January 18, 2023

Reviews

# Cold Controls

#### Knowledge Regulation and National Security in Postwar AmericaBy Mario Daniels and John KrigeUniversity of Chicago Press, 2022

In an effort to stymie “indigenous” chip development in China, the US Bureau of Industry and Security (BIS) introduced new controls on semiconductor technology exported to the People’s Republic of China (PRC) last October. Targeting high-performance and advanced memory chips, manufacturing, and “know-how,” the new regulations block Chinese firms’ access to core knowledge and products needed to produce supercomputers and advanced weapons systems. The United States manufactures roughly 10 percent of the global supply of integrated circuits; in turn, the controls lean on an expandedforeign direct product” (FDP) rule, which gives the Department of Commerce the authority to regulate “direct products” of US-origin technology. Supplementing these measures, the BIS added over thirty Chinese entities to its “unverified list.”

The controls are the latest in a series of actions taken by the US government against Chinese technology firms. In September, the BIS imposed special licenses on Nvidia’s shipments of Graphic Processing Units (GPUs) to the PRC. A month prior, accelerated by Covid-related supply shocks, Congress ratified the CHIPS Act, which aims to rebuild domestic capacity in semiconductor production and restructure global supply chains for integrated circuits. These developments came on the heels of the Trump administration’s 2019 “assault” on Huawei.

These regulations have been praised for turning back the clock on fifty years of “bad” industrial policy. Secretary of Commerce Gina Raimondo called the CHIPS Act “a once-in-a-generation opportunity to secure our national security and revitalize American manufacturing and… innovation and research and development.” But gains of protected high-technology trade, which might boost US power in the long term, come with more immediate commercial, diplomatic, and military risks. Not only do these controls strain US semiconductor firms looking to the Chinese market—as well as the Taiwan Semiconductor Manufacturing Company Limited (TSMC), which manufactures the majority of the world’s semiconductors—they also escalate tensions with the PRC over Taiwan.

Mario Daniels and John Krige’s new book Knowledge Regulation and National Security in Postwar America (2022) contextualizes Commerce’s recent actions. The first complete history of dual-use export controls, the book maps the evolution of these regulations throughout the twentieth century. During the high Cold War, US trade in scientific and technological knowledge was oriented towards securing strategic lead-times over the Soviet Union and increasing the nation’s techno-industrial base— this was what the authors call a “national security” control regime. With increasing global competition in semiconductors during the 1980s, market shares in high-tech products were prioritized in the hopes of circling private-sector gains back into innovation—a regime of “economic security.” The book, thus, offers an invaluable insight into an arcane and understudied topic. At the same time, however, Krige and Daniels’ conceptualization of these security regimes relies on too simple a distinction between military and economic concerns. In reality, the history of export controls has navigated these two modes of reasoning, often at one and the same time.

### An era of national security

The US’s first peacetime export controls were ratified under the Export Control Act of 1949. This legislation gave the Department of Commerce’s Office of International Trade, a predecessor of the BIS, jurisdiction over the export of critical commodities and technical knowledge. Later that year, Congress established the Coordinating Committee for Multilateral Export Controls (COCOM) for Western nations, which synchronized a US-led blockade. States like Germany historically held deeper trading relationships with Eastern Europe than the United States. This meant that if the export controls were going to work, the US needed West-Central Europe on board.

For Daniels and Krige, this unprecedented imposition of export regulation can only be understood in the context of the Cold War and the ideological concerns that emerged from it. In their words, this “new approach to trade…[signaled] the redirection of the American ideological compass toward national security.” National security, as an ideology, located state power and military preeminence in government-led techno-scientific development. Moreover, it encouraged federal investment, largely from the Defense Department, in strategically significant technologies that, down the line, commercialized as they diffused. “This new way of thinking,” as Daniels and Krige explain, “established a close link between security, economy, and ceaseless technological innovation.”

