Chips: Liberated? Trump’s Semis Tariff Gambit
What are we looking at right now? Well, for the last two hours, nothing. It’s Eastern weekend and it may be calm. I was in the middle of writing my weekly column, and I decided for once that I’m not writing about tariffs. I’m writing about higher education and tourism, which are services that contribute to our trade surplus, which Trump is in the process of destroying—both higher education and tourism. But I’ve avoided tariffs; they’re on the way, and you picked out the big one: semiconductors. Not just semiconductors, but a very wide range of downstream products, which is going to be, depending on what he does, potentially very disruptive to the economy. We’re talking laptops, iPhones—potentially not cars because they’re covered separately—but if it has a chip in it, it may be vulnerable. Thanks to the internet of things, that’s a lot of stuff—you know, your toaster, your refrigerator.
If you don’t have 145 percent tariffs on China, you’re going to get some other percent tariff because it has a chip in it, unless they end up saying, “Well, we’re only going to assess the tariff on the value of the chip inside the product,” which would make it, in some cases, de minimis or small. But right now, it looks like it’s going to be broader coverage than that. The mystery is what he’s trying to accomplish because he’s given conflicting goals. One goal is the revenge goal: we’re getting even for all the people that have taken us to the cleaners for the last 50 years, and we’re rebalancing. Another one is it’s all a negotiating tool to get them to bring their barriers down. It’s artfully designed so we don’t have to do anything. All we have to do is wait for them to make concessions, and then our concession will be not to impose the tariffs that he’s announced. I mean, if that works, that’s a good deal, but we’ll see.
The third goal, which is inconsistent with the first two, is revenue. They need the money to pay for the tax cuts. Depending on what we’ve estimated at different levels, our current estimate is 330 billion a year, which is not peanuts. It could be more, could be less; that’s about half of what Navarro said it would be. But that’s only true if the tariffs stick. If he negotiates them away, then the revenue goes away. The fourth goal, which is the most interesting one, which you’ve talked about in the past, is let’s bring manufacturing back here. Let’s build all this stuff here because, as he said repeatedly, if you make it here, there’s no tariff. What he doesn’t talk about is the obvious time gap. Tariffs go into effect now. If you’re building a factory, if you’re building a fab plant, for example, you’re talking lots of money and lots of years to put the pieces together to build it.
Then you have the answer to the question we talk about later: can you even find the workers to fill the jobs that he’s creating at the same time that he’s busy deporting most of them? Which is the real goal? It changes from time to time, and with chips, it’s particularly hard to tell. It’s not really a revenge issue because most of this stuff is covered by the Information Technology Agreement, so it’s zero tariffs already. It’s probably trying to force manufacturing here, but in the process, you know, it’s going to be one of the largest revenue transfers from the poor to the rich in history because the poor pay the tariffs disproportionately. The tax cuts they’re going to pay for go to the rich disproportionately, so it’s going to make economic inequality in the United States a lot worse than it already is.
All right, Jay, we got a mess. It’s probably going to continue to be a mess, but we’re probably going to get more tariffs than we had before. You have a lot of executives who are trying to think about what the hell they’re going to do next. We got the design side; we got the fabs; we got SME. Let’s start with design. If you’re a major chip designer, what’s going through your mind at the moment?
So, if you’re a major chip designer, you have two concerns. One is: are you going to lose access to the China market because China’s going to have counter-tariffs, and now suddenly your products are much more expensive? Maybe we’ll come back to that. The other question is, what are the tariffs on—not China—but on Taiwan? I know there are all kinds of side agreements and other things going on here where some chips are coming in at zero tariff. But one, is that going to continue? Because it sounds like there are threats to have more tariffs on Taiwan for various reasons. Not all chips are covered, right? GPOs aren’t covered under the rules they’re supposed to; they actually get tariffed.
Semi-analysis actually put out a good piece last week showing that there’s a loophole: if you import your tariffs through Mexico as part of a system, then you don’t get that tariff. But if you import the GPUs directly to the U.S., they’re tariffed differently than CPUs, which hurts my brain and just seems counterproductive. You want to do assembly in the U.S.? Well, you’ve just made that more expensive than doing assembly in Mexico. You want to win the AI war—whatever that is—you’ve just made that whole process more cumbersome, more expensive. So, I’m confused; that’s kind of where I end up on it.
