The US Department of Commerce has issued a decree that expands the requirements for obtaining licenses for exporting, re-exporting, and transferring materials intended for military use.
The document also introduces the concept of a military end user in China. Today, almost any high-tech components or electronics could fall under these restrictions.
Restrictions on exporting military and dual-use products have existed before, but they applied to a rather narrow group of specific goods. Goods that were used for primarily civilian use were excluded from special export restrictions. For example, the US didn't supply China with their military aircraft parts.
However, civil aircraft engines or user-programmable gate arrays, microcircuits, chips, and other high-tech products were supplied to China without special permission from the Department of Commerce.
The new expanded rules say that if some products, components,or software can theoretically be used in military equipment, these products fall under export restrictions. Moreover, the concept of the end military user is introduced: it can be any company, including civilian, whose activity in any way strengthens the Chinese Army's combat effectiveness.
The vague wording of the new US Department of Commerce document raises a lot of questions. For instance, wheels are also used in military vehicles. Should tire supplies be restricted then? Everyone, including the military, uses personal hygiene products.
Does this mean that toothpaste manufacturers will also fall under the new restrictions as companies working to strengthen China's combat effectiveness?
Since the Department of Commerce's new initiative suggests extending American jurisdiction to foreign companies that use American technology and equipment in production, does this mean that foreign toothpaste manufacturers should start conducting stress tests and calculate possible losses?
Such questions may seem far-fetched, but Taiwan's largest chip maker TSMC is already dealing with real problems. The company, Huawei’s largest microchip supplier, is facing pressure from the United States, who is urging to stop supplying components to the Chinese manufacturer, saying that American equipment is used in the production.
It’s clear that the US Department of Commerce's new measures are actually aimed at legislatively reinforcing Washington's policy of containing China's technological development, Wang Peng, associate professor at the Chong Yang Institute of Finance, Renmin University of China, said.
"This is a continuation of Trump's long-term policy to economically and technologically contain China. Restrictions apply to goods that China itself is either not able to make, or has weak technological competencies. Trump had made it clear what his policy would be before he became president, so it’s not surprising that the United States is tightening its export policy now".
"The Trump administration is also using the current pandemic as an excuse to shift the blame to China and highlight the confrontation between the two states. The Trump White House accuses China of not properly containing the epidemic in its early stages, and, as a result, causing the American people to suffer. We see that the US has already formed a discussion agenda, consisting of suppressing and blaming China".
But at that time these measures faced serious resistance from American businesses. China is the largest market for their products and services. In 2018, Huawei alone purchased $13 billion worth of high-tech components and products from Qualcomm, Intel, Micron Technology Inc., and Broadcom Inc. Under the pressure of the technological lobby, the Department of Commerce has repeatedly extended temporary licenses to supply components for Huawei.
In addition, many companies have started supplying products through their foreign structures. The Department of Commerce’s new document should close these loopholes. However, US authorities will inevitably face opposition from businesses, Wang Peng said.
"The US may introduce these measures but will face the problem of a four-way game. Indeed, among the interested parties are not only the governments of the US and China, but also the businesses of the two countries. For companies, China is the largest market. And, of course, the goal of American companies is to maximise profits".
"In a situation where world trade is declining and the number of orders is falling due to the pandemic, US companies are unlikely to support such a policy. We will need to observe the game between the US authorities and American businesses to give an appropriate response in the course of this game".
"For example, reduce the pressure of the US authorities on China, through bilateral negotiations, further open Chinese markets, show American companies that attractive conditions and profits are within their reach. Thus, it’s possible to strengthen the motivation of American companies to resist the decisions of their own government".
According to the expert, the current measures are part of America's overall strategy towards China and that in the coming years the trend of Beijing and Washington drifting away from each other will continue, regardless of whether Trump wins the upcoming presidential election.
A rare inter-party consensus has already formed in the United States about the need to contain China at all costs and make the country a geopolitical rival. Hence the attacks by individual representatives of the political establishment in Washington on China in light of the COVID-19 pandemic.
When an internal system begins to fail or is failing, it is very important to switch people's attention away from these shortcomings, to search for external threats, and find a scapegoat. Moreover, elections are on the horizon and so Washington's policies may prove effective in the short-term.
On the other hand, this will involuntarily force China to seek an alternative for American technology, first through other suppliers, and then by developing its own. Ultimately, American companies will lose out in the end. In fact, even the Pentagon was against expanding export restrictions, saying that the external threat from China is not so great as to deprive American companies of sales markets and, accordingly, funds for further R&D.
But for now, it seems it's the Department of Commerce and anti-Chinese hawks that are running the show, and who want to lower the technological curtain. The only big question is whether it will help make America great again.
