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The Broadening Strategy of U.S. Technological Restrictions on China

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The Broadening Strategy of U.S. Technological Restrictions on China

The Biden administration’s restrictions can be said to have shifted from “small yard, high fence” to “large yard, low fence.”

The Broadening Strategy of U.S. Technological Restrictions on China
Credit: Depositphotos

In 2021, the Biden administration adjusted the United States’ strategy of technological restrictions on China, from Trump’s decoupling to a small yard, high fence” approach that emphasized decoupling from China in the realm of cutting-edge technologies. However, looking back over the past three years, the scope of U.S. technological restrictions on China has expanded from its initial focus on high-end technology to encompass all technologies deemed “related to national security,” including products and virtual services. 

Such an escalation could be regarded as a shift from “small yard, high fence” to “large yard, low fence.”

The phrase “large yard, low fence” indicates that sanctions are no longer limited to high-tech fields but now include all emerging technologies and products in the internet domain considered relevant to national security. Moreover, the criteria for inclusion within the “yard” have been lowered, shifting from maintaining a relatively clear advantage in global technology to a more ambiguous aim of protecting national security. The measures do not just focus on export controls anymore but now incorporate a diverse array of sanctions, including investment restrictions, financial sanctions, tariffs, operating license, market access limitations and so far. This transition highlights the U.S. government’s trend toward attempting a decoupling from China in the technological ecosystem, rather than limited to the “small yard” of cutting-edge technologies.

Firstly, the scope of U.S. technological restrictions on China has expanded from cutting-edge technology to almost all Chinese technologies, products, and services related to national security. In terms of products and services, the U.S. Department of Commerce has expanded the scope of export controls on semiconductor products and services. These controls are not limited to high-end chips but now possibly encompass limitation measures on general chips (such as the Nvidia H800) designed for Chinese markets, cloud services, and semiconductor manufacturing equipment services for Chinese customers. 

Additionally, the Commerce Department has initiated investigations into PRC-manufactured technology in vehicles. Congressional discussions have also targeted restrictions on influential social media software in the U.S., such as the TikTok-ban bill that passed the House of Representatives recently. Several representatives have even urged Commerce Secretary Gina Raimondo and U.S. Trade Representative Katherine Tai to investigate foundational semiconductors, also known as legacy chips, imported from China. These products, technologies, and mobile application software are not considered cutting-edge technology, but they have nevertheless been included within the scope of technological restrictions on China, based on vague references to national security.

Regarding entities, the number and type of Chinese companies included in various U.S. sanctions lists have increased during the Biden administration. The number of Chinese entities facing sanctions has not decreased compared to the Trump era; rather, there has been a notable increase. This occurred despite the Biden administration’s claims of adjusting the previous government’s strategy of technological decoupling to a “small yard, high fence” approach. From 2021 to March 2024, the number of Chinese entities added to the Department of Commerce’s Entity List reached 312, compared to only 288 during the Trump administration (2017-2020). A similar trend is observed in the Specially Designated Nationals list, which is published by the Office of Foreign Assets Control in the Department of the Treasury.

In terms of geographical scope, the United States has expanded its technological restrictions on China by including other countries that are allies or partners of the United States. In January 2023, after months of negotiations, the U.S., the Netherlands, and Japan reached a consensus on jointly restricting China’s access to materials and equipment used to make advanced computer chips. Subsequently, in June 2023 the Dutch government announced new export restrictions on some semiconductor equipment, such as “DUV” lithography systems. Meanwhile, Tokyo listed 23 types of semiconductor technology that are subject to export restrictions the following month.

Secondly, the “low fence” refers to the lowering standards for inclusion within the scope of technological restrictions, which are no longer confined to high-end technology fields where the United States has a leading advantage. Instead, these restrictions have expanded into a vague range related to technologies, products, and services that could “potentially threaten national security.” Any technology, product, or service deemed directly or indirectly related to potential threats to U.S. national security and associated with China could trigger restrictions or sanctions. 

The case of TikTok illustrates this point well. TikTok, a short-form video mobile app with 102.3 million monthly active users in the U.S., has completed the migration of U.S. user information data to servers owned by Oracle Corporation, controlled and monitored by a newly established local team, with data storage fully localized. Moreover, more than 60 percent of its equity is held by institutional investors like Carlyle, General Atlantic, and Susquehanna. Despite these localization efforts, TikTok is still considered a “serious concern to U.S. national security,” leading to Congressional demands for separating TikTok from its parent company ByteDance; or otherwise it will be banned in the U.S online software market. 

Thirdly, the U.S. approach to technological restrictions on China has evolved from “mainly strict restrictions” to “targeted and diverse restrictions.” The means of sanction are no longer limited to strict export controls but now including a variety of measures including investment restrictions, financial sanctions, high tariffs, operating license bans, and market access limitations. The U.S. government employs a variety of targeted restrictive measures for different products, services, and entities, sometimes using a single approach and other times combining multiple strategies. This is done to ensure a complete disengagement from specific Chinese entities or an access ban. For example, export controls are mainly applied to semiconductors and its related products; while anti-subsidy investigations and tariffs have been initiated against key minerals and metal products (such as aluminum products). There are also Section 337 investigations targeting certain Chinese electronic computing devices and their components and modules, while a Proposed Rulemaking Notice has been used to investigate connected vehicles with Chinese-manufactured software or technologies.

The expansion of U.S. technological restrictions on China from “small yard, high fence” to “large yard, low fence” can be attributed to several key factors that have influenced the current geopolitical and economic landscape.

On the one hand, there is a noticeable trend within the U.S. political and social spheres toward the securitization of virtually all aspects of economic trade and technology. This broadening definition of national security concerns has led to an increase in the number of technologies and industries considered relevant to national security. Consequently, this shift has contributed to the evolution of the U.S.’s strategic approach toward China, moving from a highly focused and restricted regime – “small yard, high fence” – to a more expansive and encompassing one – “large yard, low fence.” The implication of this trend is significant, suggesting a future where the boundaries between technological, economic competitiveness, and national security become increasingly blurred, leading to more extensive and possibly more indiscriminate restrictions on a wide range of technologies and economic activities.

On the other hand, the resilience of Chinese companies in the face of U.S. technological sanctions has been a pivotal factor. Huawei’s ability to continue technological development and achieve breakthroughs in making an advanced chip, even under stringent U.S. sanctions, has underscored the limitations of the “small yard, high fence” strategy and measures aimed at curtailing China’s technological ascent. This breakthrough has not only demonstrated the adaptability and innovation within Chinese enterprises but also prompted a reassessment within the Biden administration. Acknowledging the ineffectiveness of prior restrictions, there has been a concerted effort to broaden the scope and mechanisms of technological restrictions. In other words, the U.S. needs to enlarge the “small yard” and lower the “high fence.”

In sum, the shift from “small yard, high fence” to “large yard, low fence” reflects the U.S.’s expanding strategy to compete with China and a possible trend to technological “decouple” from China, signaling a broader interpretation of national security threats. This approach, while aimed at curbing China’s technological ascent, raises questions about the future of U.S.-China relations and the global tech landscape. The balance between security and global technological cooperation remains a critical challenge.