To answer your question, on the design side, if I’m running Qualcomm, Nvidia, or Broadcom, I’m worried that suddenly my products are going to be more expensive somewhere along the line and that I’m going to lose access to 10 to 20 percent of my revenue that goes through China. All right, let’s do manufacturers. I go back to Bill’s question, which is: what’s the goal here? Do we want to bring advanced semiconductor manufacturing back to the U.S.? If that’s the goal, we’ve already achieved it; we already have TSMC building advanced chips in Arizona.
The supply chain is secured; that plant is very dependent on Taiwan’s mothership for R&D. If you want an American company to have advanced manufacturing of semiconductors in the U.S., then the solution is to give Intel 50 billion dollars, and problem solved. Because Intel can manufacture chips; it’s not a technical problem anymore. The problem is an economic one, and they just need to get over certain cost curves in order to be able to manufacture here. If that was just purely a national security concern and we wanted to have a supply chain fully domestic in case of war, then just throw a bunch of money at Intel; they can get it done.
But that causes all kinds of other issues. We don’t like subsidies. It’s confusing to me what the goal is. Well, one, there’s a distinction that you’re making, and that’s an important one. Biden was a “carrot guy.” Trump’s a “stick guy.” Biden’s approach was let’s bribe companies into doing what we want; that’s really what the Chips Act was about. I think it’s what a lot of what the IRA was about—tax credits, subsidies, give them incentives. Trump says let’s threaten them and let’s bully them into doing what we want. It’s a lot cheaper for the federal government; it’s not necessarily cheaper for the companies, as you’ve just pointed out.
In a dim attempt at being bipartisan, I’ll say that I don’t think the Biden administration was particularly clear about what they wanted from semiconductors either; there’s a lot of conflicting goals within their semiconductor motions. I wouldn’t disagree with you on that. The process as it stands now is very confused; it’s not clear what we want, and most of the paths that I see going forward involve everything being more expensive for the average consumer.
Then we get into the whole question of what China is going to do to respond because there are some pretty serious counter-tariffs they have too, which are bad for all these companies. I think the level of tariffs is such that they’ve really prohibited most trade between the two countries if it stays there. My footnote to what you just said is that I think Trump wants a deal and believes that he can negotiate one with his good friend Xi Jinping. I think this causes some consternation inside the administration because he appointed a number of people that are just decouplers; they don’t really want to have anything to do with China.
But he has this view that he can make the deal, and when he says that, I always think back to 2018 and 2019. We’ve seen this movie before; he negotiated before, he made a deal, and in my view, he got played. He went in with a whole bunch of demands and in the end got what they promised to buy a whole bunch of stuff. Then they didn’t. When he was asked about all the things he wanted—no subsidies, no stealing IP, this long list of stuff, which by the way is good stuff—he said, “Well, that’s for phase two,” which, of course, never happened.
I think you’re going to see a replay. Right now, it’s like a sumo match. If you’ve ever seen one, you’ve got these two enormous fat people in the ring doing a lot of foot stomping, glaring and frowning at each other, throwing rice around, and then there will be a belly bump, and eventually, they’ll get to the table. All they have to do to get to the table is disguise who made the phone call first because that’s the issue—neither one wants to be the asker; they both want to be the giver. You know, you have an announcement that simply the two leaders have talked and now we’re going to have a meeting, without discussing who called whom.
So he has the meeting, and I think what you get is what you got before. One consequence may be not a 145 tariff on their stuff and not their 125 tariff on our stuff, but some smaller number. I don’t see right now any scenario where any of these numbers get below 10 percent, which is a significant bump up for the U.S., whose average tariff level for decades has been 2 to 2.5 percent.
I just want to say I’m a little disappointed there was a PolyMarket market on “Does Trump impose a 200 percent tariff on China before June?” and we’re now down to 19 percent. It spiked up to 60 at some point. If we’re going to go this high, you might as well get—I mean, give me a thousand. How about 949? Let’s really throw it in their faces.
