In One Sentence

• A bipartisan delegation of U.S. Senators, led by Majority Leader Chuck Schumer, visited China and met with Chinese President Xi Jinping and other top officials. 
• According to Sen. Schumer, the delegation “made clear to” President Xi that the United States sought “a leveling playing field” and “responsible competition,” and that neither is present given “huge structural inequalities and serious imbalances” in U.S. economic and trade relationship with China. 
• The delegation specifically “raised the need to remove restrictions and open up Chinese markets to U.S. companies, including from the semiconductor, financial services, and aerospace industries.”
• The Biden administration released an updated set of export control rules to restrict China’s access to a broad swathe of advanced chips, including AI chips, as well as chip making tools. 
• The new rules come almost exactly one year after the Commerce Department had introduced its Advanced Computing and Semiconductor Manufacturing Items Rule to restrict the flow of advanced chips and chip making tools to China.
• U.S. Trade Representative Katherine Tai was appointed as a member to the White House Competition Council, a group created in July 2021 to “identify ways to promote competition in all aspects of the U.S. economy.”

Mark the Essentials

• Before and during the China visit, Senator Schumer noted that the United States wanted “reciprocity” in U.S.-China economic competition—namely, that American companies should be “allowed” to “compete as freely in China as Chinese companies are able to compete [in the United States.]”
• Schumer also noted that the United States does not seek a “confrontation” with China but will “prioritize economic and national security, including protecting advanced technologies.”
• The Senate delegation visit occurred months after Senate Majority Leader Chuck Schumer led Senate Committee chairs to launch the “China Competition Bill 2.0” initiative in May. The initiative proposes to “limit the flow of advanced technology,” “curtail the flow of investment to the Chinese government” and “secure domestic economic investment,” among others. 
• The updated chip and advanced computing rules, which come into effect in 30 days, are a reflection of the U.S.’ struggle to slow the flow of chips and chip making tools into China, despite the wide-ranging and heavy-handed controls imposed in October 2022. Although advertised as intended to deny China access to cutting-edge chips that could strengthen its military, the rules are in fact intended to choke the very existence of an indigenous Chinese capability to design and produce advanced chips at home—be it for military or civilian purposes. 
• To this end, two high profile Chinese GPU (graphic processing unit) design firms for AI applications were added to the Commerce Department’s Entity List.

Keeping an Eye On…

• What’s good for the ‘goose’ is evidently not good for the ‘gander.’ At his press conference on October 11 at the U.S. Embassy in Beijing, Senate Majority Leader Chuck Schumer demanded that China open up its market to U.S. companies, particularly from the semiconductor, financial services and aerospace industries. He complained furthermore that U.S. companies need to be able to compete as freely in the China market as Chinese companies do in the U.S. market. This, from the same Chuck Schumer who shepherded the CHIPS and Science Act and the Inflation Reduction Act through the Senate to ensure that Chinese semiconductor and battery electric vehicle companies, deemed to be “foreign entities of concern”, would not be allowed to even compete—let alone compete on a level playing field—in the U.S. market. With a trace of amnesia, Schumer even enjoined his Chinese counterparts to address their forced technology transfer policies that coerce American businesses to surrender their IP within the framework of mandatory joint ventures. Well, the forced technology transfer issue was sorted out a number of years ago during the Trump administration in the context of China’s new foreign investment law and the U.S.-China Phase I agreement, which contains a full chapter on technology transfer disciplines. At minimum, it is no longer a pressing issue for U.S. businesses. That said, there is much to commend in the visit by Schumer and his bipartisan Senate colleagues. Congress has been the harshest branch of government insofar as China is concerned, with Schumer having initially led the way as early as the mid-2000’s with a demand for 27.5 per cent tariffs on all imports from China (coincidentally equal to the level of tariffs imposed by the Trump administration). The Congressional Republicans, moreover, are far more anti-China today than at any time since the McCarthy ‘Who Lost China’ witch hunts of the early-1950s (yeah, this would not be a good time to ‘lose’ Taiwan). That the majority leader was nevertheless willing to travel to China and able thereafter to corral three Republicans colleagues to join him, and thereby soften the political ground for President Biden’s forthcoming meeting with President Xi in California, must not be overlooked. If China and the United States are able to further stabilize their relationship in the weeks and months ahead, a fair share of the credit should deservedly reside with the Senate majority leader.
• Much like the genie of protectionism is hard to force back once released, the U.S. political establishment is discovering that draconian export controls, once brandished against a determined adversary, only beget more and even more export controls to achieve the said objective. On October 17, one year after the Biden administration issued its unsparing China-focused export controls on advanced computing and semiconductors (and ran many a victory lap thereafter), the administration found itself in the uncomfortable position of having to issue yet more export control rules—this time, even more expansively written—to achieve the same objective. The 2023 Semiconductor Manufacturing Items Rule and the 2023 Advanced Computing Rule, 436 pages in total, cover an immense range of activities and measures, including revisions to the commerce control list with regard to semiconductor manufacturing items and advanced chips, expansion of the advanced computing foreign direct product rule to a host of Middle Eastern and other countries, and adjustments within the export administration regulations’ (EAR) destination as well as end-use controls, among others. The rules are intended to achieve the same objective listed in the October 2022 order; in other words, to restrict China’s access to advanced computing chips as well as its capability to develop and maintain supercomputers, and manufacture advanced semiconductors. Huawei’s 5G Mate 60 Pro phone, released during Secretary Raimondo’s visit in late-August, had blown a hole—albeit a small one, through the October 2022 order. The question that will dog the expanded October 2023 order is this: how soon and how large will the hole be when this new order too is breached? For breached it will be, via a combination of circumvention, innovation and workarounds at China’s end.

Expanded Reading

• Commerce strengthens restrictions on Advanced Computing Semiconductors, Semiconductor Manufacturing Equipment, and Supercomputing Items to Countries of Concern, Bureau of Industry and Security, U.S. Commerce Department, October 17, 2023 
• Tech war: US sanctions on Biren and Moore Threads strike strong blow to China’s GPU champions, South China Morning Post, October 18, 2023
• Biden cuts China off from more Nvidia chips, expands curbs to other countries, Reuters, October 17, 2023
• Senate Majority Leader Senator Chuck Schumer at a Press Availability, U.S. Embassy & Consulates in China, October 11, 2023
• Majority Leader Schumer Statement Following Meeting With Chinese President Xi Jinping, Senate Democrats, October 10, 2023
• Visiting China, Schumer urges fair treatment of US firms, Reuters, October 7, 2023
• Ambassador Katherine Tai to Join White House Competition Council, Office of the United States Trade Representative, September 29, 2023