after the filing, Jon Bateman described Washington’s move as a watershed moment in U.S.-China relations that “all but guarantees a continued march toward broad-based technological decoupling.” He added that the “increasing boldness of U.S. unilateral actions, and Washington’s open embrace of a quasi-containment strategy, … may finally set in motion forces beyond the control of U.S. national security leaders.”

Bateman is a senior fellow in the Technology and International Affairs Program at the Carnegie Endowment for International Peace. Previously, he was a special assistant to then-Chairman of the Joint Chiefs of Staff Gen. Joseph Dunford and served as the director for cyberstrategy implementation in the Office of the Secretary of Defense. I spoke with Bateman on FP Live, the magazine’s forum for live journalism, to discuss the ramifications of the latest policy changes since the publication of his essay. What follows is a condensed and edited transcript. FP subscribers can watch the full, 30-minute interview at the top of this page.

Foreign Policy: Jon, for the few people who haven’t yet read your piece, bring us up to speed: What exactly were these new restrictions, and why are they important?

Jon Bateman: There have been multidimensional new export restrictions imposed on China’s ability to import advanced high-end semiconductors—the finished chips that are used for artificial intelligence and advanced computing—and the equipment that is used to manufacture these semiconductors.

The United States has gone deep down into the technology stack to try to thwart and ultimately freeze China’s development of semiconductor technology at its current levels. This is probably the most sweeping and hard-hitting measure that’s been taken against China’s tech sector after four years of pretty significant technology and economic warfare, and it’s really important because it signals an overt, muscular intent to contain and restrict China’s technological development.

FP: Taiwan makes approximately 92 percent of semiconductors, so how is the United States’ role so important in this supply chain process?

JB: The simple answer is that the semiconductor supply chain is a very complex global supply chain. And the United States has a critical role in some key nodes in that supply chain. It can leverage those nodes to impose extraterritorial requirements, like export controls, on others downstream.

So, while Taiwan Semiconductor Manufacturing Co. (TSMC) is the world’s leading manufacturer of finished semiconductors, the plants that TSMC uses contain U.S. technology. Using something called the foreign direct product rule, Washington is able to say, “Anything that’s manufactured from those plants has to play by our rules.” And because of the long arm of the U.S. law and the need that Taiwan and others have to maintain friendly relations with the United States, as well as [to avoid] potential criminal exposure under U.S. export control rules, everyone has to comply.

FP: If you are a country that doesn’t want to comply, what mechanisms does the United States have to enforce these rules?

JB: The United States takes these things seriously, and so if you are caught, even as a foreigner violating U.S. export controls, you can be subject to civil or even criminal liability. And that’s a big problem if you ever want to have future dealings with the United States or travel to a country that has an extradition treaty with the United States. It would be unthinkable that a major global brand like TSMC would intentionally violate these kinds of restrictions.

FP: Why is Washington going down this route?

JB: The overt justification in the regulation itself is the classic national security argument that China is using these advanced semiconductors and supercomputers to develop its military capabilities. Supercomputers and artificial intelligence can be used to develop missile aerodynamic modeling. It could be used to model nuclear explosions and for all sorts of military purposes. Secondarily, there’s a discussion of AI-fueled intelligence operations and suppression of China’s own people.

But it’s important to realize that although the United States is taking a big whack at China’s military development through blocking these export controls, the main brunt of these controls will be felt by China’s private sector. And by demonstrating a willingness to kneecap China’s broad economic and technological development and the civilian commercial and scientific spheres, the Biden administration is really showing a kind of disproportionateness that signals intentions beyond just kneecapping China’s military. They may want to simply limit China’s rise.

FP: In the piece that you wrote for Foreign Policy, you posited that the “restrictionists” in the Biden administration have won out. Explain that.

JB: Among U.S. policymakers who study China, the debate is really between centrists and what I call “restrictionists”—the people who have a hard-line zero-sum mentality, who want to drastically increase the pace and scope of technological decoupling and hit China hard across the board. Within the Biden administration, there’s been a kind of power battle playing out between the centrists and the restrictionists. This latest foray really shows that the restrictionists have become dominant.

FP: How much do the latest actions hurt China?

JB: In the short term, they hurt quite a bit. China is well aware of the extraordinary dependance that it has on imports for advanced semiconductors, and it’s been pouring tens of billions of dollars into developing its own industries. But these are some of the most complex and sophisticated technologies that have ever been created. The amount of parts and the sensitivity of these parts, and the know-how that needs to go into using them, are just extraordinary.

China has made a lot of headway on developing the lower-end chips, the so-called commodity chips that you might find in a car or a toaster or a thermostat. But China has no capability of developing the stuff that’s being hit by these export controls—the high-end GPUs [graphics processing units] that are used in data centers and for training machine learning models.

So, China’s worried. We’ve seen reports of the government and the private sector in China scrambling to develop some of their response plans, which really will be about doubling down on national self-development. But it’s going to be a long, hard slog.

