• About

RealityChek

~ So Much Nonsense Out There, So Little Time….

Tag Archives: innovation

(What’s Left of) Our Economy: Inside the U.S. Research and Development Slump

14 Monday Nov 2022

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

Bank for Intenational Settlements, Bernie Sanders, Elizabeth Warren, innovation, National Science Foundation, neo-liberalism, private sector, Project-Syndicate.org, research and development, science, stock buybacks, technology, William H. Janeway, {What's Left of) Our Economy

At the risk of sounding like an Elizabeth Warren or Bernie Sanders clone, I’ve just come across some data showing that stock buybacks by U.S. public companies have really gotten out of hand. That matters because it looks like they’ve been denying these firms major resources for performing the research and development (R&D) needed to keep creating new products, services, and processes, and maintain the U.S. economy’s global competitiveness.

I got interested in these trends due to a post at the Project-Syndicate.com website by William H. Janeway. According to this business and economics writer, for decades through the first half of the twentieth century, America’s industrial giants in particular spent significant shares of their profits on “Scientific research and development of technological applications,” and indeed virtually monopolized such activity in the United States up to the start of World War II.

Once the war broke out, and long after (including of course during the early Cold War), these efforts were powerfully supplemented by the federal government. And beginning in the 1960s (roughly), when for various reasons, the profits that powered private sector R&D began drying up, Washington’s funding actually was able to fill the gap pretty satisfactorily.

Yet starting in the early 1980s (and I’m simplifying terribly here), market-friendly neo-liberal national economic policies like regulatory reform and tax cutting revived corporate profits. But these measures also presented business with a less risky, more immediately lucrative, and therefore more appealing way to use this new windfall than figuring out how to provide new and better goods and services – buybacks of their own shares of stock, a practice that was legalized in 1982.

I’ve found data going back to 1995, and from then through 2019, reports the Bank for International Settlements (a grouping of the world’s major central banks) annual U.S. gross stock buybacks soared more than ten-fold – from $73.16 billion to $829.18 billion. Yearly net buybacks jumped even faster – from $34.41 billion to $605.22 billion.

And since then, annual gross buybacks have jumped still higher. Investment banking firm Goldman Sachs pegs the 2021 gross buyback total at $992 billion, and not surprisingly predicts that the number for this year will hit $1 trillion. The slow growth stems partly from a one percent excise tax on the largest buybacks that kicks in next year.

Private sector R&D hasn’t exactly stood still during this period. But the National Science Foundation (NSF) says it rose only four-fold, from $129.83 billion to $498.18 billion. (See the spreadsheet provided at the first link here.) Put differently, in 1995, annual gross buybacks were 56.35 percent of annual R&D outlays. In 2019, annual gross buybacks just over 60 percent higher.

The NSF believes that private sector R&D neared $532 billion in 2020. But even that nice increase wouldn’t change the ratio much.

During these decades, moreover, federally funded R&D hasn’t remotely filled the gap. It increased nearly 150 percent from 1995 to 2019, but in absolute terms, the latter total was only $62.80 billion. And in 2020, it’s estimated to have risen only to $65.69 billion.

Further, neo-liberalism (or market fundamentalism, or whatever you want to call it0 is just as much to blame for this sluggish pace as it is for Wall Street deregulation, for it resulted from the same, reflexive anti-government impulses.

I don’t mean to demonize private business or finance or free markets, or to lionize government. But clearly something’s gone very wrong with the incentive structures shaping business decisions, and just as clearly, lots of business lobbying has had lots to do with it. Ditto for inadequate federal funding. Without major changes, don’t expect the U.S. economy from escaping the dangerous trap of heavy reliance on debt-based growth any time soon.