All right, let’s be a little positive. So we’re criticizing them for not having prioritization. Bill and Jay, why don’t you lay out your kind of independent vision? All right, if we are going to have this tariff energy and bring it towards the semiconductor industry, how would you sort of deploy this tool in a way that furthers interests you define? I’m struggling here a bit because I feel like we’re having a—you’re both very intelligent, smart, serious people, and we’re trying to have a serious conversation about something that makes no sense.
But I think a few weeks ago, there was a moment when I think the Chinese establishment was very, very nervous. Obviously, I have no idea what Xi Jinping or the senior party members are thinking; I have no insight into that. But definitely from the commentary I was reading around the semiconductor industry, there was real fear, real trepidation. That shifted the minute tariffs went wider to the rest of the world. Liberation day was a really positive move from the Chinese perspective. If he’d stayed the course, if he just held on to that and just tariffed China, there was a moment there where he could have actually affected the balance of trade.
Then he tariffed everybody else, and we lost all our allies. Then he reversed on a bunch of the tariffs, which eroded the negotiating position. There was a moment there where he actually had a shot at it. But they should be worried because I think the way this is going to play out with other countries is there’s going to be negotiations. They’re lining up to show up here, and I think as that rolls out, one of the major U.S. asks of the other countries is going to be, “Do to China what we’re doing to China, put tariffs on them just like we’re putting tariffs on us.” This is not a semiconductor-specific ask, but it’s an important one, and it’s one that will resonate with some of these countries—not all of them—because Chinese overcapacity in a number of sectors is a huge issue.
Everybody knows about steel, aluminum, solar panels, also cars, tared cars, EVs, and next is commercial aircraft, which is already getting started. Other countries are beginning to see what it’s doing to their domestic industries. It’s not just the EU on EVs; it’s India, Turkey, South Africa, Brazil, Canada, Indonesia—all contemplating taking adverse tariff actions against China for various reasons. They’re not all the same; in Indonesia, it’s textiles, which is completely different. So there are a lot of people that have figured out what’s going on, and they’ve figured out that what’s going on isn’t good for them.
What is missing is a collective approach because right now, every time you act unilaterally, it’s like squeezing a balloon; it just goes somewhere else. The big victim of what we’re doing to the Chinese is going to be the EU because the stuff they’re not selling us anymore is going to go there, and they’re worried about that. So, the Chinese should be worried because if it works, everybody’s going to be ganging up on them. They’re going to have a much bigger problem than just a bilateral problem with us. I think that’s absolutely true. I just worry that the Europeans no longer trust the U.S. to sort of be the center of that coalition. You’re exactly right. We are busy alienating our friends actually more than our enemies. Russia and Iran are exempt from the terrorists; we don’t trade much with them anyway, but it was sort of a symbolic odd step. You’re right. I mean, why are these people going to help us the way we’re treating them? It just doesn’t make a lot of sense.
I saw a story recently that ASML, which makes these critical EUV tools that advanced semis are sort of dependent on, during the Biden administration, had given the software keys to the U.S. government to make sure that China wasn’t able to use the most advanced systems. My understanding is that with the new tariffs that came in, the Dutch government took the keys back. We’ve sort of moved in the other direction now. I think you’re right because there is a lot of common interest out there. All those companies you mentioned, and a few more, have reasons to worry about China’s export engine. Maybe we all come around.
But we need that sort of collective action because otherwise we’re going to be in a tough spot. That’s certainly the tone I got from the Chinese press, which was that they were very worried, very isolated, and they knew it. Then Liberation Day came, and suddenly the tone shifted overnight; they were very happy and very optimistic. Some of them explicitly said that the U.S. has overplayed its hand. Now it’s not the world against China; it’s the world plus China against the U.S. That’s really interesting. I hadn’t thought about it that way, but you’re making a good point.
I think you’re right. I’m trying not to be alarmist because I think there’s a clear sign that there are countries out there that are lining up to negotiate, as you said, and want to come to some form of deal. Hopefully, some of that parlays itself into a sort of collective action against China, not just a bilateral series of actions. My instinct, though, is that the countries that will be most reluctant to do that are probably going to be Japan and Korea, which are particularly relevant in the semiconductor sector.
