CHAINS OF CONTROL : The history and limits of America's favorite new economic weapon.

AT 11:15 AM on October 7th 2022, an American official published 139 pages of regulations on a website called the Federal Register.

Across East Asia, from Taipei to Nanjing, semiconductor executives panicked. The American government was claiming jurisdiction over every line of code or machine part that had ever passed through the United States, and over the activities of every American citizen, everywhere on the planet.

Companies, using American code, equipment or people to make advanced computer chips bound for China had to stop, on pain of breaking the law.

It was a salvo from America's favorite new economic weapon, the Foreign Direct Product Rule [ FDPR ].

Whereas some sanctions weaponise the ubiquity of the dollar to inflict harm by preventing targets from using it, the FDPR attempts to weaponise the ubiquity of American technology.

It lets the government claim jurisdiction over almost every chip factory in the world, because almost every one contains hard-to-replace American tools. 

TSMC, a Taiwanese chipmaker, stopped selling advanced chips to Chinese customers immediately.

FDPR has become one of the most important weapons in America's arsenal for technological competition with China.

One Republican lobbyist calls the Bureau of Industry and Security, the agency that administers it, '' the tip of the spear''.

Young policy wonks are taking courses to study a subject that would have drawn yawns three years ago : export compliance law.

THIS SWEEPING form of extraterritorial export control is not new. The concept was written down in 1959. But only in the past decade has FDPR been transformed from a regulatory curio into a front-line economic weapon.

In the early 2010s Kevin Wolf, then at the Department of Commerce, wrote the first two export control rules to use the idea.

They restricted the export of products made with American technology from anywhere in the world to China if they were to be used for military purposes or to build satellites.

Meanwhile, America was also building a case against Huawei, a booming Chinese telecoms-equipment manufacturer which it had long suspected of being a conduit for Chinese government spying.

Discomfort with Chinese technological prowess deepened with the arrival of Trump administration's China hawks in the White House in early 2017.

Only in May 2019, after trade talks with China broke down, did the Trump administration turn to export controls to attack Huawei. It placed the firm on a list of companies to which it is illegal to export technology from America, known as the Entity List - until then mostly used for shell companies and terrorist fronts.

Huawei was now seen as a national-security threat. Huawei's purchases of American technology were large enough that companies found it worthwhile to pore over the details. 

The Essay continues into the future. The World Students Society thanks The Economist.


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