Advertisement

Those Stubborn Facts: The Digital Revolution in a Nutshell

06 Thursday Oct 2022

Posted by Alan Tonelson in Those Stubborn Facts

≈ Leave a comment

Tags

infotech, innovation, microchips, semiconductors, technology, Those Stubborn Facts

Number of transistors in a state-of-the-art computer chip, 1961: 4

Number of transistors in Nvidia’s latest graphics chip: 76 billion

(Source: “The ‘chip choke’ on China may breathe air into semiconductor industry,” by John Thornhill, Financial Times, September 29, 2022, The ‘chip choke’ on China may breathe air into semiconductor industry | Financial Times (ft.com))

Making News: Back on National Radio Talking Conservatism’s Future & Batchelor China Manufacturing Podcast Now On-Line

20 Tuesday Sep 2022

Posted by Alan Tonelson in Making News

≈ Leave a comment

Tags

automation, CBS Eye on the World with John Batchelor, China, conservatism, Gordon G. Chang, innovation, Making News, manufacturing, National Conservatism Conference, politics, robots, tech, The Hrjove Moric Show, TNT Radio

I’m pleased to announce that I’m scheduled to return tonight to “The Hrvoje Moric Show” on the internet network TNT Radio. The segment is slated to be broadcast at 9-10 PM EST, and will focus on my impressions of the National Conservatism conference at which I spoke last week, and what this new movement will mean for the future of right-of-center politics in America. But I’m sure that the state of the economy will come up, too!

Click here to listen live, and of course if you can’t tune in, I’ll post a link to the podcast as soon as one’s available.

Speaking of podcasts, here’s a link to the recording of my interview last night on “CBS Eye on the World” with John Batchelor. The segment, with co-host Gordon G. Chang, featured a timely discussion of how China’s manufacturing is rapidly automating, and the implications for U.S. domestic industry.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

Making News: Back on National Radio to Analyze a Big Change in Chinese Factories

19 Monday Sep 2022

Posted by Alan Tonelson in Making News

≈ Leave a comment

Tags

automation, CBS Eye on the World with John Batchelor, China, competitiveness, Gordon G. Chang, innovation, Jobs, labor shortage, Making News, manufacturing, robots, technology

I’m pleased to announce that I’m scheduled to return tonight to “CBS Eye on the World with John Batchelor.” The segment is slated to air at 9:30 PM EST and along with co-host Gordon G. Chang, we’ll be discussing why robots are becoming common in factories in China – whose predominant competitive edge in manufacturing used to be cheap labor – and what it means for the world economy.

You can listen live at links like this one and, as always, if you can’t, I’ll post a link to the podcast as soon as it’s available.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

Our So-Called Foreign Policy: No U.S. Learning Curve on Denying China Vital Tech

18 Thursday Aug 2022

Posted by Alan Tonelson in Our So-Called Foreign Policy

≈ Leave a comment

Tags

China, Commerce Department, export controls, innovation, Kate O'Keefe, national security, Our So-Called Foreign Policy, sanctions, tech, The Wall Street Journal

The biggest reason to be appalled by The Wall Street Journal‘s excellent report yesterday on America’s efforts to control exports of high tech goods and knowhow to China wasn’t the raw data it contained – which showed that the U.S. government almost never rejects requests by business to sell high tech goods and knowhow to China.

No – as disturbing and scary as these findings are, the biggest reason to be appalled by the article is how clearly it reveals that, after decades of dealing with China, and despite the recent U.S. decision to spend huge amounts of money to try to stay ahead of China technologically, Washington has learned absolutely nothing about the threat to America’s national security, independence, and prosperity posed by this increasingly hostile and dangerous adversary, or how to counter it effectively. And maybe it hasn’t wanted to learn?

In fact, the article, by Journal reporter Kate O’Keefe, adds to the evidence that U.S. officials don’t even view China as especially hostile – let alone dangerous – at all. The People’s Republic is evidently assumed to be a country and an economy that in key respects closely resembles most other major powers with which U.S. companies do business.

Sure, U.S. export controls policies put China in a special category, and subject it to special restrictions for goods like weapons and satellite and space equipment, whose transfer to China is banned outright. But when it comes to “dual use” products and tech – which have both civilian and military applications, and which comprise an enormous group of goods and services – the American approach in practice treats China

>as if it’s got an independent private sector that can be sharply distinguished from its government agencies;

>as if China’s civilian government agencies can be easily distinguished from its national security apparatus;

>as if virtually all these entities operate in reasonably transparent ways and can be “trusted” to act safely in their role as “end-users” of these purchases;

>as if America’s main export control or sanctions challenge is making sure that cutting edge products and tech aren’t provided either directly to the Chinese military or other branches of the Chinese bureaucracy that jeopardize U.S. interests (like the secret police), or indirectly – via a small handful of other actors that, for whatever reason (Corruption? Tragically misguided patriotism?), will pass them along to the Bad Guys; and

>as if the U.S. government has the ability to make sure that prohibited items are kept out of the wrong hands.