Yes, the sort of second-order impact on semiconductor export controls is significant. We saw the H20 get hit earlier this week, but that’s the easy one. The manufacturing equipment requires some help from your friends in order to do it. Sure, you can go extraterritorial, you can bang the drum, and maybe you can squeeze tighter than you’ve been able to lately. But I don’t know; I guess I’m of a few minds on this. On the one hand, these countries are going to be so much more stressed about other trade disjunctures that, from their perspective, Tokyo Electron getting a little screwed over is really not the end of the world if we’re talking about 20% tariffs on an entire economy.
However, you’re just also in a less friendly mood. If this is how this country that’s not giving you a lot is treating you, it’s just going to be another ask. If you’re thinking about reconsidering your relationship towards China, like this is the thing that they’ll be most excited about. They’ve launched a new charm offensive; I think it’s the third one. What the United States is basically telling everybody is that we are no longer a reliable partner. If we’re not a reliable partner, that has a lot of implications.
One implication, particularly the way it’s rolled out, has magnified this concern: how can you be confident that anything we say is going to stick? Tariffs are on, they’re off; they’re up, they’re down; there are no exceptions, then there are exceptions, then they’re postponed. The deadlines change, and now we’re making deals. If I were a foreigner, I would have no idea what’s going to happen next. I wouldn’t have a very high level of confidence that any deal I make is going to stick.
Canada and Mexico are prime examples. Trump negotiated USMCA; you’ll recall he called it the best and greatest trade agreement in history. Now, five years later, he’s dismantling it. Why would anybody have confidence under those circumstances? It’s interesting because the Biden administration ended up pulling the Netherlands, Japan, and South Korea a little bit. But the prime directive was that we want to be friends with our allies. I think that did put a real brake on how aggressively they ended up being on SME.
With Trump, we’re getting a few different impetuses, which are different from that first. We don’t care about how the allies feel, but we also want to beat China more, maybe, and we want to make deals with China. There are multiple pathways that you can see this playing out where you alienate the allies. ASML doesn’t care about figuring out a way to service DUv and sell EUv into China, or they squeeze so hard and there’s enough IP in it that they can actually get this stuff stopped. They just don’t care what the allies think in a way that the Biden administration did, which sort of slowed their role.
There’s a very wide range of outcomes if you’re an SMIC engineer trying to think about what you will and won’t have access to over the next five years. I think it’s one of those things that’s fascinating to me. My sense is that there are all these competing camps within the Trump administration on these issues, some pulling in diametrically opposite directions.
There are some who favor complete decoupling and then others, Elon chief among them, who are dependent on China. Elon’s factory in Shanghai is the nexus of his whole fortune. I wonder about this a lot because, like Elon, where do his loyalties lie? He has a lot of influence in this administration; maybe it’s waning, but he has a lot of influence. Tesla is entirely dependent on that gigafactory in Shanghai because they use it to export everywhere. He has to be sympathetic to China because from his perspective, there are what, 56 EV companies in China today, all competing with him. Some of them are starting to surpass him.
You have to think that BYD, XPeng, and Li Auto would all love to see Tesla take a hit and get shut down. You have a strong voice in China arguing against Tesla. If Elon can’t deliver a friendly U.S.-China relationship with all his influence in D.C., what’s the point? They’ll shut him down. How does that play out? That gives me some hope that there is room for some form of peaceable outcome to this.
The gossip last year was that the Chinese were optimistic because they thought Elon would take care of them, that he would come in and save the day. What you have to keep in mind with Trump is that everyone who has ever worked for him gets thrown under the bus sooner or later. It’s just a matter of time. When he was inaugurated, I gave Musk six months, and I’m sticking to that. His term runs out in May anyway, but the question is when his influence runs out. They all get thrown under the bus; it’s just a matter of time.
I think that is the one thing we can be certain of: we are going to get big swings when it comes to whatever’s going to happen with the Chips Act, export controls, and tariffs. What that level of uncertainty does for the future of what was started in the first Trump administration of this whole push to bring domestic manufacturing back is critical. There is a strain of thought that he’s just negotiating and that the tariffs are just a bluff, a negotiating position. Ultimately, we’re going to come back to a much more reasonable lower level of tariffs, and there’s no lasting harm.
