The new measures to be announced by the Biden administration on Tuesday are expected to expand the direct product rule – a measure specifying that foreign companies may not sell anything made with US technologies to the sanctioned entities – on more Chinese entities.
While it remains to be seen how these restrictions are going to work and how they will be enforced, Thomas W. Pauken II, geopolitical commentator and author of "US vs. China: From Trade War to Reciprocal Deal", called the measures “nonsense” and voiced his doubts about them, suggesting that Beijing might retaliate.
Sputnik: According to sources, the use of the so-called foreign direct product rule will prevent companies anywhere in the world from selling certain advanced computing chips to Chinese buyers without a U.S. government license if the companies use American technology to make the chips. How will this decision affect China's technological capabilities?
Thomas W. Pauken II: If it goes into effect, it will actually impact all technology companies, because if there is any connection to a Chinese on their supply chains, they're all impacted. So I doubt this ruling will be properly enforced.
Basically you are going to have to go through every technology company and they have to prove that they had not worked with Chinese companies before. That's impossible because the Chinese are the world's largest exporters and they have a huge electronics and technology products exports, including the parts.
I don't see how it's even possible, even if they wanted to enforce the law, to make it happen.
Sputnik: How could such a move impact businesses worldwide, which will find themselves between a rock and a hard place?
Thomas W. Pauken II: Everyone have to show proof that they have no connection to the Chinese. This is nonsense.
It reminds me how a few weeks ago I was watching the European Commission chairwoman, Ursula von der Leyen, talk about how the EU sanctions were hurting Russia because supposedly they had to use dishwashers and take out semiconductors from the dishwashers to make weapons.
But what this means to me is that everything is connected in the technology business. If we're going to suddenly stop and enforce this law, then let's just go back to the caveman days and not use any technology. This is not going to be able to be enforced.
Sputnik: Were such steps presupposed in China? Is the country ready for these restrictions?
Thomas W. Pauken II: It's impossible. Not even Taiwan uses this stuff when they tried. Not even countries that are totally anti-China can do this stuff because when you have high tech supply chains, everything is connected to everything.
And the top manufacturer in the world and the top exporter in the world is China. They use electronic products for almost everything they sell. So any of the end products have some high technology used to it, therefore that's illegal because there is some type of semiconductor in there that is connected to China or another country.
We can't even allow for China to do any export. I mean, this is just a totally nonsense law that is just intended to make them look like Democrats or supposedly anti-China when they have no intent to enforce this law at all.
Sputnik: After the new rules are put into effect, how could China retaliate; what tools does it have at its disposal?
Thomas W. Pauken II: The only way they could retaliate is by seeing if this law is successfully enforced and therefore, people cannot buy electronics in China. Go for that! See what happens.
China wins by having this law enforced because how can any company be able to do their electronics without some type of supply chain connection to China? So China actually wins if people actually try to do this enforcement because they will realize how silly and nonsensical this law is.
Sputnik: Taiwan Semiconductor Manufacturing Corporation is the world’s largest chip manufacturer, on which the US is heavily dependent. Is it possible that China could put restrictions on Taiwanese exports?
Thomas W. Pauken II: I'm pretty sure they could. And obviously, if this law goes into effect, China would have no choice but to enforce that and not do any type of electronic business with any country involved with this law, because obviously they are just making sure that if the U.S. puts this law in place, then therefore China has to honor that law.
And so now you have a complete decoupling of technologies between China in the world, and this would be absolutely disastrous. But let them try. This would be economical catastrophy. And right now, when the world economy is in terrible shape, if this law actually goes into effect, this would make it double, triple worse.
Sputnik: Can this step be considered as an attempt to contain the US main geopolitical rivals, given Biden administration's efforts to impose a price cap on Russian oil?
Thomas W. Pauken II: You saw how that went with the price caps. I double checked into it. Now, the only type of price caps they are doing is punishing any EU electricity producing companies rather than the Russian oil, because they [oil consumers] know that Russians will not sell the oil at a price that they believe is too low for them.
So these price caps and these strategies to decouple from China, create actually more harm for the countries that are trying to impose these foolish sanctions than the countries that are being sanctioned.
Sputnik: Will the US be able to get the status of the so-called "international export controller"?
Thomas W. Pauken II: Let them try and it will fail. It will create major disruptions in the global trade scenario.
I had done the study on this because I wrote the book on Shenzhen recently which is about to be published soon, and I had to do a deep study on semiconductors. Turns out that anything that is a electronics product or some type of semiconductor, is connected to it.
Now Washington says they need to have these export control on anything that's Chinese tech-related, to semiconductors, that’s silly. Go for it. Try it. It will fail. Just like they failed with the energy and now you have Europe facing severe energy shortages.
Sooner or later, it's also going to wallop the U.S. The energy prices are soaring. OPEC is already thinking about doing 1 million barrels a day cut back and then they're going to try this silly mess with the electronics. Go for it. Please do. I'd like to see how they're able to use their electronic products of anything that is unrelated to China. Go for it.