When President Biden convenes lawmakers today to address our nation’s semiconductor manufacturing weaknesses, it will shine a bright and needed light on America’s cyber security vulnerabilies. It is this growing threat that has recently elevated in prominence a relatively unknown Commerce Department post in the obscure world of export control. When computer code and mobile phones can be used as weapons of war, President Biden’s nominee to lead the Department’s Bureau of Industry and Security (BIS) will be a key player on the front lines of strategic trade control and signify a key element of strategy in the new era of great power competition with China.
As the agency charged with enforcing the export controls on strategic technologies, BIS is as important today as a senior role at the Departments of Defense or State. News outlets recognized the elevated importance of the agency and recently profiled two potential contenders to head the 450-person agency. Dr. James Mulvenon is a recognized military intelligence and Chinese cyber expert with SOSi International who wrote the definitive analyses on China’s semiconductor foundries and their alignment with the military. In a hard-hitting op-ed, Mulvenon decried the business-as-usual Democrats, the techno-globalist “Davos set”, who systematically exported American jobs. He calls for the United States to protect its innovation from being acquired by the PRC’s state-owned enterprises and national tech champions by way of export controls, economic sanctions, merger reviews by the Committee on Foreign Investment in the United States (CFIUS), and offensive investment in American research and development.
Kevin Wolf, another rumored front-runner, served as Assistant Secretary for Export Administration at the Commerce Department from 2010-2017 and can cite chapter and verse of export control law. He developed the sanctions for Chinese military’s ZTE, subsequently removed because it was perceived as too harsh. He claims that hard sanctions should have been imposed on Huawei, rather than the Entity List designation, an instrument designed to highlight and resolve wrongdoing, rather than the asset blocking of sanctions. His goal is to advocate for greater budget and headcount for the bureau, reflecting its increased importance.
Today’s BIS is reinvented. For the first time, it can impose restrictions for human rights reasons. This has been used to punish more than 50 entities involved in human rights abuses in Hong Kong, Taiwan, and Western China. BIS’ military end user rules streamline due diligence for the exporting community and fit into a broader strategy to limiting exploitation of US resources, technology, and capital markets. Its foreign direct product rule that stops actors like Huawei, which try to circumvent controls. BIS also countered Russia’s chemical weapons program, which produced nerve agents with Novichok, used to poison dissident Alexei Navalny.
While Mulvenon and Wolf may have advocated for BIS to have these kinds of capabilities, it took the Trump Administration to make them happen, and a Republican Congress to enact the long overdue reforms at Treasury and Commerce. Moreover, the prior BIS head Cordell Hull got career employees to up their game, averaging one regulatory action per week. By the numbers, he accomplished more in 18 months at the bureau than the 18 years. Under the prior administration, the number of actors on the Entity List almost doubled to more than 1,600 today, with 330 in the PRC alone. Now that the Export Control and Reform Act has been implemented, BIS has at last permanent statutory authority and expanded responsibilities, oversight for 38 emerging technology controls and additional foundational technologies, ability to enforce laws on US firms operating overseas, and a synchronization to tie export controls to mandatory CFIUS filings.
The rebooting of BIS does not come a moment too soon. Its surge in activity reflects the shift under General Secretary Xi Jinping to fast-track the goal of PRC global supremacy. Coupled with its Made in China 2025 plan, which targets 10 strategic industries, China will build, buy, siphon, or steal the latest technology. The PRC seeks self-sufficiency in semiconductor manufacturing equipment (SME) and elimination of foreign competition so that it can control the means of production, supply its growing demand for semiconductors both in military and civilian use, and reduce US economic power and leverage.
Without the due diligence of BIS, the latest and greatest SME from the US will end up in military uses and to military actors in China. While the chips made in those machines could go to smartphones, they are also likely to enable higher precision missiles to be aimed at Americans. High-end semiconductors play a crucial role in advanced technology like 5G, quantum computing, and artificial intelligence, the weapons of the next generation of warfare. While some high-end manufacturing capability remains in the US, the global market share for US manufacturing has been halved in the last decade, from 25% to just 12%, reflecting China’s undercutting the market and cost that the US lacks modern industrial policy to support the necessary land, labor, and capital for advanced semiconductor manufacturing. The BIS nominee should pledge to maintain if not strengthen the controls on SME and other emerging and foundational technologies.