Despite this unifying impulse to protect the techno-industrial base, the authors show that the interpretation of controls varied in the 1940s and 50s. In the immediate aftermath of the war, US policymakers were concerned to enact export controls while retaining support from private industry, academia, and the broader public; the aim was to effectively restrict high-technology trade without turning the US into a “garrison state.” To do so, they undertook a series of experiments, which ranged from soliciting voluntary data controls in the earlier years, to hardliners like Senators Kenneth S. Wherry (R-NE) and James O. Eastland (D-MI) calling to amend the Espionage Act to include radar. Such discussions, however, became circumscribed after 1949 by the very bureaucratization of the regulations.

The Export Control Act of 1949 then wasn’t the first time these controls, or other trade restrictions, were used in a retaliatory fashion. But, as Daniels and Krige argue, it was evidence that the ambitions of the Cold War national security state—key among them, protecting US supremacy against a rival hegemonic foe—had come to overshadow other commercial, technological, and scientific concerns. It meant keeping high-technology out of the Soviet Union at all costs, even if this meant sacrificing the principle of free trade. This was seen in the Export Control Act of 1951, which, ratified in the fog of the Korean War, provided for “the control by the United States and cooperating foreign nations of exports to any nation or combination of nations threatening the security of the United States, including the Union of Soviet Socialist Republics and all countries under its domination, and for other purposes.”

### The break down of “national security”

According to Daniels and Krige, the changing global distribution of power in the 1970s and 80s worked to dislodge export controls from these earlier concerns of “national security.” Two developments prompted this paradigm shift: a resurgence in Soviet military build-up and commercial rivalry with Japan.

On the heels of détente—which eased export controls—a growing anxiety surfaced in the mid-1970s that the Soviet Union was using warming relations as a cover for military build-up, nuclear and otherwise. In response, calls for even stricter controls cropped up in certain policy circles, corners of Congress, and critically within the Defense Department. Out of these tensions emerged the 1976 “Bucy Report,” to which Daniels and Krige dedicate an entire chapter. As the authors argue, the Bucy Report ushered in a new approach to regulating technology trade. Commissioned by the Office of the Director of Defense Research and Engineering and headed by Texas Instruments executive Fred Bucy, the Report directed attention away from end-use and safeguards to the potential military applications of dual-use technologies. In turn, it called for more stringent control of technology transfers while minimizing the importance of reverse engineering.

At the same time, a new geostrategic rival emerged—from within the Western alliance. Unlike rivalry with the USSR, competition with Japan was driven by ostensibly economic—not military—concerns. This unprecedented challenge required novel policies for maintaining commercial supremacy within America’s open trade bloc and a new way of thinking about the very source and limits of US power. The authors write: “Japan’s aggressive inroads into the semiconductor and related industries exposed the fragility of the American high-tech industry… [and it] raised questions about whether the country could lead the free world if it persisted with a laissez-faire approach to its core techno-industrial base.”

Out of this regulatory reshuffling emerged the paradigm of “economic security.” This new paradigm foregrounded global market shares in dual-use high-technology products like memory chips. It also came with a new kind of industrial policy: profits generated from dominance in consumer markets could be channeled back into R&D, with the US defense establishment benefiting from industry’s technological and commercial prowess. Once an innovator, the military had primarily become a consumer of high-tech goods.

When discussing the protective turn in US-Japanese high-tech trade, Daniels and Krige emphasize the Exon-Florio Amendment (1988), which allowed the Committee on Foreign Investment in the United States (CFIUS) to review, and thus block, select inward foreign direct investment. Despite its theoretical neutrality—any non-national investment could be singled out—the Reagan administration in practice targeted Japanese firms. A more apt example of this “recalibration” might be the US-Japan semiconductor accord of 1986. Japan held the largest market share for DRAM chips in 1986. This aggressive treaty, however, gave US semiconductor producers a minimum 10 percent of the Japanese domestic market in integrated circuits.

