Export Control Loopholes: Chipmaking Tools and their Subcomponents

2025-11-20

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Summary

This meeting convened to discuss the critical issue of export controls on semiconductor manufacturing equipment (SME) and their subcomponents. [ 00:15:39-00:15:53 ] The overarching theme was the United States' technological competition with China, particularly concerning artificial intelligence (AI), and the imperative to maintain global leadership in chip production. [ 00:16:10-00:16:18 ] Participants highlighted the urgent need to address existing loopholes in current policies to safeguard national security and technological dominance. [ 00:17:35-00:18:10 ]

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Importance of Semiconductor Manufacturing Equipment (SME) Controls

Semiconductor manufacturing equipment is considered foundational for producing advanced chips, which are essential for artificial intelligence and various cutting-edge military capabilities. Global leadership in chip production is directly tied to dominance in SME, as these specialized tools dictate a country's ability to innovate and compete. [ 00:16:18-00:16:44 ] The industry is highly concentrated, with the United States and its allies holding a significant market share, making it an ideal target for strategic export controls. While current controls have somewhat slowed China's progress, its SME industry could rapidly advance without more stringent actions, posing a threat to U.S. technological superiority.

Loopholes and Inconsistent Allied Implementation

Many existing U.S. export controls contain critical loopholes that allow China to continue advancing its chip production capabilities. [ 00:17:35 ]

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 A significant challenge is the inconsistent implementation of controls by allied countries, especially the Netherlands and Japan, which have not fully matched U.S. restrictions on SME. This discrepancy enables allied companies to continue exporting essential tools and components to advanced Chinese fabrication plants and toolmakers. Consequently, foreign competitors often backfill sales that American companies are restricted from making, meaning U.S. firms lose revenue while critical technology still reaches China. The unrestricted sale of subcomponents, largely made by U.S. or allied companies, further undermines efforts to control access to chip-producing tools.

Policy Recommendations and Future Actions

To counter these challenges, the U.S. must close existing loopholes to prevent China from using advanced technology for military modernization and technological dominance. [ 00:18:10-00:18:10 ]

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 Key policy tools include diplomacy and the foreign direct product rule to achieve greater international harmonization of controls. Legislative efforts, such as the STRIVE Act, aim to improve allied coordination and prevent backfilling of sales. Expanded countrywide restrictions on SME capable of 300mm wafer processing are deemed necessary to curb China's chip-making advancements. Additionally, continuous updates to the entity list and consideration of broader sector-wide controls are vital to address China's evolving corporate structures. [ 00:51:31-00:51:32 ]

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 Strengthening the Bureau of Industry and Security (BIS) through increased budget, IT modernization, and enhanced whistleblower protections is crucial for effective enforcement. [ 01:10:22 ]

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 Lastly, addressing China's access to U.S. cloud systems and computer capacity for non-civilian uses is another critical area for intervention. [ 01:08:25 ]

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Challenges with Allied Cooperation and US Policy

A fundamental challenge lies in the differing approaches to export controls between the U.S. and its allies, with allies often adhering to a narrower definition of national security focused on weapons. [ 00:35:46-00:36:07 ]

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 While the Biden administration achieved some limited agreements with certain allies, broader, more expansive controls have not gained full international consensus. Concerns were raised that the Trump administration's approach to export controls sometimes treated them as negotiable tools, potentially undermining national security for political or personal interests. Practices such as imposing fees for AI chip sales to China were criticized as potentially illegal and transforming licenses into "pay-to-play" arrangements. China's significant leverage in areas like rare earth minerals further complicates U.S. policy decisions and international cooperation efforts. [ 00:39:07-00:39:39 ]

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 The U.S. also faces self-imposed challenges, such as immigration policies that could deter high-skilled talent vital for maintaining AI leadership.

The meeting's tone was urgent and serious[ 00:18:57 ]

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, reflecting the critical importance of semiconductor export controls for national security and global technological leadership. Participants expressed deep concern over China's rapid advancements and existing policy loopholes, warning of a potential "dystopian future" if China achieves dominance. [ 00:19:15 ]

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 While a shared determination to secure U.S. technological advantage was evident, the discussion also featured notable political tension and partisan critique. [ 00:16:49-00:17:48 ] Speakers strongly advocated for decisive action and significant policy adjustments to address these complex challenges. [ 00:18:57 ]

