Weaponizing of export controls proving to be self-defeating

Documents submitted by California-based data storage company Seagate to the United States Securities and Exchange Commission on Oct 26 show that the company had received a warning from the US Department of Commerce, claiming its sales of hard drives to a certain client violated the US export embargo.

Reuters reported that the company concerned was Huawei, which was put on the entity list by the US government in 2019. Inclusion on the list means the Chinese company is prohibited from obtaining semiconductor technologies or other restricted products from US enterprises unless it has US government approval. The ban was extended to all global products using US software or technologies in 2020.

The warning from the Commerce Department came in a "Proposed Charging Letter" according to the filing with the security and exchange commission. Seagate, however, claims that its hard drives are not subject to US export regulations and the company has not engaged in any form of prohibited conduct.

If it is unable to convince the Commerce Department that it hasn't broken the control rules, Seagate could face a penalty of up to $300,000 per violation or have to pay a fine of about twice the value of every item it sold to Huawei. Seagate, a company based in Dublin, Ireland, that also operates in California, said it was cooperating with the Commerce Department and was seeking to resolve the matter, although it said a material impact on its business was possible.

Seagate's share price dropped 11 percent after the company disclosed the warning over the alleged export violations.

The move against Seagate is a sign of the Joe Biden administration's desperation to announce "progress" in its attempts to put China's tech development on the ropes ahead of the midterm elections. Despite its best efforts, pressuring the global tech giants to "decouple" from the Chinese mainland has not proved an easy sell for the administration. Global chip companies are already warning about falling sales and concerns for future operations because of the US export controls.

Industry giants have warned that the administration's latest controls on exports of chip technology could be extremely harmful to them and the industry as China accounts for about one-third of their total revenue.

The US administration should focus on creating an enabling environment for businesses rather than punishing them for carrying out normal business operations.