US and Japan Edge Closer to Agreement on Chip Technology Exports to China

The United States and Japan are nearing a significant agreement aimed at restricting technology exports to China's chip industry. This move comes amid rising concerns in Tokyo regarding potential retaliation from Beijing against Japanese companies. The Biden administration is eager to implement new export controls before the upcoming presidential election in November, which would require non-U.S. companies to obtain licenses for selling products that could benefit China's tech sector.

Key Takeaways

• The U.S. and Japan are close to finalizing a deal to limit chip technology exports to China.
• Concerns about Chinese retaliation are causing hesitation in Tokyo.
• The agreement aims to align export control regimes among the U.S., Japan, and the Netherlands.
• The U.S. seeks to close loopholes in existing export rules, particularly affecting companies like ASML and Tokyo Electron.

Background of the Negotiations

The discussions between U.S. and Japanese officials have been ongoing for several months, with the aim of establishing complementary export control regimes. This would ensure that Japanese and Dutch companies are not adversely affected by the U.S. “foreign direct product rule.” However, a Japanese official has indicated that the situation remains delicate due to fears of retaliation from China.

Concerns Over Chinese Retaliation

Japan is particularly worried that China could respond by blocking exports of critical minerals, such as gallium and graphite, if Tokyo agrees to the proposed export controls. Beijing has already issued threats against Japanese companies, raising alarms in the Japanese government.

Impact of Export Controls

The U.S. export controls are designed to close existing loopholes and impose new restrictions that reflect the rapid advancements made by Chinese companies like Huawei in chip production. The proposed measures would make it increasingly difficult for China to acquire essential chipmaking tools, significantly impacting companies like ASML in the Netherlands and Tokyo Electron in Japan.

Diplomatic Dynamics

Negotiations have focused on aligning the export control rules of the U.S., Japan, and the Netherlands to prevent Japanese and Dutch companies from being subjected to the FDPR. However, the U.S. pressure on Japan has created some irritation, especially as the Biden administration prepares to block Nippon Steel’s $15 billion takeover of U.S. Steel.

The Stakes for Japan

As the U.S. election approaches, Japanese officials are finding it increasingly challenging to interpret U.S. intentions. There are growing fears that if Japan concedes too much to U.S. demands, China may retaliate by imposing export bans on key minerals, which would force Japanese companies to seek alternative suppliers.

Economic Implications

The prices of critical minerals are already high, and several Japanese companies have expressed concerns to the Ministry of Economy, Trade and Industry about further price increases making their products less competitive. An executive from a Japanese trading house specializing in these minerals noted that securing guaranteed supplies is becoming increasingly difficult.

Conclusion

While progress has been made in the negotiations, the U.S. must tread carefully to avoid alienating Japan and the Netherlands. The Biden administration is under pressure to achieve a diplomatic win before the election, but it must also ensure that the trilateral cooperation established during the Trump administration remains intact. As the situation evolves, both countries will need to navigate the complexities of international trade and diplomacy while addressing their respective national interests.

Sources

• US and Japan near deal to curb chip technology exports to China, Financial Times.