Just two examples from O’Keefe’s article of how patently inane this approach has been:

>”Kharon, a Washington, D.C.-based research and data-analytics firm, said it has identified tens of thousands of Chinese entities that may meet the U.S. criteria for military end-user export restrictions, even though there are only roughly 70 on the Commerce Department’s current list.” (Commerce is the lead export control agency.)

>The Commerce Department has added to its list of entities for which Americans need a license to do business the officially state-owned flagship Chinese semiconductor manufacturer SMIC – but only after a U.S. defense contractor “documented the chip maker’s military customers.”

Back in 2012, I wrote that China represents a systemic challenge requiring a completely different export control (and sanctions) approach. Nowadays, when China has grown so much stronger in large part because of this La-La-Land (to be charitable) U.S. strategy, a course change is more important than ever.

What this means is that, no matter how they’re classified by the Chinese regime or structured on paper, every single entity in the People’s Republic that’s in the tech or broader manufacturing sector must be recognized as being under Beijing’s actual or potential control. Therefore, they can be counted on to (a) make available to the authorities anything they acquire that can undermine U.S. interests and/or keep the leadership in power; and (b) do everything possible, including with the regime’s active help, to cover its tracks.

This doesn’t mean that difficult China export control and sanctions policy issues don’t lie ahead for Washington. For that, we can thank all the U.S. leaders before Donald Trump’s presidency who so recklessly turned the People’s Republic into such a powerhouse tech manufacturer and major tech market. (At the same time, the fundamentally moronic export control system remained largely intact during the Trump years.) But one critical reform can be put in place immediately – new regulations realizing that if a product or technology is deemed too dangerous to sell or transfer to any one China entity, it’s by definition too dangerous to sell or transfer to all Chinese entities. Because the China challenge is systemic.

Making News: Podcast Now On-Line of National Radio Interview on Reviving U.S. Semiconductor Making…& More!

11 Thursday Aug 2022

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

antitrust, Biden, CBS Eye on the World with John Batchelor, China, Chips Act, competition, conservatism, Gordon G. Chang, infotech, innovation, Jobs, manufacturing, microchips, near-shoring, reshoring, semiconductors, tech, Trade, {What's Left of) Our Economy

I’m pleased to announce that the podcast is now on-line of my appearance on last night’s nationally syndicated “CBS Eye on the World with John Batchelor.”

Click here for a timely discussion with John and co-host Gordon G. Chang, about whether a massive new array of subsidies and incentives just signed into law by President Biden will indeed revive American microship production, and prevent U.S.- and foreign-owned semiconductor companies from setting up state-of-the-art operations in China.

In addition, it was great to see IndustryToday.com reprint (with permission, as required!) my recent post on some of Mr. Biden’s factually challenged claims about the economy’s performance during his presidency. Here’s the link.

Finally, I’m honored to have been invited to speak at a big conference to be held in Miami, Florida on the future of American conservatism – including what it should be. My talk, on “An America First Approach to Trade and Competition,” is so far scheduled for Sunday, September 11. But sometimes these plans get reshuffled, so I’ll post any updates as soon as they become available. In the meantime, click this link for the rest of the agenda, and the all-star cast of speakers that’s been lined up, at this link. 

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

Following Up: Podcast Now On-Line of National Radio Interview on the Biden-Xi Jinping Phone Call

28 Thursday Jul 2022

Posted by Alan Tonelson in Following Up

≈ Leave a comment

Tags

Asia-Pacific, Biden, CBS Eye on the World with John Batchelor, China, Following Up, Gordon Chang, Indo-Pacific, innovation, national security, semiconductors, Taiwan, tech, Xi JInPing

I’m pleased to announce that the podcast is now on-line of my interview last night on the nationally syndicated “CBS Eye on the World with John Batchelor.”

