Short-term benefits undermine long-term resilience

The White House liberated a report Tuesday which offers a solemn assessment of American companies prioritizing profits over national security and long-term sustainability. “The emphasis on maximizing short-term returns on capital has led to private sector underinvestment in long-term resilience,” the 250 page report States. The United States has a competitive advantage over China in the production of semiconductor manufacturing equipment (SME), which supplies a choke point which may limit “advanced semiconductor capabilities in countries of concern”.

Report details findings and recommendations of President Biden’s 100-day supply chain review of administration required february decree who led the review of four key industries: semiconductors, high capacity batteries, critical minerals and pharmaceuticals. The report states that the Chinese government’s “massive subsidy campaign [as much as $200 billion over the past eight years] to develop its national semiconductor capacity ”exploited the“ gray areas ”in international trade rules and avoided World Trade Organization (WTO) surveillance. The Chinese government has supported key technology industries, including semiconductor manufacturing and SME production, with a “new subsidy strategy” designed to avoid “the transparency requirements of the WTO subsidy regime.” Essentially, government grants are counted as “investments” to avoid WTO disclosure rules.

This is one of many “mercantilist innovation” tactics that the Chinese state has been practicing for years, according to a recent report and Event by the Information Technology & Innovation Foundation which details the deleterious impact of China on international ecosystems competitive for semiconductors, telecommunications equipment, biopharmaceuticals, solar photovoltaic energy and high speed trains. Co-author Stephen Ezell estimates that the United States loses some 5,000 semiconductor patents each year due to this predation.

The Chinese Communist Party has made a concerted effort to dominate the semiconductor market. The Made in China 2025 plan aims to produce 70% of Chinese chip demand locally and promises up to $ 1.4 trillion in investment in Chinese semiconductor industries.

Memory chips are the “most mature” of these efforts. Yangtze Memory Technologies (YMTC), which has received $ 24 billion in state subsidies, has become a “national champion of memory chip producers.” A James Mulvenon report this year identifies the links between the YMTC and the People’s Liberation Army.

“It’s not just YMTC,” warned Emily de La Bruyère, senior researcher at the Foundation for the Defense of Democracies, at a panel discussion on Chinese technological threats this week. “Changxin memory technologies [CXMT] is also supported and potentially also linked to [People’s Liberation Army]. The roundtable titled ‘Ditch the Tokens?’ Explored the topic of how the upcoming Undersecretary of the Commerce Department’s Bureau of Industry and Security (BIS) should approach semiconductor policy .

The White House report appears to be a de facto roadmap for the next BRI chief and stands out for the designation of large Chinese factories with military ties that have yet to be designated as military or end users on the list of entities. Put bluntly, the US bipartisan commission in China released a report earlier this month, Unfinished Business: Export Controls and Foreign Investment Reforms which criticized BIS for failing to publish lists of core and emerging technologies, as required by the 2018 Export Control and Reform Law. Such a publication would likely trigger action against Chinese fabs.

“As the United States no longer leads the world in semiconductor manufacturing capabilities,” it has a competitive advantage over China in semiconductor manufacturing equipment (SME), the report adds. of the White House. The United States supplies more than 41% of global SMEs. Accordingly, “The Administration should target and implement export controls on critical semiconductor equipment and technologies to address certain vulnerabilities in the supply chain.”

The report calls for a multilateral approach to export controls with US allies. “Together, these controls will protect the national security interests of the United States by limiting the advanced capabilities of semiconductors … while allowing the continued leadership of the US semiconductor industry.” “

Yet despite tighter export controls in recent years, sales to Chinese companies have been a major driver of US SME profits. About 90 percent of Applied Materials and Lam Research’s revenue came from sales outside the United States last year, the White House report notes. The percentage of Lam Research’s revenue from China almost doubled between 2018 and 2020.

But the Chinese government’s approach to semiconductors doesn’t just revolve around subsidies, warned Emily de La Bruyère, senior researcher at the Foundation for the Defense of Democracies. “China militarizes industries», Explains de La Bruyère. “This explicitly encourages companies to go out and integrate into industrial chains to achieve positions of power.”

Protecting the “historic advantages” of the United States will require more effective controls on upstream entries, which should be implemented in coordination with the private sector and foreign allies, said Will Hunt, a research analyst at the Center for Security and Emerging Technology, who also addressed the roundtable. “China understands how important dual-use technologies are… If we can enforce tight controls on inputs, which can hurt American businesses a bit in the short term, it will have lasting benefits for national security – which will benefit businesses in the long run. Hunting report China’s Progress in Semiconductor Manufacturing Equipment: Accelerators and Policy Implications compares China’s position today to that of Japan in the 1980s, a country with sustained efforts that has been able to reach or even surpass the United States in some measures of industrial semiconductors.

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