FP: How many years would development take? And are we talking about a physical manufacturing capability, or is it a human capital issue?

JB: It’s both. China is being restricted from importing very sophisticated machines that it cannot itself make. It’s also being barred from employing U.S. persons. And that’s not just U.S. citizens but a broader category who have been critical in helping some of China’s leading semiconductor companies make strides.

People often say that China is roughly 10 years behind the leading edge in terms of its indigenous semiconductor technology development. It will take probably that long, at least, for China to try to indigenously engineer these capabilities by itself. But that’s a fairly speculative time window.

FP: How might Beijing retaliate? What can it do in response?

JB: It’s been four years now since former U.S. President Donald Trump’s tariffs and dozens of export controls, visa restrictions, sanctions, blacklists—you name it. And throughout this entire period, China has been very cautious about what we might call a kind of direct, reciprocal, symmetrical retaliation. I think China realizes that it typically has more to lose from engaging in an escalatory spiral, and it tends to prefer to want to hold on to the links that it has with the West until such time as it has its own self-sufficiency and the shoe is on the other foot.

China has some ammunition that it’s choosing not to use. Rare-earth minerals represent a huge dependency that the United States has on China for the mining and processing of something that all electronics need, and that would be a big problem if we lost access to that. China is a manufacturing hub for U.S. tech companies like Apple. China is a source of talent for U.S. universities and companies. China is a source of capital. There are a lot of dependencies there, but I think China is cautious about using those. That will not always be true. There will come some point at which the calculus in Beijing flips and Xi Jinping realizes that he’s got nothing left to lose. We don’t know when that point will come. And I do worry that people really are not anticipating that. They’re not thinking about when that point will come. And this is at a moment when Chinese leadership is becoming more and more opaque and harder for us to predict.

FP: You’ve explained already that the United States can enforce compliance globally. How does the rest of the world feel about that?

JB: Washington wasn’t willing to wait for positive consent from its allies, which is an important statement of diplomatic priorities and something that people in capitals around the world are going to take note of.

Alan Estevez, the U.S. undersecretary of commerce for industry and security, gave remarks last week in which he was asked about this, and he claimed that U.S. allies really have no problems with what Washington is doing and that he’s anticipating that, in some short period of time, U.S. allies will not only endorse what Washington has done but impose their own parallel domestic controls.

I think even if U.S. allies do go along with this, they’re going to note that the initial move was unilateral and they’re going along reluctantly. I question whether that’s a sustainable strategy for Washington to continually drag its allies kicking and screaming. It will have consequences for the positive things that the United States needs to do, like coordinating chip subsidies, harmonizing tech regulations, ganging up on China to have a unified front. And so, this coercive playbook can only be used so many times.

FP: How much harsher could these measures get, and how quickly do you see it moving to industries like biotechnology or pharmaceuticals?

JB: There are a few things in the works right now beyond the realm of export control. Relatively soon, we’ll see in the United States an outbound investment screening regime, which would be an unprecedented government regulation of cross-border financial flows. That’s likely to come in the coming months. Over the long haul, the administration has basically said it’s going to be looking at export controls on biotech, quantum artificial intelligence.

Not a week goes by that there is not some major new proposal, new companies placed on the [Commerce Department’s] Entity List, legislation being proposed in Congress. It’s a very frothy policymaking environment. It’s hard even for someone like me to keep track of. Anything is possible.

FP: Given the U.S. midterm elections coming up next week, how do you think the results could influence what the Biden administration does next?

JB: The White House has unimaginable executive authority to impose export controls and other kinds of restrictions, so it doesn’t need and hasn’t relied on any congressional legislation.

That said, a Republican takeover in Congress will only add political pressure to U.S. President Joe Biden and the Democrats, basically upping the ante. We’ve seen that being tough on China is one of the leading attacks that Republicans, particularly future presidential candidates, have been using against the Biden administration since day one. Biden will need to somehow deflect those attacks, so I think it’s likely that we could see more controls.

FP: It’s clear that the latest policy turning point causes you some discomfort. You’re worried. What are the larger costs of decoupling and where we’re headed?

JB: I am worried. The question is, is there a stopping point? Is there a point at which these controls do more harm than good to U.S. interests and to the world at large? I think we’re close to that point now.

I worry most about the U.S. relationship with China as it relates to overall global stability and our capacity to cooperate on major challenges like climate change, pandemics, or even just having crisis communications stability. The clearer it becomes that the United States is out to contain China’s development, your mind can run wild in terms of the profound geopolitical implications and risks that that creates for us all. The Biden administration and many folks in Washington feel as if the wind is at their backs and that these tough actions are working. But the risks don’t seem to be on their radar. That’s a big concern to me.

Ravi Agrawal is the editor in chief of Foreign Policy. Twitter: @RaviReports

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