Click here for a timely discussion, with co-host Gordon G. Chang, of what President Biden should have said today in his telephone conversation with Chinese dictator Xi Jinping, and whether or not the United States can avoid going to war with the People’s Republic to keep Taiwan’s world-leading semiconductor manufacturing prowess out of Beijing’s hands.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: Everything You Wanted to Know About Immigration & the Economy — & Less

12 Sunday Jun 2022

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

economics, immigrants, Immigration, innovation, labor shortages, Open Borders, productivity, The Washington Post, wages, {What's Left of) Our Economy

Leave it to the zealously pro-Open Borders Washington Post. It chose as the reviewer of a book by two economic historians apparently unaware of the relationship in U.S. history between immigration levels and productivity improvement a business professor seemingly just slightly less clueless about this crucial link either historically and going forward.

Doubt that? Then take a look at this morning’s rave by Harvard business professor Michael Luca about a new study by Ran Abramitzky and Leah Boustan of Stanford and Princeton Universities, respectively, titled Streets of Gold: America’s Untold Story of Immigrant Success.

According to Luca, Streets of Gold “reflects an ongoing renaissance in the field of economic history fueled by technological advances — an increase in digitized records, new techniques to analyze them and the launch of platforms such as Ancestry — that are breathing new life into a range of long-standing questions about immigration. Abramitzky and Boustan are masters of this craft, and they creatively leverage the evolving data landscape to deepen our understanding of the past and present.”

And their overall conclusion (which rightly takes into account the non-economic contributions of immigrants to American life) is that (in Abamitzky’s and Boustan’s words): “Immigration contributes to a flourishing American society” – especially if you take “the long view.”

But there’s no indication in Luca’s review that the authors weigh in on a key (especially in the long view) impact of immigration on the U.S. economy – how it’s affected the progress made by the nation in boosting productivity: its best guarantee for raising living standards on a sustainable basis.

As I’ve written repeatedly, mainstream economic theory holds that one major spur to satisfactory productivity growth is the natural tendency of businesses to replace workers with various types of machinery and new technologies when those workers become too expensive. Most economists would add that although jobs may be lost on net in the short-term, they increase further down the road once these productivity advances create new companies, entire industries, and therefore employment opportunities.

By contrast, when businesses know that wages will stay low – for example, because large immigration inflows will keep pumping up the national labor supply much faster than the demand for workers rises – these companies will feel little need to buy new machinery or otherwise incorporate new technologies simply because they won’t have to.

And more important than what the theory says, abundant evidence indicates that businesses have behaved precisely this way in the past (when scarce and thus increasingly expensive labor prompted acquisitions of labor-saving devices that helped turn the United States into an economic and technology powerhouse), into the present (as industries heavily dependent on penny-wage and often illegal immigrant labor have tended to be major productivity laggards).  

Reviewer Luca demonstrates some awareness that this issue matters in the here and now and going forward, writing that “Compared with the rest of the country, businesses in high-immigration areas have access to more workers and hence less incentive to invest in further automation.”

He also points out that “This has implications for today’s immigration debates.”

But his treatment of the current situation is confused at best and perverse at worst (at least if you buy the economic conventional wisdom and evidence concerning the productivity-immigration relationship).

Principally, he claims that “the United States is expected to face a dramatic labor market shortage as baby boomers retire and lower birthrates over time result in fewer young people to replace them.” Let’s assume that’s true – despite all the evidence that more and more employers are filling all the job openings they’ve been claiming by automating. (See, e.g., here, here, and here.)

Why, though , does Luca simply conclude that “Increased immigration is one approach to avoiding the crunch. Notably, the other way to avert this crisis is through further automation, enabled by rapid advances in artificial intelligence. Immigration policy will help shape the extent to which the economy relies on people vs. machines in the decades to come.”

Is he really implying that a low-productivity — and therefore low-innovation — future would be a perfectly fine one for immigration (and other) policymakers to be seeking?