I think that’s misleading because one bill, to your point, is that we’re going to end up with higher tariffs no matter what; that’s pretty clear in a meaningful way. There are other second-order things that worry me a lot. In particular, I look at the way tariffs are being implemented in China to counter tariffs. What this whole thing has done is create a big window of opportunity for domestic Chinese chip design companies. The places where they’re strongest are trailing in manufacturing analog products, and they have, I don’t know, 500 companies competing in that space.
This is one of those things I was saying: up until very recently, the Chinese semiconductor industry was in a really gloomy headspace. They were very worried; they had too much competition and were constrained geopolitically. What these tariffs have done now is make U.S. products, like those from Texas Instruments and Analog Devices, much more expensive inside China, just at the moment when the Chinese companies are unleashing a massive wave of analog capacity.
This is going to propel some number of domestic Chinese chip companies into a place where they can now compete globally. Once they’re competing globally, we’ve seen this many times before: it sort of wrecks a lot of foreign competitors because they’re going to be very cost-competitive. They have a very low cost of capital; it’s going to permanently alter the chip design landscape because we’re going to start to see these Chinese leaders, these Chinese champions, emerge onto the global stage. I don’t think that would have been possible for another five years without the tariffs.
It’s a timing issue. When they first implemented the October export controls, our reaction at CSIS was that it raised three questions: the effect on U.S. company revenue, the effect on Chinese policy, and the effect on the design-out issue, particularly the extent to which it incentivized companies to leave out U.S. technology and avoid the scope of controls that way.
The second question, the effect on Chinese policy, seems to me is—it’s what you said. I don’t think it changed Chinese policy at all because I think they’ve spent the last 10 years moving in the direction you just described. But it’s accelerated them and we’re going to have to deal with this problem a lot quicker than we would have otherwise.
I think it’s pushed a lot of sectors past the point of no return, which wouldn’t necessarily have happened; they probably would have, but things could have turned out differently. Now we’re going to see a permanent layer of Chinese competition in some pretty important markets.
What is the corporate and policy response on the lagging edge and the analog side? I think it’s going to be very challenging for companies like TI, which has spent the last five years radically upgrading its capacity to the point where it can now compete on cost with Chinese low-cost competitors. They spent a lot of money, about 10 billion dollars, lowering their cost structure. They can probably skate through this. But for some of the others, particularly the European companies like STMicro and Infineon, NXP, and Analog Devices, are now going to have to deal with a new level of Chinese competition.
I think it’s true in analog, it’s true in memory, a lot of categories where they could have been operating for years while sort of keeping an eye on Chinese competitors but not really worried about them. Now we’ve moved forward to suddenly have a new bunch of serious competitors. Is there a tariff answer to this? Is there a subsidy answer? Is there a consolidation answer to this? I don’t think there’s an easy answer. I don’t think that the tariffs are working, because this is one area in which demand is actually coming from the Chinese side.
The bright spot in analog chip companies’ revenues lately is Chinese EVs, and those companies are going to lose a big chunk of that market. Their growth prospects are going to force them to lower their outlooks; it’s going to be a tough time for them. The other thing that’s happening too is that it’s clearly driving Chinese companies to move to more domestic solutions. This is already happening; since 2018, I’ve been tracking it loosely. Every year or so, Chinese domestic chip consumption goes up a point.
I think right now, every year it’s a little bit more. It’s going to take a long time to get serious; they’re still in single digits, but in certain sectors, it’s higher. I think it’s going to take a big step forward in the next year. Once the domestic competitors get there, they have more funding, more cash flow, and can do more R&D. This makes them more competitive; they become a permanent part of the industry in a way that they didn’t have to be.
Jay, do you want to talk about the leading edge a little bit? How are we feeling about Intel and TSMC in relation to Huawei deciding to vertically integrate the entire semiconductor ecosystem? I still think China has a ways to go in terms of leading edge. I know there are constantly rumors that they’ve made some big breakthrough, but they’re not quite there yet. I still think it’s going to take them a few years. Certainly, the tariffs have given them new energy, confidence, and sort of accelerated their efforts. That process, but Huawei is still pretty dependent on TSMC, and they’re just playing that constant game of whack-a-mole. They are constantly finding new avenues to get TSMC wafers, and that’s going to continue.
