How the U.S.-China Trade Relationship Impacts Export Control Policies

Written By Robert Daquila

The U.S.-China trade relationship has become increasingly strained under the Biden administration, particularly regarding national security concerns and access to advanced technologies. Export control policies have been a key tool for the U.S. in limiting China’s ability to acquire sensitive technologies that could be used for military purposes or surveillance. The Biden administration has continued the hardline approach of the Trump era and expanded restrictions, particularly targeting sectors like semiconductors, artificial intelligence (AI), and quantum computing. This article explores recent developments in U.S.-China trade and how they have impacted export controls.

U.S.-China Trade Relations and Export Control Policy Shifts

From the start of the Biden presidency, U.S.-China relations were marked by significant tension. While there were hopes for a potential reset, these faded after the high-profile meeting in March 2021 in Alaska, where U.S. and Chinese officials publicly clashed on several key issues. This marked the continuation of the tough U.S. stance on technology transfers and export controls.

Expansion of the Entity List and Military End-User List

A major tool for controlling exports to China has been the expansion of the Entity List and the Military End-User (MEU) List. Under Biden, more Chinese companies, particularly in the technology and defense sectors, have been added to these lists. Companies like Huawei and SMIC (Semiconductor Manufacturing International Corporation) continue to be subject to stringent export restrictions, cutting off their access to U.S.-origin goods and technology unless they receive special licenses.

The addition of more Chinese entities in sectors like semiconductors and AI highlights U.S. concerns about the potential for these technologies to bolster China’s military capabilities. In October 2022, the Biden administration further tightened restrictions, addressing loopholes that allowed Chinese companies to access advanced technologies through indirect means.

Semiconductor Export Controls

One of the most significant actions taken under Biden has been the imposition of tighter semiconductor export controls in October 2022. These rules were designed to prevent China from accessing the most advanced semiconductor technologies, especially chips smaller than 14 nanometers (nm), which are critical for military, AI, and quantum computing applications. U.S. companies are now required to obtain licenses before exporting equipment used in advanced chip production to China.

The U.S. also worked closely with key allies like Japan and the Netherlands to further restrict China’s access to advanced semiconductor manufacturing equipment. For example, Dutch company ASML—the only firm that produces the extreme ultraviolet lithography machines needed for cutting-edge chip production—has been barred from selling these machines to China.

The Foreign Direct Product Rule (FDPR)

The Foreign Direct Product Rule (FDPR), first expanded under Trump, has become a crucial element of export controls under Biden. This rule prevents foreign companies from selling products to Chinese entities if those products were made using U.S.-origin technology. By expanding the FDPR, the U.S. has effectively cut off China from accessing advanced chips, telecommunications equipment, and other critical technologies, even when manufactured outside the U.S.

Recent Developments and Trade Data

Since 2021, several key developments have affected trade flows between the U.S. and China. One of the most impactful events has been China’s retaliatory measures. In July 2023, China imposed export restrictions on gallium and germanium, two rare metals essential for semiconductor production. This move signaled China’s growing frustration with U.S. policies and underscored the fragility of global supply chains.

Meanwhile, U.S. semiconductor exports to China have sharply declined. According to trade data, semiconductor exports dropped from $12.3 billion in 2020 to $5.9 billion in 2023, reflecting the impact of export controls. These restrictions have effectively reshaped the semiconductor supply chain and slowed China’s access to high-tech components.

Challenges for U.S. Businesses

While these policies aim to protect national security, they also present significant challenges for U.S. companies. Semiconductor manufacturers and technology firms have faced shrinking revenue streams due to reduced access to the Chinese market. The Huawei ban, first imposed in 2019, and the 2022 semiconductor restrictions have forced U.S. firms to reconsider their business strategies.

For many U.S. businesses, compliance with these increasingly complex export controls is an ongoing challenge. The FDPR, for instance, requires companies to track how their products, services, or technology are used by foreign partners, making supply chain transparency critical. Penalties for violating export controls can include hefty fines and even loss of export privileges, so companies must invest in comprehensive compliance programs.

New Opportunities: The CHIPS and Science Act

The U.S. government has also created opportunities for domestic companies to strengthen their competitiveness. The CHIPS and Science Act, passed in August 2022, allocated $52.7 billion to boost U.S. semiconductor manufacturing and research. This move aims to reduce reliance on foreign suppliers and bolster America’s position in the global semiconductor market.

The act has encouraged U.S. companies to invest in domestic manufacturing capabilities, while also attracting foreign semiconductor companies to establish operations in the U.S. As a result, businesses may find new growth opportunities, even as export controls limit their access to international markets like China.

Conclusion

The Biden administration’s export control policies reflect a continuation and expansion of previous efforts to prevent China from gaining access to critical technologies. These measures, focused on sectors like semiconductors, AI, and quantum computing, are reshaping U.S.-China trade relations and creating new challenges for businesses. However, with initiatives like the CHIPS and Science Act, there are also opportunities for companies to reduce reliance on Chinese markets and invest in U.S.-based innovation. As these policies continue to evolve, businesses must remain vigilant in compliance and look for new ways to thrive in a rapidly changing geopolitical landscape.

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Sources Cited

Robert Daquila
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