China’s rapid buildup of its nuclear forces is leading President Joe Biden and Congress to act. American companies’ sale of advanced chips to the People’s Liberation Army (PLA) could abet Chinese nuclear growth and modernization of its armed forces. The CHIPS and Sciences Act (also called the Creating Helpful Incentives to Produce Semiconductors for America Act) as well as new export controls limit technology commerce between the United States and China with the aim of stifling nuclear weapons development. By themselves, these policies will only delay Beijing for several years as their domestic semiconductor industry grows. But export controls and industrial policy could complement a meaningful arms control dialogue as part of a larger strategy. Beginning direct talks, organizing regional security arrangements, and seeking transparency measures on nuclear arsenals are the kind of necessary initiatives to diminish the possibility of conflict between nuclear armed strategic rivals.
How the US is Seeking to Restrict Chinese Access to Advanced Technology
Recent Biden administration policy mandates the screening of outbound investment to block American firms from shipping microchip manufacturing to the People’s Republic of China (PRC) and includes export controls on chips and dual-use machines. The President also issued an order in September 2022 that prevents foreign companies, particularly Chinese firms, from investing in and acquiring assets in high-tech manufacturing. The Committee on Foreign Investment in the United States (CFIUS) accordingly began scrutinizing foreign investments based on each domestic company’s technology leadership, and the risk that investment poses to data privacy and national security considerations. In March 2023, the administration announced new rules that double the amount of special licenses required to export chip manufacturing machines.
Congress is following suit with a mix of industrial policy and investment rules. The CHIPS and Sciences Act allocates $280 billion in funding to research and development as well as domestic semiconductor manufacturing. The CHIPS portion of the bill, $52 billion of domestic investment, restricts companies that accept subsidies from investing in Chinese chipmaking for 10 years. The legislation also provides a 25% investment tax credit for capital expenses related to semiconductor manufacturing. Secretary of Commerce Gina Raimondo described these measures as “guardrails to ensure those who receive CHIPS funds cannot compromise national security.” She explained that when American companies export the latest technology to China, they abet a dangerous strategic competitor.
Protectionism is a Means, Not an End
To a certain extent, these policies are getting China’s attention. A Chinese foreign ministry representative called the CHIPS Act “economic coercion” that will “disrupt international trade and distort global semiconductor supply chains.” Two Chinese trade associations repeated the same and cited the “adverse impact” the legislation would have on the PRC’s technological innovation. Chinese companies are buying older chip-making machines in a frenzy as they fear limitation in the wake of U.S. export controls. One source from a financial capital group revealed that “[n]early 90% of used machines appear to be headed to China.”
Despite having wider effects on the Chinese economy, these controls and legislation have unclear impacts on the PLA’s modernization efforts. The RAND Corporation writes that many of China’s legacy military systems rely on the same older and less sophisticated chips that Beijing is still able to buy in the wake of protectionist policies. Industry experts agree that American policy curtails China’s commercial ability to make advanced chips but not the technical capacity to produce them in limited numbers for specific military applications. Rather, the weight of the CHIPS legislation and export controls will fall on Chinese consumer goods like autonomous vehicles, data centers and 5G handsets. Information on the PRC’s military modernization efforts is, naturally, difficult to obtain. Measuring the impact of American policies is likewise challenging. It should be clear, however, that export controls alone are insufficient to limit Chinese military modernization.
Embracing a Wider Strategy of Engagement
Considering the uncertain effects of federal policy to date, protectionist measures on technology only make sense as part of a wider strategy of engagement with China. The PRC’s rise presents multiple challenges: an economic competition, a struggle over global institutions, and potential military confrontation in East Asia, among others. Russia’s war in Ukraine raises the danger of nuclear blackmail as an enabler to illegal conquest. China has repeatedly threatened Taiwan— the liberal-democratic antithesis to the Communist Party — with forceful “reunification” and has engaged in border clashes with India. Despite these challenges, a general war is in no one’s interests, so the overall strategy should aim to avoid one, in part by slowing China’s modernization.
What the CHIPS Act and related export controls may accomplish is buying time. The Peterson Institute reports that the controls will dent the PRC’s ability to produce advanced chips with military applications for about three to five years. Some experts doubt the enterprising ability of the Chinese semiconductor industry to bounce back. They point to failure to reach 2015 chip production targets as well as rampant corruption among state-appointed business executives as evidence of a sluggish and irresponsive industrial base. Consequently, these export controls could impair Chinese advanced chip making for decades. Whatever the time frame, hindering or making modernization efforts more expensive is not a permanent solution. Nor does it change Beijing’s perception that it must outcompete Washington in the long-term. China is reportedly considering a ban on rare earth metal exports – materials critical to civil-military technologies – in an apparent retaliation to U.S. policy.
Arms Control with China
The U.S. goal should not simply be to restrict Chinese access to U.S. technology; rather, the United States should be focused on preventing an arms race that would be unnecessary and injurious to both countries’ national interests. By preserving the U.S. technological advantage for a time, chip controls can constitute a single piece in a larger strategy of integrated deterrence paired with overtures for China to enter the mainstream on arms control.
Currently, China believes (correctly) its armed forces to be behind technologically. This means it might see the advantage of dropping its traditional resistance to arms control dialogues in return for potential access to controlled technologies. Washington may have the temporary leverage to begin these discussions as China’s ability to modernize its higher-end systems deteriorates and its domestic economy falters from a lack of advanced chips.
Some first steps policymakers may take include transparency and confidence-building measures around the PRC’s growing nuclear arsenal. American officials can begin by hosting their Chinese counterparts to observe mock New START inspections. Developing briefing programs on how the United States and Russia designed, implemented, and resolved disagreements within previous frameworks may also be effective. In the case of Chinese military sensibility, virtual reality tests and joint studies on how onsite inspections work and how to develop protocols and procedures is another good idea. The two countries could likewise explore the technical possibilities of a no cyber-attack policy on each other’s civil nuclear facilities which, if successful, can evolve into a similar policy vis-à-vis their nuclear weapon systems. Once a trusting relationship is built, then talks can focus on warhead reductions.
The CHIPS and Sciences Act as well as relevant executive action could potentially open the way toward dialogue with China. The Pentagon’s worst case forecast that Beijing could acquire up to 1,000 nuclear warheads by 2030 along with the PLA’s goal to modernize its armed forces by 2027 are serious causes for concern. Federal policies are restricting Chinese access to advanced computer chips in a strategically important industrial sector that has already been instrumentalized for nuclear and missile modernization. However, the ability of these controls to shape PLA modernization efforts in the longer term is unclear. As part of a larger strategy, though, they may buy time for arms control talks with Beijing. The Biden administration opened critical communication channels with China at the G20 in November 2022. Engaging PRC officials in confidence-building arms control measures and competitive export controls can similarly keep the door open to lower the chances of nuclear conflict between the U.S. and China.