The other element of this, too, is we seem to be cutting back on the entire federal government of the U.S. So how does somebody like BIS enforce the export rules that are already in place when they can’t get staff and all the other branches of the government are getting cut back? Huawei and a lot of other Chinese companies are constantly playing shell company games, moving around entities. I think it’s tricky. I think it’s going to be very, very tricky. The thing that really confused me most this week was now it looks like Trump has got his sights set on Nvidia like Nvidia’s the enemy, which I thought the point was we want to win the AI war. Now we seem to be directly targeting the company that is our champion of that, which is leading the way in AI compute. It’s an American company, and we seem to be targeting them. So I don’t know what to make of that. Hopefully, that’s just negotiating bluffing, but it’s very strange to me.
Yeah, I agree with that. With Trump, it gets very personal. If he doesn’t like somebody, that becomes policy, and it’s hard to predict. I have to say, though, going to Beijing the day after the H20 ban drops is like meeting with Leongwen Feng. I get it, but I also don’t. It’s like your future is not in that country. I’m not sure how much clearer they need to make it. It did seem like an odd tactical choice. He showed up in a suit and tie too; he wasn’t even wearing his leather jacket.
Well, he’s trying to play both sides, isn’t he? But like Trump can force him to not play one side anymore. Still, it’s like seven percent of revenue, fifteen percent of revenue, something that depends on how you count Malaysia. I don’t know. This reminds me of what we went through with the financial crisis in 08 and 09. The discussion was, are there some banks that are too big to fail? In this context, are there some companies that are too important to punish or to fail? He may be thinking that Nvidia is one of those companies.
Trump is limited to what he can do because, exactly what Jay just said, what are the consequences? If you want to win the AI contest, you need Nvidia. If you’re going to destroy Nvidia, there’s a whole boatload of collateral damage that you need to think about.
I think so too. From Nvidia’s point of view, Jensen has to walk this tightrope because they have been the most vocal critic of these policies for years, going back to the Biden administration. They’re the ones bearing the brunt of it; it’s them and ASML who are really feeling the big hit. Every new wave of sanctions is a few billion dollars less revenue for Nvidia, and he has been quietly pushing against that. Now, I think going to Beijing makes it a little bit more prominent, and he has some reason to be concerned.
There are 20 or 30 GPU companies in China. None of them are particularly good, but they’re getting better. There’s certainly Huawei, which has some pretty impressive AI chops now. If Huawei can continue to get access to TSMC or whatever Smith gives them, Huawei suddenly becomes a pretty serious threat to Nvidia. It’s like I’m saying with the analog companies: if you create a vacuum in the market, there are going to be Chinese competitors who fill that. Once they’re there, you can’t remove them; they’re entrenched. I think Nvidia has some reason to be concerned about that.
To Bill’s point, what are you going to do? Are you going to tariff the biggest AI company we have? Are you going to punish them? That seems like a risky strategy for even Trump to pull. That was the really frustrating thing about, first, that the H20 ban took so long, and second, it hasn’t been accompanied by figuring out how to plug this TSMC loophole and how to plug all the semiconductor manufacturing equipment loopholes.
We’re in this weird world where we’re helping Huawei on both dimensions by allowing them to slowly self-improve and sell roughly competitive chips to what Nvidia can bring to the market. They have this crazy cool rack now, which is tailored for the Chinese market because they don’t have to stress out about power as much as we do. We are not getting the nuanced, optimized version of this. We are getting the lowest common denominator policy choice.
Even if you do have four goals which are kind of competing with each other, you are not at the sort of frontier of what can be accomplished because you’re just trying to write the regulation that takes the least amount of work and is the fewest pages, the simplest to convey, or that Chat GPT can write for you.
I have a positive suggestion: give BIS or Commerce a thousand inspectors. Let them go enforce all the rules that are in place. I would take that. I would like to get rid of the tariffs too, but that’s different. This seems achievable. Let’s actually put some people in place. Let’s not make them efficient; let’s just throw added capacity at them so they can go out and chase down all these Malaysian companies that are suddenly building up massive data centers. We have all these folks in the IRS we’re apparently firing; we can just shift them over, right?