### “Economic security” reigns

In addition to thwarting the Japanese memory chip industry, the authors argue this new doctrine of economic security was responsible for the expansion of high-tech trade with the PRC. While most accounts associate the Nixon administration with warming US-Chinese relations, Daniels and Krige date the shift to Carter, who, in response to the Soviet invasion of Afghanistan in 1979, partnered with the Chinese to arm the Mujahideen.

Reagan deepened this relationship. Leveraging the PRC’s “four modernizations” under Deng Xiaoping, he drew on China’s historical antagonism with the USSR to dangle an increase in US high-tech trade with the PRC in exchange for halting the proliferation of Chinese missiles in the Middle East. As the authors underscore, in 1983, Commerce reclassed the PRC into “Group V,” the most liberal control category, which included Western Europe, Japan, Australia, and New Zealand. Looking at export licensing—meaning, applications submitted to Commerce by American firms seeking to trade in controlled goods—the value of approved licenses from the US to China jumped from under $375 million in 1980 to a surprising$5.5 billion by 1985. In 1986, 80 percent of the value of US licenses to China were attributable to high-tech trade.

The first Bush administration continued to link export controls to non-proliferation and proceeded to strengthen trade ties with the PRC, prioritizing American high-tech firms in the wake of the Tiananmen massacre. Bill Clinton likewise loosened export controls on US dual-tech destined for China—even as partisan backlash crystalized in the 1999 “Cox Report.” The Clinton administration, moreover, replaced the Cold War-era multilateral control agreement, COCOM, with the Wassenaar Arrangement, which greatly reduced restrictions. Wassenaar, still in effect, is a voluntary multilateral agreement for conventional arms and dual-use tech. The treaty provides little by way of control, however. Instead, it aims to promote “transparency” regarding shipments of military-significant goods to non-members, requiring signing members to report such shipments to the group biannually.

Daniels and Krige connect increased high-tech trade with China to Clinton’s enthusiasm for the 1990s Revolution in Military Affairs (RMA)—the apotheosis of “economic security” thinking. Although the RMA ostensibly promoted technologically imbued “systems of systems,” chips were at its center. First put into practice during Operation Desert Storm, the doctrine came into its own during the Clinton administration when it was believed that “securing technological leadership and market domination in research intensive industries like semiconductors, microelectronic circuits, software engineering, high-performance computing, and machine intelligence… would generate profits in global markets that could be ploughed back into R&D.”

### Export controls, knowledge regimes, and geopolitics

Knowledge Regulation, thus, demonstrates how US officials wielded export controls to meet the changing strategic demands of the second half of the twentieth century. But in structuring the book around successive geostrategic paradigms—“national security” and “economic security,” respectively—Daniels and Krige, at critical moments, either risk oversimplifying the policymaking behind these regulations or miss the larger macroeconomic and geostrategic picture in which these security regimes sit.

The legislative history leading up to the Export Control Act of 1949’s ratification is representative of this risk. By 1951, nuclear competition and outright war had transformed the Export Control Act into an economic weapon intended to halt the Communist world’s access to critical scientific and technical knowledge as well as military-grade industrial goods. Crucially, it was only months after the 1949 Act’s ratification, in August of that year, that Soviet engineers oversaw their first successful test of an atomic bomb, code-named “First Lightning.” In 1949, however, a commitment to taming inflation and stabilizing the monetary situation in Western Europe was also doing political work.

For example, Congressional records depict the 1949 bill as part of a Democratic program for managing exports due to short supply, foreign policy, and national security—largely in that order. Working in concert with the Office of Price Administration (OPA), Truman viewed export controls as a tool for taming domestic inflation. If Commerce oversaw trade in commodities with large export markets such as steel and agricultural goods, domestic supplies of those commodities could be kept high, which would, in turn, help to keep prices down. This function was more important in the immediate postwar period when the Export Control Act was first extended, but it persisted in 1949. Indeed, contemporary accounts cite the legislation as part of Truman’s “Eight-Point Anti-Inflation Plan.”