Just as important, although Luca clearly recognizes that these questions have at least some importance nowadays, he provides no indication of where the book’s authors stand.

So let the reader beware. Luca clearly believes, as Post headline writers claim, that Streets of Gold makes clear “What the research really says about American immigration.”  What his review makes clear is that this claim isn’t even close.

   

(What’s Left of) Our Economy: A Phony “Industry’s” Phony Case Against Solar Tariffs

25 Wednesday May 2022

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

China, clean energy, Commerce Department, dumping, green energy, innovation, manufacturing, misinformation, renewable energy, solar energy, solar panels, Southeast Asia, subsidies, tariffs, trade law, transshipment, {What's Left of) Our Economy

What a disgraceful scandal a leader of America’s renewable energy industry just spotlighted! The main evidence presented for imposing steep tariffs on some imports of solar panels has been disavowed by a main source of that evidence!

Except the real scandal is the misinformation-y nature of this claim – which is becoming par for the course for certain supporters of a faster transition to a clean energy-dominated economy..

Let’s begin at the beginning. On March 28, the Commerce Department, one of two federal agencies responsible for administering the U.S. trade law system, agreed to investigate charges by a California-based manufacturer of panels that factories in Southeast Asia are being used by China to circumvent the tariffs that began to be imposed in 2012 on panels and key components made in the People’s Republic. The levies aimed to offset China’s practice of selling these panels at prices far below production costs not because of market forces, but because of subsidies for the manufacturers.

But tariffs to counter this predatory tactic, also called dumping, can sometimes be circumvented by two types of schemes that are also sanctionable by U.S. trade law. Under the first, called transshipment, the guilty parties send their finished goods to other foreign countries, where they’re re-labeled and sent off for final sale in America. Under the second, the guilty parties send the parts and components of finished products to factories in other foreign countries, where they’re assembled and then exported to the United States.

It’s the second practice that formed the basis for this latest circumvention allegation, and as standard in trade law cases, the lawyers for the U.S. plaintiff – a company called Auxin Solar – tried to persuade the Commerce Department to probe whether circumvention was occuring with a brief containing evidence they’d gathered. This is the request approved on March 28, and the investigation is still ongoing.

In an op-ed article yesterday afternoon, though, Gregory Wetstone of the American Council on Renewable Energy made a bombshell accusation. Writing in TheHill.com, Wetstone contended that the research company whose findings Auxin’s lawyers heavily relied on to prove their charges claimed that some of their key data had been used inaccurately.

The lawyers attempted to show circumvention by citing findings from the research firm BloombergNEF documenting that fully 70 percent of the value of the solar panels imported into the United States from some plants in Cambodia, Malaysia, Thailand, and Vietnam came from China. If true, this finding would strongly confirm Auxin’s position that the panels were little more than products sent in pieces from China to Southeast Asia, to be snapped together for shipment to the United States – that is, that the anti-China tariffs had indeed been circumvented.

But according to BloombergNEF, the 70 percent figure only referred to the “cash cost” of the panel inputs. Left out were the upfront capital costs of building the Southeast Asian factories themselves – which they argued made clear that these facilities performed the kind of genuine manufacturing of the imported materials that in turn absolved them of the circumvention charge. In trade law terms, the parts and components and other inputs supposedly underwent substantial transformation, and were not simply disassembled pieces of final products.

As should be clear to anyone familiar with manufacturing, though, the scale of the investment needed to build a factory has no intrinsic relationship to the nature of the work it performs. Moreover, it’s just as reasonable to view the upfront investment as a one-time cost required to launch a simple assembly operation aimed at lasting for many years. So the longer this ruse continues, the greater the importance of the cost of the panel inputs.  

At the same time, plaintiff Auxin’s case doesn’t rely solely or even mainly on reason, or on the 70 percent figure however it’s interpreted. It doesn’t even rely solely or even mainly on trade data showing that remarkably soon after the original tariffs were placed on the Chinese-made solar cells, Chinese shipments to the United States nosedived, and shipments from the four Southeast Asian countries began skyrocketing. Nor does it rely solely or significantly on additional trade data showing that these countries’ imports of Chinese-made solar panel parts, components, and materials have also soared, often exponentially, over the last decade.

