William Alan Reinsch, Jack Whitney, and Matthew Schleich
Export controls on semiconductor manufacturing equipment (SME) represent a key focus of ongoing U.S. government efforts to “choke off” China’s access to leading-edge semiconductors. The United States, along with allies such as the Netherlands and Japan, is a global leader in production and R&D for chipmaking tools. By imposing uniquely broad and unilateral controls on U.S. toolmakers’ access to the Chinese market, however, the U.S. government has turbocharged Chinese efforts to wean off all U.S. SME due to growing concerns about the reliability and trustworthiness of U.S. companies. In this way, expanding U.S. trade restrictions are facilitating the “design-out” of U.S. toolmakers in Chinese semiconductor supply chains in favor of domestic and third-country (i.e., non-U.S. and non-Chinese) companies. This growing trend in China’s market, the world’s largest for semiconductor manufacturing, threatens the long-term leadership of the United States in SME by diverting revenue (and R&D investment) away from U.S. industry. As a result, current U.S. export controls risk jeopardizing the economic and national security of the United States by hindering U.S. companies’ market share and accelerating China’s relative technological gains. This report, the second in a series on U.S. semiconductor export controls, outlines the importance of SME to chip markets, key types of tools being designed-out, and the rapid growth of Chinese toolmakers. It also evaluates how toolmakers based in third countries have leveraged U.S. unilateral controls to win new business with Chinese customers. The report argues that the United States should limit further unilateral controls on SME sales and consider new incentives for allies to create multilateral export regimes, which could mitigate some of the negative impacts of current controls on U.S. companies.
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