In fact, the debate that threatened to kill the legislation was related to neither science, technology, nor national security, but edible “fats and oils.” A surplus of edible oil, particularly cottonseed oil, had deflated prices. Southern Democratic Congressmen like Paul Brown (D-GA) and Burnet R. Maybank (D-SC) wanted to liberalize this trade so as to send excess oils to Latin America and Western Europe. Truman, however, was working with a large Democratic majority in the House and held a ten-vote lead in the Senate. When Chairman Brent Spence (D-KY) phoned the President in the middle of the House Banking and Currency Committee with Brown’s objections, Brown fell in line. The Export Control Act would make it to a vote, and liberalized trade in edible fats and oils would have to wait.

In addition to this inflation-fighting function, the Truman administration viewed export controls as promoting monetary stability within the new Bretton Woods system. While the Marshall Plan had already been enacted, trade needed ongoing management until more dollars could be pumped into the region. As Acting Secretary of Commerce Thomas C. Blaisdell highlighted in his Congressional testimony, export controls were still needed to prevent supply shocks in Western Europe.

It is true that US government officials recognized the utility of export controls for peacetime security purposes. For example, Congressmen advocating for liberalizing trade against the tides of the 1949 Act qualified that they didn’t desire loosening trade controls for “Russia and her satellites.” Blaisdell himself, moreover, underscored that the Department was “maintaining strict control over shipments of materials and equipment having potential military significance” to this region. And, indeed, most conventional histories of export controls written by legal scholars and political scientists assert that by 1948—a year coinciding with the Soviet Union building its first successful plutonium production reactor—Cold War concerns had overtaken the bill’s supply functions. But in limiting their analysis to military considerations, under the umbrella of national security, Daniels and Krige effectively overstate the connection between the 1949 Act and escalating Cold War pressures.

### Contradictions in the postwar order

Reliance on the paradigm of economic security as distinct from national security likewise obscures crucial historical developments. The US-led postwar order justifiably could be seen as possessing a mercantilist impulse to optimize exports while retaining monetary hegemony. At the same time, it upheld a commitment to liberal internationalism. There were clear signs this system was under pressure by the 1970s.

For one, the Vietnam War had shown that bloated budgets and extensive research programs did not necessarily lead to military victories. Out of this realization, the tech infrastructure supporting American empire was reconstructed around commercially developed dual-use technologies, particularly semiconductors. As Under Secretary of Defense Research and Engineering John S. Foster, Jr. commented as early as 1968 in Congressional hearings for Defense Department appropriations: “It is increasingly clear, particularly from our experiences in Vietnam, that we have only a fragmentary understanding of the consequences of such conflicts. Military hardware and tactics—no matter how ingenious or effective—cannot provide a long-term solution to the problems we face in Vietnam.”

Moreover, this arrangement created the very conditions in which Japanese competition in dual-use tech like memory chips could flourish. In the 1950s, American officials viewed rebuilding Japan as a bulwark against Communism in the East. These same officials, however, also maintained that domestic autonomy in economic and political matters was necessary if imperial overreach and outright hostility were to be avoided. But, by the 1970s, Japan’s export-oriented growth model needed access to consumers—mostly in the US. Political scientist and historian Chalmers Johnson has shown that Japan was a major beneficiary of the open trading system that developed after World War II, and that “Japanese government leaders… repeatedly acknowledged the favorable effects for them of such institutions as the General Agreement of Tariffs and Trade, the International Monetary Fund, and… stable exchange rates—all institutions they had no role in creating.”

The Bucy Report itself emerged out of this moment of upset. After Vietnam, the Defense Department was hamstrung. The agency’s budgets were slashed. Moreover, the department never possessed real jurisdiction over the circulation of things like integrated circuits. Bucy, thus, sought to reconfigure the export administration to give Defense more authority not just over US-Soviet tech transfers but overseeing the global reach of technologies like semiconductors, increasingly conceived of as “military-critical.” Thus, it was not just economic rivalry with Japan, but a changing perception of geopolitical strategy and military threat that underpinned the rise of a new export control regime.