Instead, the brief also presents abundant evidence — that’s never been challenged by the tariff opponents — that many of the new Southeast Asian factories exporting so many solar panels to the United States themselves are Chinese-built or -acquired, and therefore -owned. For example:

>”Jinko Solar Group is a producer of solar products, including silicon ingots, wafers, solar cells, and modules, with its production predominantly based in China. After imposition of the [anti-dumping tariffs] in 2015, Jinko Solar built a solar cell and module processing facility in Penang, Malaysia.”

>”JA Solar launched a solar cell processing facility in Penang, Malaysia in 2015. JA Solar produces ingots and wafers in its Chinese facilities. When the company first started exporting solar cells from Malaysia, the company stated that ‘raw materials such as silicon wafers were being imported from China . . . .’”

>”LONGi owns and operates a wholly owned facility in Malaysia. Li Zhenguo, President of Longi Green Tech, touted LONGi’s Malaysia factory as ‘mainly targeting the U.S. market,’ recognizing that ‘Chinese solar products are imposed by about 150% import tariffs by the U.S. {so} {i}t’s almost impossible for China-made products to be sold there.’”

>A company representative has stated that “Trina Solar supplies U.S. orders from Thailand (as opposed to from China). Additionally, the Chairman and CEO of Trina Solar stated that Trina Solar’s projects in the pan-Asia region align the company with the Chinese government’s ‘One Belt, One Road’ initiative.”

>Suzhou Talesun Solar Technology has directly cited the solar tariffs “as the reason for its Thai facility’s existence by stating that it ‘seized the chance to break through the U.S. market through Thai production capacity.’ Talesun’s company website markets its ability to circumvent the orders on CSPV cells and modules from China: ‘with our factories in China and Thailand, we offer a solution adapted to markets affected by anti-dumping laws such as the United States or Europe.’”

>LONGi Green Tech’s president “touted LONGi’s Vietnam factory as ‘mainly targeting the U.S. market,’ recognizing that shipments from China cannot compete based on existing tariffs.”

>”According to the company’s blog, one reason why Boviet’s [an affiliate of Chinese entity Boway] assembly is based out of Vietnam is because ‘Vietnam is not a U.S. listed Anti-dumping and Countervailing region. No tariffs influence Boviet’s U.S. business, and those cost-savings ultimately trickle down to the buyer.’ Boviet Solar also openly advertises that it sources glass for its solar modules from China.”

>”Chinese solar cell manufacturer ET Solar has reported that it was transferring 300 MW of cell capacity from China to be assembled in Cambodia, where it will also assemble modules to target the U.S. market.”

Somehow Hill op-ed author Wetstone and the alternative energy businesses he helps represent missed all of this. Not that anyone should be surprised. Because for many years they’ve been deceptively describing as the U.S. “solar energy industry” a sector that overwhelmingly consists of companies that install solar power systems for homes, businesses, and utilities.

Certainly they create American jobs and facilitate whatever clean energy transition is proceeding. But this sector generates little value or innovation or productivity growth for the U.S. economy. And it has about as much in common with solar manufacturers as nursing home operators have with the cutting-edge American pharmaceutical industry, or as taxi or ride-sharing companies have with U.S.automakers. Therefore, where the solar panels they stick on American roofs and emplace in lots and other vacant or cleared space are concerned, the cheaper the better, no matter where they come from — including China.

In other words, the U.S. “solar energy industry’s” case against tariffs on Southeast Asian panels fails not only on legal and factual grounds (because circumvention of the China levies is so clearly happening). It fails on policy grounds – except for those who don’t mind much of America’s clean energy future, and all the economic and technological and climate benefits it can create, being made by a hostile dictatorship. No wonder these companies and their leaders are so dependent on spreading misinformation to persuade Washington to lift the solar tariffs.

