Economic Development and Technology

Export controls, trade relationships affect state’s tech goods

Federal legislation attempts to protect companies from technology theft.

December 27, 2019
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Michigan high-tech exports — which make up 1.1% of the U.S. total — may be subject to government controls partly due to international trade conflicts with the state’s third-biggest export market, China, experts say.

“The greater problem we’ve seen with China’s increasing participation in the world economy is not about, ‘Are they selling more stuff to different countries?’” said Hoyt Bleakley, a professor of economics at the University of Michigan who studies economic history, development economics, labor economics and international macroeconomics.

“It’s, ‘Do they respect international norms about property rights, about intellectual property?’”

Congress passed the Export Control Reform Act last year “to protect U.S. technologies from aggressive attempts by China and other countries to obtain those technologies using both illegal and illicit means,” according to a report by the Information Technology and Innovation Foundation, or ITIF — a nonprofit public policy think tank in Washington.

Export controls regulate the transfer of specified technologies, information and services from the U.S. — ranging from requiring an application process to the monitoring of production to an outright ban, according to the ITIF report.

The 14 potential categories of emerging technologies that will be subject to these controls include artificial intelligence and machine learning technology, robotics, advanced computing technology and advanced surveillance technologies.

“There’s the argument about intellectual property theft and insufficient protections for intellectual property in China, so there’s already a concern regarding those issues,” said Jean Schtokal, a Lansing-based international business attorney who provides counsel on export control laws and regulations.

“Lots of folks have commented that the emerging technology categories listed correspond to the China 225 initiative — where China wants to be self-sufficient regarding certain industries and categories,” Schtokal said.

Last summer, the U.S. and China imposed tariffs on billions of dollars’ worth of each other’s goods, launching a “trade war” between the two economies. President Donald Trump has long accused China of unfair trading practices and intellectual property theft.

“The assumption behind the export controls is that anything that goes to China is sooner or later going to be copied or the intellectual property will be stolen,” Bleakley said. “That’s a pretty good assumption to work under.”

Michigan exported about $58 billion worth of goods in 2018, making it the nation’s seventh-largest state exporter, according to the Office of the U.S. Trade Representative. Of those, goods worth $3.6 billion went to China. Only Canada and Mexico imported more.

ITIF’s breakdown of the estimated impact of export controls on emerging technologies determined U.S. companies “could lose $14.1 (billion) to $56.3 billion in export sales over five years.”

Schtokal said the law currently is undergoing interagency review.

“Several agencies that are concerned about national security, the economic superiority of the U.S. and technological advancement of the U.S. are all going to get together and determine what is going to be considered an emerging technology and then determine what kinds of controls are on it,” she said.

Schtokal said many trade associations have submitted concerns to the federal government regarding the potential regulations. The proposed rule document issued by the Bureau of Industry and Security, “Review of Controls for Certain Emerging Technologies,” received 232 formal comments.

Bleakley said, “Typically, licensing and standardizations are done by the receiving countries. There’s a fairly narrow category of things that can’t be exported by the country that would export them, and they tend to be sensitive to national security.”

“My instinct is that’s a very small fraction of total exports,” he said.

Since the proposed rule document was issued, the 14 categories of potential emerging technologies have yet to be subject to export controls, but Schtokal said they will be in the future. However, they still cannot be sent to China and other countries having trade conflicts with the U.S., such as embargoed nations.

“Otherwise, it can go without a license — and the government wouldn’t know who’s getting it, and they can’t do end-use checks on how it’s being used,” Schtokal said. “If you’re exporting and you want to get a license for it, the way the licensing process works is you have to say where you want to send it and what you’re going to use it for.”

Bleakley said the trade conflict with China has more of an effect on U.S. consumers than on the U.S. economy.

“We certainly have a big trade deficit with China, but we’re not necessarily super-dependent on them for a lot of stuff,” Bleakley said.

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