(Bloomberg) -- Key US lawmakers urged Japan to strengthen restrictions on sales of chipmaking equipment to China, warning that if Tokyo fails to act, Washington could impose its own curbs on Japanese companies or bar toolmakers that sell to China from receiving US semiconductor subsidies.
The top Republican and Democrat on the House China Select Committee outlined their concerns in a letter dated Oct. 15 to Japanese Ambassador to the US Shigeo Yamada that was reviewed by Bloomberg.
They dismissed arguments that restrictions have had a material negative impact on chip equipment companies like Tokyo Electron Ltd., and emphasized the importance of cooperation between the US, Japan and the Netherlands — home to the five most important semiconductor toolmakers — in slowing China’s chip ambitions.
Suggestions that those companies have been hurt by existing restrictions “do not appear to stand up to scrutiny,” wrote Committee Chairman John Moolenaar, a Republican, and the panel’s top Democrat, Raja Krishnamoorthi. Asked for comment on the letter, a committee spokesperson pointed to that line. The Japanese embassy didn’t immediately respond to a request for comment.
The letter cited increases in the stock prices of Tokyo Electron, ASML Holding NV, Lam Research Corp. and Applied Materials Inc., as well as chip subsidy programs from the US and European Union, as evidence of the limited impact of export controls.
Those companies have generally reaped rewards from the artificial intelligence boom. None of them has so far received direct government grants from the US Chips and Science Act, but their customers — chip manufacturers like Intel Corp. or Samsung Electronics Co. — can use 25% tax credits to purchase their equipment for US facilities.
Still, China remains a crucial and lucrative market for all chip toolmakers, and officials in Tokyo and the Hague are cautious about imposing further restrictions. US companies, meanwhile, have argued that tighter curbs from Washington give their foreign competitors an unfair edge. Additional unilateral controls, they say, would be detrimental to American industry without comparable measures from allies.
The Biden administration has pressured Japan and the Netherlands to strengthen their chip controls, part of a yearslong campaign to prevent Beijing from accessing AI that could benefit its military. In particular, US officials are seeking bans on Japanese and Dutch persons maintaining and repairing advanced gear in China, in line with rules Washington has already put in place for US persons. They also want allies to curb the sale of additional tools, to match a broader package of new US regulations that’s still under deliberation.
It’s been a tough sell. Allies have resisted implementing new rules before the US presidential election. Japan in particular is worried about negative impacts not just on Tokyo Electron, but also on Toyota Motor Corp., should China respond to new curbs by restricting Japanese automakers’ access to critical minerals. Beijing officials have repeatedly threatened retaliation in meetings with their Tokyo counterparts, Bloomberg reported in September.
Export control talks have focused so far on China’s ability to manufacture cutting-edge chips. But the lawmakers’ letter to Yamada also highlighted concerns about China’s capacity to make less-advanced processors — a key area of focus for Beijing, particularly after the US and allies cut off sales of the highest-end equipment. To counter that rush, the Biden administration increased tariffs on Chinese chips to 50% starting in 2025. The letter suggested there is more to be done.
Chips at the level that China is seeking to dominate are “the lifeblood of a modern economy and a modern military,” wrote Moolenaar and Krishnamoorthi.
Without a multilateral effort to address those concerns, the letter said, shipments of US, Japanese and Dutch chipmaking equipment will give Beijing “a functional veto over our nations’ ability to produce our weapons systems and modern consumer goods at necessary levels.”
While the lawmakers would prefer a multilateral solution, they emphasized that the US has other options. One is invoking what’s called the foreign direct product rule, or FDPR, which allows Washington to regulate goods made overseas with even the tiniest amount of American technology. Biden administration officials floated that possibility in export control negotiations over the summer, but ultimately chose to exempt key allies from FDPR rules in their latest proposal.
The letter also pointed to Treasury Department authorities or the possibility of additional guardrails on Chips Act funding, “including whether funds should be restricted to companies or countries that ship sophisticated” semiconductor manufacturing equipment to China.
This isn’t the first time Congress has shown interest in adding more rules to the Chips Act, which President Joe Biden signed in 2022. A proposal from earlier this year would bar funding recipients from purchasing Chinese tools for US facilities that receive government funding.
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