From Reaction to Strategy: A New Framework for U.S. Export Control Enforcement

Commentary by Barath Harithas

Published October 29, 2024

This commentary is part of a report from the CSIS Economic Security and Technology Department, titled Staying Ahead in the Global Technology Race. The report features a set of essays outlining key issues on economic security for the next administration, including global technology competition, industrialization policies, economic partnerships, and global governance.

The United States has relied on a "siege wall" of export controls to keep critical technologies (e.g., advanced semiconductors) out of Chinese hands. There have been increasing reports highlighting the leakiness of export controls, calling into question the efficacy of what increasingly appears to be a technology Maginot Line for the United States. In light of selective failures, critics have rushed to declare export controls ineffective, overlooking the complexities that inform their enforcement and impact.

The effectiveness of export controls cannot be reduced to a simple binary assessment; it is contingent upon the specific product categories in question. For instance, the smuggling of chips has proven alarmingly straightforward. In 2023, NVIDIA shipped over a million leading-edge chips, each valued at approximately $40,000 and portable enough that 609 units can fit into a single freight box. Conversely, ASML sold only 53 state-of-the-art extreme ultraviolet (EUV) lithography machines in 2023, each costing $350 million and requiring 13 truck-sized containers and 250 crates for transportation, with extensive logistics and post-sales support needed. The latter product category has shown far less evidence of smuggling compared to chips, which have reportedly been smuggled in bulk orders valued over $100 million.

This essay offers three recommendations for improving export control enforcement:

1. Enforcement efforts must prioritize areas where compliance is most tractable. This requires a clear-eyed understanding of the objectives behind export controls. The goal is not merely to prevent specific end products from reaching China; rather, the true litmus test of these controls lies in their ability to impede China's indigenization campaign.

   For instance, while preventing advanced semiconductors from reaching China is crucial, the greater concern is ensuring that China cannot manufacture these technologies at scale. Controls should target more strongly critical chokepoints such as semiconductor manufacturing equipment, especially EUV machines, service and repair components, and electronic design software. Given the inherent leakiness of export controls for chips, it is crucial to recognize that these measures are at best a tool to increase acquisition costs for China in the short run. The ultimate long-term objective, however, must focus on undermining China's efforts toward technological indigenization and self-sufficiency.

2. The current approach to export control enforcement resembles a game of "whack-a-mole," where smuggling networks emerge, vanish, and reemerge faster than they can be addressed. To overcome this cycle, regulators need to move from the reactive blacklisting of suspicious entities to implementing a preapprovals regime. In other words, instead of fixating on whom to bar from the game, authorities should shift their focus toward who gets to play. By so doing, regulators can more effectively limit the avenues available for smuggling.

   This can be operationalized through: (1) establishing a certification process during initial procurement to create a marketplace of trusted sellers and to enhance compliance knowledge among stakeholders; (2) implementing digital waybills to reduce documentation fraud and improve traceability, thereby addressing customs evasion; and (3) mandating the use of preapproved logistics providers who are required to report any consignments not received within a specified timeframe to the Bureau of Industry and Security (BIS) at the Department of Commerce. This measure will help identify suspicious entities and facilitate timely spot checks, creating a more effective feedback loop for detection and enforcement.

3. The United States must work more closely with allied partners to multilateralize export controls. U.S. export restrictions on their own are insufficient. They must be the portcullis of the castle, not its keep. The current stalemate stems from the United States expecting allies to mirror its controls, while partners have been overly cautious, fearing such actions might set a precedent for future expectations. This dynamic is unsustainable. The United States must acknowledge the economic concerns of its allies, while allies must recognize that failure to act could result in the United States imposing stricter measures in bilateral settings. There is common interest on both sides to accept a "highest-common-denominator" approach to multilateral controls. By aligning interests, even imperfectly, the United States can enhance collective enforcement capabilities, thereby flushing out the smuggling quarry from remaining avenues.

In conclusion, as any middling tactician knows, eventually all walls are outflanked. The real question is how easily, and therefore which ones truly deserve our focus. Moreover, given the leanness of BIS, it is critical that the U.S government does not engage in a reactive dance that leads to overstretch and inevitable failure. Crucially, the United States must more effectively rally allies to join the fray, transforming a fragmented response into a united front. By clarifying objectives, refining enforcement strategies, and fostering multilateral cooperation, the United States can reclaim control over the rules of the game and tilt the odds in favor of success against slippery evasion strategies. These recommendations not only address the immediate challenges posed by export control enforcement but also contribute to a more coherent and effective strategy in the long term against technology transfer to adversarial nations.

Barath Harithas is a senior fellow with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

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