The US and Japan are nearing a deal to restrict technology exports to China‘s chip industry, despite concerns in Tokyo about potential retaliation from Beijing. The White House aims to introduce new export controls before the upcoming presidential election, including a requirement for non-US companies to obtain licenses for selling products that would benefit China’s tech sector. Officials from the Biden administration have been engaged in extensive discussions with their counterparts in Japan and the Netherlands to establish complementary export control regimes. These efforts aim to ensure that Japanese and Dutch companies are not targeted by the US “foreign direct product rule.” While progress has been made, there is still caution due to fears of Chinese retaliation.
The Japanese government is particularly worried about potential Chinese actions such as blocking exports of critical minerals like gallium and graphite if Tokyo adopts the proposed export controls pushed by the US. To mitigate this concern, Japan and the US have been discussing ways to limit the impact of any Chinese retaliation. The goal is for Washington and its allies to counter China effectively.
The US export controls seek to close loopholes in existing rules and impose additional restrictions reflecting Huawei’s rapid progress in chip production over recent years. The focus is on making it more difficult for China to acquire crucial chipmaking tools, which would primarily affect ASML in the Netherlands and Tokyo Electron in Japan. Furthermore, Washington wants these companies also restricted from providing services like software updates or maintenance for these tools—a move that would significantly harm China.
Negotiations have centered on aligning export control rules among all three countries so that Japanese and Dutch firms are not subject to the “foreign direct product rule,” which has been described as a “diplomatic bomb.” However, while progress has been made between the US and Japan, officials are aware that Tokyo may be irritated by pressure from Washington as President Joe Biden prepares measures against Nippon Steel’s $15 billion takeover of US Steel.
US negotiators involved include officials from both commerce department and National Security Council. Commerce Secretary Gina Raimondo along with Rahm Emanuel—US ambassador to Japan—are reportedly adopting an assertive approach during negotiations. Nevertheless, there remains concern among Tokyo officials regarding understanding US intentions as they approach their upcoming election.
Japan fears potential Chinese retaliation could involve bans on key mineral exports—an action that could force some Japanese commercial customers into finding alternative suppliers containing those minerals. Rising prices of essential minerals have already raised concerns among several Japanese companies who worry about reduced competitiveness if prices continue increasing.
While generating an agreement has proven challenging, one person familiar with negotiations emphasized that it was crucial for the US not take actions leading Japan or Netherlands abandoning trilateral mechanisms established during Trump administration aimed at harmonizing export controls.
