The U.S. shouldn’t rely on export controls on semiconductors to stay ahead of China because the strategy would likely “backfire,” a former Department of Defense official told Congress this week. Lisa Porter, the former deputy undersecretary of defense for research and engineering, said government intervention in supply chains can “distort the market in ways that are hard to predict” and could lead to unintended consequences for the microelectronics industry.

Supply chain resilience requires diversification with allies and away from China, witnesses said during a Senate Commerce Committee hearing, but they cautioned senators that improving resilience is complicated, and that government intervention can have unintended consequences. The committee was examining how Commerce Department implementation of the recent China package, once called Endless Frontier, could reduce supply chain failures in the future.

While the Biden administration has made clear its intentions to pursue stronger export controls over advanced semiconductor-related equipment, companies should also be prepared to see potential export controls over a range of other sectors that the U.S. deems to be too reliant on China, Baker McKenzie trade lawyer Kerry Contini said. Contini, speaking during a July 14 Baker McKenzie conference, pointed specifically to President Joe Biden’s February executive order to address supply chain issues (see 2102240068), which mentions the medical and agricultural sectors as well as the chip industry.

The Biden administration is preparing to launch new export controls and investment screening initiatives to more closely coordinate with allies and better combat Chinese attempts to acquire advanced technologies, the U.S. secretary of state and national security adviser said July 13. Although the administration supports offensive tools, such as more funding for the domestic semiconductor sector, both officials said the U.S will continue to evolve its approach to defensive trade restrictions.

The Commerce Department should add China’s Yangtze Memory Technologies Company to the Entity List because it has “clear ties” to the Chinese military and is helping the country gain ground in the semiconductor industry, two Republican senators told Commerce. Sens. Michael McCaul of Texas and Bill Hagerty of Tennessee said the chip company also should be subject to the foreign direct product rule, which would restrict the company’s ability to import certain foreign-made semiconductor equipment that is built with or that incorporates U.S. technology. “With no [Chinese] firm or alternative foreign provider capable of providing YMTC with comparable equipment and software -- including high aperture etching tools, metrology and inspection tools, and cleaning systems -- a unilateral control” by the U.S. would “significantly hinder YMTC’s ability to implement a [Chinese] industrial plan designed to weaken U.S. national and economic security and increase its reliance on” China, the senators said in a July 12 letter to Commerce Secretary Gina Raimondo.

Export Compliance Daily is providing readers with the top stories for July 6-9 in case you missed them. You can find any article by searching on the title or by clicking on the hyperlinked reference number.

Several U.S. and foreign companies in June and July provided updates to their transactions that require foreign investment reviews and approvals. The deals include a signed national security agreement (NSA) with the Committee on Foreign Investment in the U.S., plans to file joint CFIUS declarations and a stalled purchase involving a South Korean semiconductor company.

A leading semiconductor industry group and a technology foundation are seeking feedback on challenges facing the semiconductor industry as the U.S. government prepares to provide funding and innovation incentives to help chip companies better compete with China (see 2106100028). SEMI and Mitre Engenuity said they want to make sure the government funding is “spent wisely” and “put to optimal use.” Information shared through their survey will be reported publicly in “non-identifiable form.” The survey closes July 20.

Rep. Rick Larsen, a pro-trade Democrat from Washington state, told an audience at the Washington International Trade Association that Congress views China primarily as a strategic competitor, though members recognize there are areas of cooperation as well. He said that 10 years ago, the view from Washington was the reverse.

Taiwan and the U.S. had their first official meeting under the Trade and Investment Framework Agreement since 2016, and Assistant U.S. Trade Representative Terry McCartin praised Taiwan for improving its enforcement of trade secrets protections, and its plan to change its medical device approval process.