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Participants

Transcript

Well, we'll give our other colleagues here a couple of minutes so appreciate your patience.  Thank you.
My apologies, including to the TV crew out there, won't give us a moment here yet, and hopefully Ms. Kumlager-Duff will be here shortly.   on South Central Asia will come to order.  The purpose of the hearing is to discuss export controls on semiconductor manufacturing equipment and their subcomponents.
I'm going to give myself an opening statement and then turn to the ranking member.   Cutting edge AI chips like NVIDIA Blackwell are driving the AI revolution that may define the 21st century.  Less advanced chips known as foundational chips power everything from phones and cars to the military drones shaping the battlefields of Ukraine, the Middle East, and potentially the Taiwan Strait.   Whichever country dominates semiconductor production will have the power to lead the world.  Building these chips requires highly specialized tools.  These chip making tools often worth billions of dollars can etch features in chips that are smaller than the width of a strand of human DNA, not hair, DNA.   American, Dutch, and Japanese companies control the vast majority of the market share.  If the free world blocked China's access to these machines, America and its allies would control the defining technology of our time.   President Trump and his administration understand this based on their public statements.  During his first administration, President Trump blacklisted key Chinese semiconductor companies, Huawei and SMIC, and convinced the Netherlands to block China's access to the most advanced chip-making tool in the world, known as the EUV lithography machines.   UV lithography machines are used to make advanced chips like the NVIDIA Blackwells, which are power cutting edge AI tools.  Thankfully, President Trump had the foresight to make this move three years before chat GTP unleashed the AI revolution.   The Biden administration later expanded on President Trump's export controls to cover other essential tools slowing Chinese chip production capabilities.  Unfortunately, many of the Biden administration's export controls contain critical loopholes, culminating in the administration's ineffective leadership abroad on this issue.  Troubling, the Biden administration gave a free pass to key allies who continue to provide Chinese Communist Party with chip-making equipment to this day.
Moreover, the United States and its allies continue to provide China with the essential components it needs to build its own tools.  America must close these loopholes to stop the Chinese Communist Party from leveraging our technology for its military modernization efforts and pursuit of technological dominance.   I believe President Trump is committed to closing these loopholes.  On the first day of his second term, President Trump directed State and Commerce to, quote, identify and eliminate loopholes in existing export controls, close quote.  The White House's AI Action Plan,   partially written by Mr. Ball here, goes further by recommending export controls on advanced sub-components used to make chip-making tools, in addition to stopping allies from supplying China's defense industrial base and backfilling US technology.  The time to act is now.  The Chinese Communist Party is exploiting the loopholes in US export controls to stockpile chip-making tools and critical components while it still can.   If left unchecked, the CCP would use its dominance in chip production to modernize its military and build the advanced chips needed to win the AI arms race.  Acting quickly and decisively will ensure that China cannot lead the world to a dystopian future where the surveillance state controls virtually all aspects of life.   If China becomes the dominant global producer of both chip-making equipment and semiconductors, it will grant the CCP an even more dangerous stranglehold over the United States than it currently has with rare earth magnets today.  Congress and the executive branch must quickly act to close the loopholes, thereby ensuring the free world wins the defining technologies of our time or risks ceding it to the future, the future to China.   That decision will be critical and crucial to keep the world's most advanced chips out of China's hands and ensure that Silicon Valley, not Shenzhen, remains the center of the AI revolution.
And with that, I will now recognize the ranking member from California, Representative Kamlager-Dove, for an opening statement.
Thank you, Mr.  Chair.  It's so cozy up here.  And thank you to our witnesses for being here today.  I'm so glad that we are shining a light on where the Trump administration's export controls policy is falling short, which is in a number of areas if the frequency of our export controls discussion is any indication.   Advanced SME and their sophisticated subcomponents are a particularly important topic.  Effective controls are ones that target the strongest choke points in the advanced chip supply chain, and these technologies remain important contenders for those points of leverage.  But a year into the Trump administration, continued loopholes are no longer an accidental oversight.  They are de facto administration policy.   That's because the key obstacle to a more effective controls is Trump himself.  Over the past few months, Trump has visibly transformed export controls from a national security tool to a negotiating tool that can be traded away to serve his own political and personal interests.  Export controls have fallen victim to the same self-serving deal-making   that characterizes the rest of Trump's foreign policy at the expense of U.S. interests.  Trump's trade war with China has completely undermined the U.S. exports controls regime.  By imposing controls to gain leverage in trade talks, the administration turned export controls into a concession that can be negotiated away.   Pausing the 50% affiliates ruling gives Chinese entities a year to create workarounds, reducing the national security benefits in proportion to the economic impact to U.S. companies.

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