### An era of cheap imports

Daniels and Krige’s discussion of US-PRC integration under Clinton similarly relies on a too clear separation of national and economic security. After the Soviet Union collapsed and bipolarity gave way to unipolarity, US militarism by no means ceased; if anything, it became more impulsive. Whether via humanitarianism, a new commitment to protecting other states’ sovereignty, a geopolitics of oil, or a surge in neoconservatism and Christian messianism, US military intervention persisted throughout this period. Liberalizing export controls complemented this adventurism by detaching high-tech exports from discrete military action. Put differently, the Clinton administration sought to foster a privately funded, high-technology base with military-crossover, absent of distinct geostrategic goals.

Moreover, the economic story told by Daniels and Krige doesn’t quite hold on its own terms. US high tech trade with China didn’t begin through the cycling of profits made in its consumer markets back into R&D. Rather, American high-tech firms began to build global supply chains during the 1970s, primarily motivated by the search for cheap labor. The book bases its analysis on the consumption of high-tech goods, neglecting to analyze transformations in production. In reality, tech transfers weren’t just about shipping finished products overseas but also offshoring the production of US tech—something Bucy realized. The goal was cheaper manufacturing costs, primarily via reducing the price of labor. These reduced costs were thought to encourage private stewardship over the US techno-industrial base, as domestic design combined with foreign manufacturing was thought to provide a wellspring for ample, cheap dual-use tech imported back to the United States. Although places like South Korea held the bulk of assembly work in the 1970s and ‘80s, China became the major center for tech assembly by the early 2000s. For example, US-designed chips manufactured at TSMC were shipped to China to be assembled into consumer electronics—i.e., in things like iPhones—then sent to the US.

Economic integration with China was also driven by the global position of the dollar, which the authors similarly overlook. Reagan “discovered” the global economy when Japan started buying up US Treasuries following Volcker’s infamous rate hikes; these purchases tamed inflation and allowed the US to run a larger deficit. China overtook Japan in financing the US deficit after it joined the WTO in 2001. Treasuries supported the PRC’s growth model in that they helped the state balance its payments, while keeping the dollar strong. Lax export controls then facilitated the steady supply of assembly tech products from China to the US, creating a complementarity between this monetary regime and Clinton-era industrial policy.

### What’s new?

In the 1940s, export controls emerged to curb domestic inflation, stabilize the position of the dollar in Europe, and facilitate a budding Western blockade. As tangible bipolar nuclear rivalry took hold in the 1950s, these controls aimed at the twin goals of maintaining nuclear lead-time and frustrating the industrial power of the Soviet Union. The 1970s and ‘80s brought further modifications to export regulations as the postwar order unraveled. US officials refitted export controls, seeking to weaken the Japanese position in memory chips as well as leveraging Chinese industrialization against a resurgent Soviet threat. This rearrangement precipitated a remaking of US industrial policy around commercially developed dual-use tech, supported by increased investment in the Asia Pacific. After the Soviet Union collapsed in 1992, US-PRC integration only intensified. At the heart of this relationship was a tradeoff between hegemony (monetary and military) and manufacturing capacity. This tradeoff was supported by, but not reducible to, an industrial policy of economic security and undergirds the current conditions in which we, in the United States, now live.

The history that Daniels and Krige plot in Knowledge Regulation may provoke new questions as to our current era of export controls. In light of the latest regulations, has the US entered a new era of export controls and, if so, what are its features? Some have argued that Commerce’s latest actions may be intended to encourage new industrial policy—at whatever geopolitical cost. Alternatively, these heightened controls could be deliberately oriented towards escalating tensions between the US and the PRC.

Deeply engaging with such questions requires abandoning hard distinctions between economic and military motives, as well as hard lines between the commercial and strategic significance of dual-use tech. As Daniels and Krige effectively show us, export controls are flexible regulatory tools that can be put to many uses, whether they be macroeconomic, commercial, or geopolitical.

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