US-China technology competition has reached a new level. In October the United States Commerce Department announced sweeping export restrictions on advanced semiconductor technologies traded with China. These far-reaching trade restrictions mark the beginning of a new era of strategic export controls which will see the US seek new alliances against its adversaries. The ball is now in Europe’s court. European Union member states need to urgently put export controls on their geopolitical and geo-economic agendas and develop a common position to avoid becoming bystanders to accelerating decoupling dynamics and their vast implications for trade, security, and technology development.
The 2018 Export Control Reform Act (ECRA) enshrined the long-standing bipartisan position, recognised by several administrations, that the export of “emerging and foundational” technologies to the United States’ adversaries must be increasingly controlled. The Biden administration has now broadly leveraged the ECRA authorities to restrict the flow of primarily commercial technologies to China, identifying advanced semiconductors as “force multipliers” for military strength and critical to US economic security.
These measures mark a strategic leap in US export control policy. Maintaining “as large as a lead as possible” in key technologies over China is a central objective to Biden’s national security strategy and it is now clear that Washington is willing to face significant economic damage in order to achieve it. Export controls, alongside an increasingly protectionist industrial policy, are set to become one of Washington’s main geo-economic tools for strategic decoupling from China. Indeed, the US government is strongly considering further control measures, including for artificial intelligence (AI), biotechnology, quantum information science, and even clean technologies.
Such restrictions have severe implications far beyond US-China trade. On the basis of so-called de minimis and foreign direct product rules, the Commerce Department can subject any company around the world that uses US-origin technology or intellectual property in its products or production processes to require a US licence for its exports. This extraterritorial power, coupled with US leadership in many critical technologies, provides Washington with enormous leverage over global technology trade that it is now weaponising against China in the area of advanced semiconductor manufacturing.
However, Washington is aware that unilateral controls risk losing their effectiveness over time and may harm US economic competitiveness by creating strong incentives for non-US companies to replace US-made inputs and secure market shares in China. The White House is therefore increasingly pressing its European (and East Asian) allies to introduce similar national controls. Using the momentum of coordinated export controls targeting Russia, the US is also pushing for the reform of multilateral export control regimes to address new security threats – particularly from China. Although China has not yet directly retaliated to the October measures, it has announced $143 billion in financial support for its domestic semiconductor industry and is lobbying Europe to deepen bilateral technology ties in the face of growing US unilateralism. And given that Beijing has recently adopted an Anti-Foreign Sanctions Law, countermeasures against any further US restrictions should be expected. The EU is caught in between and has so far remained inexplicably passive.
The need for an EU position
The United States’ new measures rapidly redefined the parameters of national security, linking it to stopping or slowing the development of critical technologies in China. Faced with Washington’s strategic leap, intensifying geo-economic competition between the US and China, and the current geopolitical and technological realities, EU member states must urgently review their existing export control policies and develop a common strategic position vis-à-vis the US and China.
First, the EU’s traditional approach to dual-use export controls and current enforcement capacities are severely challenged. Commercial technology and research are increasingly central to the development of modern weapon systems. As a result, too narrowly defined controls and control circumvention are big issues. For example, although Western technology sanctions against Russia have had detrimental effects on the country’s technology and military sectors, countless Western parts continue to be found in recently manufactured Russian missiles and Iranian drones.
Furthermore, while the October controls currently affect only the most advanced semiconductor technologies, less than 1 per cent of chips traded globally, and sectors in which European companies appear to have limited stakes, this could soon change. While traditionally US export controls on technologies were constantly adjusted (and lifted) to allow the US to remain two technology generations ahead (the so-called “sliding scale” approach), the recent measures are designed to freeze China’s development of semiconductors and allow the US to increase its lead over China in the field. As today’s most advanced semicondutors mature over time, the volume of what will be controlled – and the impact on downstream users like ICT and AI companies – is therefore guaranteed to grow.
The effects of expanding controls could disrupt EU trade and investment decisions, such as those foreseen under the recent European Chips Act, as companies will continuously adapt their research and development, merger, and acquisition activities according to US measures. Moreover, to sanction-proof their operations, European car, chemical, or smart manufacturing firms could increase investments in China, which would undermine EU strategic autonomy goals. EU-US (and EU-China) research cooperation on other emerging technologies such as quantum computing could also be increasingly affected. And the US could, in the future, make European access to critical US technology conditional on further EU alignment with US export control policy.
Finally, multilateral export control systems such as the Wassenaar Arrangement struggle to adequately update lists of sensitive technologies to be controlled in the face of rapid technological change. Agreements on these updates have always been challenging but since the war in Ukraine, Russia’s membership in three of the four existing multilateral arrangements (all requiring consensus for changes) has impeded the process. Russia’s membership (and China’s absence) in these regimes also calls their overall legitimacy into question.
A strategic approach
The EU must embed the issue of export controls in its broader geopolitical and geo-economic thinking. But before discussing any grand strategic leap, the bloc should improve enforcement of its existing restrictions. To boost their enforcement capabilities, member states should increase staff, introduce new data-driven technology, and expand information sharing. They should also swiftly adopt existing tools for exchanging licensing data between EU authorities. Intelligence agencies must be more closely involved, and collaborate with each other, to help detect the circumvention of sanctions and export controls. The EU should also consider having compliance monitoring teams in EU embassies in critical third countries such as Russia, China, and Iran.
Second, the EU must form a common position to engage with the US and China on equal footing. Because of the strong links between trade, security, and foreign policy, strategic export control will affect the entire bloc. It would be short-sighted to leave the response to the member states that are currently most affected – especially with more US controls on the horizon. If different states develop different policies regarding trade with the US and China, the coherence and defence of the single market could be jeopardised as many technology supply chains involve multiple EU countries.
Third, the EU should engage in a joint risk assessment of new security threats and their relevance for export control policy. This should include an analysis of how technology transfers – lawful and unlawful – contribute to systemic rivals’ military build-up as well as threats emerging from economic and technological dependencies on critical technologies including chips or clean energy technologies.
Finally, the EU should consider whether existing multilateral export control regimes, in particular the Wassenaar Arrangement, can (and should) address new risks for EU security resulting from rapid technological advances, civil-military fusion policies, economic coercion practices, and supply chain insecurities – especially given Russia’s membership. It should consider how a new balance between bilateral, plurilateral, and multilateral cooperation in export controls could be effective and in line with Europe’s interests. Working with a variety of international partners in this way would prevent forming a technological bloc, which would be politically and economically risky.
The US has ushered in a new era of strategic export controls. Few in the EU wish to jeopardise transatlantic security and trade relationships, but they also do not want to arrest China’s technological advancement or accelerate bloc formation. The EU must find an approach which balances these eventualities. To do so, member states need to place the issue of export controls on their geopolitical and geo-economic agendas, evaluate their existing systems, and form a common position.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.