Our So-Called Foreign Policy: Trump’s China Strategy Seems Troublingly Silo-ed

Tags

CFIUS, China, Committee on Foreign Investment in the United States, Diplomatic and Security Dialogue, foreign direct investment, industrial policy, James Mathis, mercantilism, national security, Our So-Called Foreign Policy, Rex Tillerson, semiconductors, Steven Mnuchin, super-computing, technology transfer, Trump, Wilbur Ross

Secretary of State Rex Tillerson and Secretary of Defense James Mathis are meeting with Chinese counterparts today in Washington, D.C. to conduct a “Diplomatic and Security Dialogue” – a stripped down Trump administration version of some of the ginormous official bilateral sessions the two countries have held periodically in recent years.

It’s unclear whether these talks will turn out to be more than the elaborate gabfests their predecessors quickly became. But it’s much clearer that their potential to contribute significantly to America’s security will be limited unless the administration starts taking many more urgently needed steps to move the nation’s Asia grand strategy into the twenty first century. And the major missing piece of this effort continues to be a serious effort to deny China the advanced technologies it will need to continue becoming a more formidable military competitor.

Some promising decisions have been taken, or are being considered. For example, Commerce Secretary Wilbur Ross is thinking of launching a national security review of U.S. trade in semiconductors with an eye toward fending off what he describes as an increasingly dangerous Chinese challenge in this defense-critical sector. Mathis and Treasury Secretary Steven Mnuchin have both publicly called for updating the interagency U.S. government process for screening prospective Chinese and other foreign investments in all defense-related companies (the Committee on Foreign Investment in the United States, or CFIUS). And they along with Ross have strongly suggested that they’re thinking of redefining the relevant statute’s mandate to include economic dimensions of national security. Just as encouraging, prominent members of Congress are drafting legislation along these lines.

And most recently, the administration has announced a big new effort to ensure continued American leadership over China in super-computing (although the semiconductor industry isn’t happy with some other features of Mr. Trump’s stance on federally sponsored research and development).

Moreover, the Trump administration is responding to the Chinese challenge much more promptly than its predecessor, which prioritized this cluster of problems very late in its tenure. Its proposed responses to mercantile Chinese industrial policies in technology industries were especially weak beer.

But as with the Obama administration, Team Trump seems to be paying little attention to the continued outflow of cutting-edge defense-related American knowhow to China – including to entities that are unquestionably controlled by the Chinese government. It’s unmistakably paying much less attention to these investments than to spending billions more to upgrade American military forces in East Asia – which of course could wind up facing Chinese weapons based on U.S. tech advances.

Today’s U.S.-China talks in Washington are due to be followed up later this summer by a session devoted to economics. Maybe by then, President Trump and his advisers will be pursuing the comprehensive, integrated approach that meeting the China challenge adequately requires?

Advertisements

Our So-Called Foreign Policy: Worries About Another U.S. Screening Process – For Defense-Related Technology Assets

Tags

CFIUS, Committee on Foreign Investment in the United States, foreign investment, Hewlett-Packard, Integrated Silicon Solutions, national security, Our So-Called Foreign Policy, Philips, Qualcomm, semiconductors, technology, Tsinghua University, Western Digital

As Americans have embroiled themselves in a heated debate over how adequate screening procedures are for refugees from the war-torn Middle East, some big, possibly dangerous holes in another key security government screening system may have opened wide – the inter-agency process for vetting proposed foreign takeovers of or investments in U.S. companies when the deals have national security implications.

According to a valuable report by the tech industry publication EE Times, China has proposed buying outright or acquiring important stakes in no less than five major American technology firms this year alone. One such bid, for leading memory chip maker Micron, has been squashed – at least for now – in part because of likely opposition from the inter-agency group, known as the Committee on Foreign Investment in the United States (CFIUS).

Two more are awaiting CFIUS analysis. The first is the purchase of a 15 percent stake in hard disk drive manufacturer Western Digital by the investment arm of China’s government-controlled Tsinghua University. The second is Hewlett Packard’s sale to the same Chinese entity of its telecommunications hardware, server, storage, and technical services assets in China.

