China’s government has used dumping to destroy overseas tech industries and take them over, former Department of Commerce (DoC) Under Secretary Nazak Nikakhtar told EE Times. The next targets are legacy chips and electric vehicle (EV) batteries, she predicted.

Nikakhtar began her career at DoC’s Bureau of Industry and Security (BIS) just after China joined the World Trade Organization (WTO) in 2001. She had just started seeing “systematic practices” by China that “hollowed out” U.S. tech industries. The October 2022 export control rules of the U.S. that are aimed at slowing China’s advance into leading-edge semiconductor nodes have failed, she said.

“SMIC (Semiconductor Manufacturing International Corp.) is building major capacity to flood the markets with cheap chips,” she said. “TSMC (Taiwan Semiconductor Manufacturing Co.), Samsung, SK hynix—they’re already all starting to feel the effects of it. I’m just reflecting voices that are currently in the administration who want to take a tougher stance. They know that there are gaps in the laws that they want to tighten. There’s also enormous pushback from industry. They want to keep the status quo.”

That pushback is going to be massive during the 2024 U.S. general election, she said. China wields access to its domestic market as a threat against multinational companies to force them to lobby the U.S. government, she added.

In addition to legacy chips, China is targeting batteries used in EVs and other devices ranging from smartphones to forklifts, according to Nikakhtar. She’s now a partner at the Washington, D.C., law firm Wiley Rein, where she’s in charge of national security and Committee on Foreign Investment in the United States (CFIUS) practices.

She expressed surprise that so few dumping cases are filed against lithium-ion batteries from China, which dominates the business. But, she added, companies outside China are “terrified” of retaliation.

E.U. and current U.S. and government officials voice similar concerns. The E.U. in September opened an anti-subsidy investigation into Chinese EVs.

“Global markets are now flooded with cheaper Chinese electric cars, and their price is kept artificially low by huge state subsidies,” European Commission President Ursula von der Leyen told E.U. lawmakers on Sept. 13. “This is distorting our market.”

She recalled a similar investigation into Chinese-made solar panels a decade ago.

“We have not forgotten how China’s unfair trade practices affected our solar industry,” von der Leyen said. “Many young businesses were pushed out by heavily subsidized Chinese competitors.”

U.S. Trade Representative Katherine Tai said she sympathizes with the E.U. position.

“If you look at the facts, and you look at the data on the ground, and you look at the EV industry and the competition, and you look at how this industry has grown in China, it is echoing all of the dynamics that we have seen from industry to industry,” Tai said Sept. 22 at an Atlantic Council event.

“Global trade today is not happening on a level playing field, and therefore there are things that we market-based, democratic economies need to do in order to defend our interests,” she added.

The threat of coercion from China highlights the fundamental values of the WTO, as well as how far reality has deviated from the way the system was designed, Tai said.

Flooding the market

The U.S. October 2022 export controls were aimed at stalling China’s semiconductor industry at the 14-nm node. China’s chipmakers have pivoted to production of less advanced chips.

The amount of money that China is pouring into subsidizing excess capacity of legacy chips is “a problem that we need to be thinking about and working with our allies to get ahead of,” U.S. Commerce Secretary Gina Raimondo said in July at an American Enterprise Institute (AEI) event.

China’s state-run chipmakers will initially dump legacy chips to push overseas rivals out of its domestic market, followed by an assault on competitors in global markets, AEI scholar Derek Scissors said at the event.

China will continue to focus government investments on mature technology to lead in development of 300-mm wafer fab capacity, increasing its global share from 22% in 2022 to 25% in 2026, according to a report by chip industry association SEMI. The Americas’ global share is forecast to rise 0.2% to nearly 9% by 2026, the report said.

Entity List move said to fail

Placing telecom giant Huawei and other Chinese tech companies like SMIC on the U.S. Entity List was a “symbolic gesture” that failed, Nikakhtar said. The more recent U.S. export controls announced in October 2022 have “gaps,” she added.

“Am I surprised that SMIC has made this enormous progress? Of course not,” she said. “We’re still allowing exports of U.S. technology. SMIC’s building overcapacity. Guess who’s selling them the tools.”

Nikakhtar declined to name U.S. companies, saying, “I want to make sure I’m avoiding conflicts and issues by naming anybody. We follow where the profits are. The Chinese dangle profits in front of us. We give up the technology.”

The “gravy train” for U.S. chip companies will halt when China finishes “indigenizing” the chip industry, Nikakhtar said.

“It’s getting pretty close,” she added. “Not only the chips but their manufacturing equipment. Shouldn’t we be doubling down on building up the supply chains of our allies? We built China’s semiconductor industry. Why can’t we just replicate that with an ally? Think about those 11 to 12 countries that are trying to do a CHIPS Act equivalent.”

A DoC divided

Nikakhtar said that when she was with the DoC, there was a “desperation” to preserve a narrative that China was going to reform and if the U.S. exported more to China, the two nations would be more integrated, and China would “see the light of day.”

“The more integrated we’ve become, the less we can act,” she said. “Industry comes in and says, ‘You can’t put them on the Entity List. This is going to hurt my revenue’.”

At DoC’s International Trade Administration, Nikakhtar’s mandate was to handle anti-dumping issues.

“We just were scrambling because we just had so many cases,” she said. “But, at the same time, you have another group at the Commerce Department saying, ‘Let’s pacify the Chinese, let’s just cooperate with them more, let’s really integrate with them more, because then they will see the light’—while they were decimating our industries.”

By: DocMemory
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