I don’t think that the budget—well, the 25 budget—featured either a cut or no significant increase. The only significant increase BIS has gotten is on the import side to deal with the Huawei hardware coming into the United States. They haven’t gotten expansion on the export side, particularly on the enforcement side.
There are a bunch of us; we did a paper on this a couple of years ago, and we’ve been advocating for budget increases. We’ve met with people on the Hill, and it resonates. There’s a lot of sympathy for it, but it just never ends up quite happening. Now we’re in the era of drastically cutting government and coming in and saying, here’s one agency that ought to get a 25 boost in personnel. I don’t think that’s going to fly, even though it should.
Maybe let’s close on this, Bill. You’ve been in this game a long time, and we’re at a point where thinking does not seem to be valued, and that’s kind of what we do for a living, I guess. Do you have some words of encouragement for myself and everyone else who cares about this stuff to keep our heads in the game?
I wish I could, but I’m thinking of the old quote: the more things change, the more they stay the same. I used to work on steel when I was on the Hill. I worked for John Heinz from Pennsylvania and was staff director of the Senate Steel Caucus for 17 years. I spent a good part of my life trying to save the steel industry. Then, 20 years later, I came back to it when I left the National Foreign Trade Council and joined a law firm which represented steel companies. I ran into one of their lobbyists, and I said, “Well, I’m back 20 years later.” He said, “Nothing has changed. The issues are all exactly the same. The people are different, but nothing has changed.”
In a way, it’s the same here. It’s been a cat-and-mouse game for 50 years, and that’s never going to change. The enforcement people are always on defense, and the biggest mistake you can make is to think of this as something where you want 100 percent effectiveness, which is impossible. You have to look at it as a management problem.
The analogy I’ve always used is think of Iran trying to develop a nuclear capability. They need 100,000 centrifuges. If your enforcement goal is to make sure they get zero, you’re doomed. If your enforcement goal is to make sure they only get 25,000, and they all cost five times as much and it takes them 10 years rather than three years, those are attainable goals, and you can manage to that.
But that doesn’t satisfy the politics of this because politically, the Congress and the China hawks want zero. They want Huawei out of business. They don’t want any chips of U.S. origin going to China, and they don’t want ASML doing anything in China. Every administration has to contend with this faction that has been there forever, believing that China is an existential threat.
I once had a conversation in the Bush administration with a guy at the NSC who had this portfolio. We were talking about something else, and he interrupted himself, saying, “There are a million Chinese who wake up every morning thinking about how to kill Americans.” My immediate reaction was, “Well, there are a lot of people at the Pentagon who wake up every morning thinking about how to kill Chinese; that’s their job.” He looked at me and said, “Not nearly enough.” Those people are on the Hill; they’re in every administration, in both parties, in think tanks, academia, and in the media. They’re always there, and right now, they’re more ascendant than they have been in the past.
I’ve tended to have the view that the best policy we could pursue in both countries is to make sure that those people don’t end up in charge. I’m worried because a number of those people are in the administration lobbying. One of the topics under discussion is should we go to an embargo, which I think would add very little to what we’ve already done. Symbolically, it’s an issue. So I’m gloomy about this.
I hope that cooler heads will prevail. I think the semiconductor industry, in particular, has done a decent job of explaining what the consequences of over-control are for them. They didn’t get nearly as far as they needed to get in the Biden administration, and I don’t think they’re going to get as far as they need to in this administration either. But at least they are putting up a good fight; I give them credit for that.
Earlier on the show, we spoke about how Bill Ryan’s son teaches religion at a Catholic school, so I had AI generate a transcript. I asked it for some Bible quotes related to our specific conversation about BIS export controls. Bill, do you want to pick your favorite out of the list? “Nothing is concealed that will not be disclosed, nor hidden that will not be made known.” Luke 12. That’s a good one.
My favorite was, “No wisdom, no understanding, no counsel can avail against the Lord. The horse is made ready for the day of battle, but victory belongs to the Lord.” We’re going to throw it up to God to make sure we can get export controls right. My son would agree with that.
“Plans fail for lack of counsel, but with many advisors, they succeed.” Proverbs 15:22. That’s all right; I’m going with that. I like this gimmick; I think we’re going to stick with it. Thank you, Bill, for being a part of China Talk. It’s an honor to be invited. Likewise, thank you, guys.