Judging from CFIUS’ decisions in two previous cases, though, the Chinese government – and its U.S. partners-to-be – have little reason for concern. For Washington has approved the sale of Omnivision to a Chinese investment consortium, and Integrated Silicon Solutions Inc. to similar buyers. Omnivision makes image sensors important for semiconductor design and manufacturing, while Integrated Silicon Solutions is a fabless memory chip producer. Apparently CFIUS saw no significant national security potential in either transaction, even though semiconductors are vital building blocks of all advanced weapons systems, and even though all Chinese investors prominent enough to bid for such key foreign assets are either directly or indirectly controlled by Beijing.

In addition, another tech publication has reported that CFIUS is looking into the sale to yet another group of Chinese investors of Philips’ LED lighting division, including “a broad patent portfolio of more than 600 patent families related to LED manufacturing and automotive lighting.” And EE Times has recently explained why financially struggling American communications chip giant Qualcomm could be China’s next target.

More ominously, the Tsinghua investment arm has announced intentions to spend $47 billion over the next five years to build up China’s tech sector by purchasing foreign companies and knowhow, and that America’s tech sector is its top target. So it looks like, at the least, CFIUS will be kept pretty busy going forward. Then again, since prospective foreign buyers aren’t legally obligated to notify CFIUS of their intentions, who’s to say?

(What’s Left of) Our Economy: Follow the Money, Not the Pundits, to Understand the Chinese Tech Challenge

Tags

Ali Baba, CFIUS, China, cyber-security, forced technology transfer, foreign direct investment, IBM, innovation, Intel, Qualcomm, technology, Thomas Friedman, Xi JInPing, Xiaomi, Yahoo, {What's Left of) Our Economy

Few stereotypes are as hardy (and seductive, at least for Americans) as that of copycat Asians who come from cultures incapable of fostering creativity and innovation – at least not on the scale for which the USA is known. And few are as as misleading. If you’re skeptical of either proposition, just consider Thomas Friedman’s column today in The New York Times about China’s economic and technological future, and a spate of news reports about the activities of U.S. and Chinese technology companies themselves.

In Friedman’s words, there’s a major conflict between Chinese leader Xi Jinping’s push to move his economy from labor-intensive manufacturing to “more knowledge-intensive work” and his determination to censor the internet as well as university research. “Alas, crackdowns don’t tend to produce start-ups,” Friedman concludes.

It’s hard to argue with the logic, but oft times the world thumbs its nose at sensibileness – or at least as it’s defined by particular peoples. And however Americans cherish the notion that the political freedoms and inventiveness go hand in hand, and vice versa, lots of U.S. tech firms don’t seem to agree.

Cosmically, today also saw the appearance of a Wall Street Journal piece describing how Some of Silicon Valley’s largest companies have deepened their China partnerships in the past year.” The article mentions Intel and IBM, and could have added Qualcomm as well. Many of these deals and investments are simply responses to China’s longstanding policy of forcing foreign companies to transfer technology to Chinese partners in exchange for access to the potentially enormous Chinese market.

Lately, moreover, Beijing has added two big new wrinkles. First, its professions to fear spyware insertions in technology imports and high-profile decisions to curb purchases from U.S. firms in particular have given these companies major incentives to team up with Chinese entities. These are easier for the Chinese government to control – that is, when it doesn’t own them outright or indirectly. Second, China has begun to accuse foreign companies in numerous industries of violating Chinese laws in areas like anti-trust and bribery, and handed out some stiff fines. Non-Chinese firms have gotten the message that carrying out Beijing’s bidding in areas like tech transfer is a great way to stay on the Chinese authorities’ good side.

Nonetheless, it’s also clear that China has developed some technology winners – like Xiaomi, the up-and-coming smartphone producer that’s received Qualcomm funding ever since it held its first financing round. And let’s not forget the Yahoo stake in Chinese e-tailer Ali Baba – which may be the most valuable assets it owns.

Also ignored by Friedman is how, thanks to the literally trillions of dollars in trade profits it’s made with the United States and the rest of the world, China can now buy outright much of the advanced knowhow it needs – and has made acquiring U.S. companies a priority. Chinese takeovers with national security implications can be blocked or quietly deterred by an inter-agency American screening panel, but this Committee on Foreign Investment in the U.S. has more often acted like a rubber stamp than like a guardian.  

So the choice is pretty clear: When trying to understand innovation and economics in China, you can listen to the pundits, or you can follow the money. Hardly a close call if you ask me.