Interesting link...
If successful, this effort would enable the United States to work with Taiwan and South Korea to constrain China’s use of chips — through end-use and end-user export controls45— to ensure consistency with U.S., allied, and global interests. Importantly, to avoid import substitution by China’s domestic chip fabs, these states should export chips to China for peaceful commercial purposes, with exceptions for the CCP’s military and authoritarian surveillance apparatus.46
The highest priority for more stringent multilateral SME export controls should be photolithography equipment capable of manufacturing ≤45 nm transistors.47These countries already apply ≤45 nm-capable photolithography export controls,48 but typically grant export licenses. This practice should be discontinued. In a commendable start to our suggested approach, the Dutch government recently decided not to renew an export license for ASML to ship EUV photolithography equipment to China.49 Additional priorities include the United States, Japan, and their allies applying more stringent export controls on other types of SME dominated by these countries.50 For these SME supply chain chokepoints, these countries should presumptively deny licenses to export to China.51Foreign-owned fabs capable of manufacturing ≤45 nm in China should also be subject to export scrutiny.52To promote cooperation on export controls and to compensate for the downsides — such as near-term revenue shortfalls — the United States and its allies could partner on semiconductor R&D to maintain their technological advantages
As shown in Figure 7, SME export controls could reduce China’s chip fab capacity share from 15.2% to 10.6%. The effect on China’s quality-adjusted chip fab capacity share would be more dramatic: a fall from 3 to 0.2% — effectively ending China’s hope of competing in advanced chip production for the foreseeable future. Under the proposed export controls, China’s current stock of already-imported ≤45 nm-capable SME would gradually reach end of life,53 and China’s chip fabs capable of manufacturing chips with ≤45 nm transistors would face the prospect of shutting down.5
Chinese losses in fab capacity would be U.S., Taiwanese, and South Korean gains. Because global chip demand is independent of where chips are produced, export controls on SME would, in the long-term, shift China’s lost chip fab capacity to the democracies at the state-of-the-art. Although SME companies may lose out on lucrative Chinese subsidies in the near-term,56 they would experience little revenue harm in the long-term. They would instead benefit from more reliable partners and from a weakened Chinese SME industry.57 In response to the Dutch denial of an export license for ASML’s EUV photolithography equipment exports to China, ASML’s CEO Peter Wennink said, “if we cannot ship to customer A or country B, we’ll ship it to customer C and country D” to meet growing global chip demand, including from China.58 In addition to the advantages of trading with more reliable partners, these SME firms can help undercut the effectiveness of the CCP’s market-distorting subsidies and give democracies greater leverage against the CCP’s military modernization and human rights violations.If SME export controls successfully reduce China’s chip fab capacity, the United States, Taiwan, and South Korea — the only remaining economies with significant near-state-of-the-art chip fab capacity59 — could coordinate on further, targeted end-use and end-user controls to advance the cause of human rights and global stability.