BIG IDEA | ‘The Biden administration took its first trade action against China on Thursday, adding seven Chinese supercomputing developers to an export blacklist for assisting Chinese military efforts in a move that will likely further escalate frosty tensions between the world's two largest economies.’

‘The Biden administration took its first trade action against China on Thursday, adding seven Chinese supercomputing developers to an export blacklist for assisting Chinese military efforts in a move that will likely further escalate frosty tensions between the world's two largest economies.’

• ‘The U.S. Commerce Department said the seven added to the Entity List were "involved with building supercomputers used by China's military actors, its destabilizing military modernization efforts, and/or weapons of mass destruction programs." ’
• ‘The U.S. is concerned about China gaining access to American technology that helps the People’s Liberation Army close the gap with the US military and field weapons that could alter the balance of power in the Indo-Pacific.’

‘The sanctioned groups are also leading China's supercomputing development and a key players in Beijing's plan for chip self-sufficiency.’

• ‘China has been ramping up efforts to be less reliant on American chips since the Huawei ban in 2019.’
• ‘One of Beijing's goals in its "Made in China 2025" plan is to grow the country's chip industry to achieve a self-sufficiency rate of 40% by 2020, increasing to 70% by 2025.’

‘ "Supercomputing capabilities are vital for the development of many -- perhaps almost all -- modern weapons and national security systems, such as nuclear weapons and hypersonic weapons," Commerce Secretary Gina Raimondo said in a statement.’

• ‘ "The Department of Commerce will use the full extent of its authorities to prevent China from leveraging U.S. technologies to support these destabilizing military modernization efforts," she added.’

‘China’s government on Friday criticized the curbs and said sanctions “only strengthen China’s determination” to invent its own. A foreign ministry spokesman, ‘Zhao Lijian, accused Washington of misusing phony security warnings to “maliciously suppress” Chinese industry.’

• ‘ “Containment and suppression by the United States cannot stop the pace of China’s scientific and technological progress, but will only strengthen China’s determination and will to innovate independently,” Zhao said.’
• ‘Zhao said Beijing would protect its companies, echoing Chinese warnings after previous U.S. trade penalties that often are followed by no action.’

‘Unlike Huawei ban imposed under then-President Donald Trump, however, they would still be able to use Taiwan Semiconductor Manufacturing Co. and other international chip manufacturers to make supercomputer chips.’

• Why? ‘The US did not employ the “foreign direct product rule” — which would ban any foreign company that uses US technology, such as TSMC, from exporting to the seven supercomputer developers.’

‘The Trump administration used that rule to implement tough export controls related to Huawei in a move that closed previous loopholes.’

• ‘Michael McCaul, the top Republican on the House foreign affairs committee welcomed the move to put Phythium on the entity list, but said it was only a “half-measure” because the foreign direct product rule was not invoked.’
• ‘The Washington Post this week said Phytium designed semiconductors using US technology to power supercomputers being employed to develop hypersonic missiles, which are hard to detect because of their speed.’ [Fascinating & important report - worth a read]
• ‘ “The lessons we learned from the loopholes in the Huawei entity listing must be incorporated as standard operating procedures for our export control policy to ensure they are truly effective,” McCaul said.’

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