Our So-Called Foreign Policy: Shocking New Findings on How Corporate America Keeps Strengthening China’s Military

12 Friday Nov 2021

Posted by Alan Tonelson in Our So-Called Foreign Policy, Uncategorized

≈ Leave a comment

Tags

AI, artificial intelligence, Biden adminisration, Center for Security and Emerging Technology, China, export controls, Georgetown University, innovation, Intel, investment, national security, Nvidia, Orbcomm, Our So-Called Foreign Policy, semiconductors, Silicon Valley, software, tech, venture capital, Xilinx

Recent weeks have seen an impressive burst of new information about how U.S.-owned businesses are fueling the technological and military strength of China, a country whose armed forces American soldiers, sailors, and airmen and women could be fighting on the battlefield before too long.

The first source of this information comes from Georgetown University’s Center for Security and Emerging Technology (CSET) in an October report called Harnessed Lightning: How the Chinese Military is Adopting Artificial Intelligence.

The study focuses on China’s own efforts to develop artificial intelligence (AI) capabilities and incorporate them into its military operations and systems, and goes into fascinating detail about how much money is spent on these efforts, and how many Chinese entities of all kinds are involved in the campaign. The authors also make clear – just in case it wasn’t screamingly obvious already – how widespread these applications can be, and their incredible potential to revolutionize warfare and hand victory to the power possessing the best knowhow.

But as one of the team explained in a summary magazine article two days ago:

“Our research also highlights that U.S. companies are inadvertently powering Chinese military advances in AI. The overwhelming majority of advanced computer chips at the heart of China’s military AI systems are designed by U.S. firms like Intel, NVIDIA and Xilinx, and manufactured in Taiwan. We found that suppliers actually depicted NVIDIA-branded processors in photos of their products, providing clear evidence of the role U.S. technology plays in powering China’s advances. One company, which won a contract to supply chips for the PLA Strategic Support Force, even bought the domain ‘nvidiagpu.com.'”

Moreover, much more than simply semiconductors are involved. So is machine-learning and intelligent text-processing software, along with systems for “real-time monitoring” of “millions of global shipping and related users” with the help of 108 satellites from the American company Orbcomm.

My only objection: It’s inconceivable that these U.S. firms don’t fully understand the national security implications of their activities. The report itself notes that

“Because most institutions that supply AI-related equipment are new and not subject to end-use controls, the Chinese military is frequently able to access or acquire technology from abroad, including from the United States. Some Chinese suppliers make a business out of sourcing foreign data or components and reselling them to sanctioned Chinese defense companies or PLA [People’s Liberation Army] units.”

But the U.S. businesses must be aware that any of their products sold to any Chinese entity are going to be made available to the Chinese military simply because that’s the way China has operated since the Communists have been running the place. So this rationale can be easily laughed off.

The same cynical reaction is justified for claims that U.S.-owned firms don’t know that the capital they’re steering into the Chinese tech sector will also benefit the Chinese military. And these capital flows are both impressive and coming both from finance companies and from the huge semiconductor manufacturer Intel – which is hoping to receive billions in U.S. government subsidies and tax breaks to help restore its competitiveness in microchip production largely (of course) to bolster national security.

As reported by The Wall Street Journal this morning, Intel is “is among the active investors, backing a Chinese company now called Primarius Technologies Co., which specializes in chip-design tools that U.S. companies currently lead in making.” RealityChek regulars, moreover, know that Intel has been investing in other defense-related Chinese entities for years.

Not that American investment firms aren’t also doing their part to strengthen China’s tech prowess and therefore military capability and potential. Including the Intel deal, the Journal found, American companies “participated in 58 investment deals in China’s semiconductor industry from 2017 through 2020, more than double the number from the prior four years….”

And on top of these transactions, according to the Journal, “the China-based affiliates of Silicon Valley venture firms Sequoia Capital, Lightspeed Venture Partners, Matrix Partners and Redpoint Ventures have made at least 67 investments in Chinese chip-sector companies since the start of 2020….” In all, the sums involve run into the billions.

And in case you still doubt that these U.S. firms fully understand how valuable their investments are to a country that’s increasingly hostile to America, the Journal article quotes the head of one of these Chinese recipients as saying that his operation is working with the Chinese regime and other partners “to help our country get rid of its dependence on foreign high-performance chips.” Since the United States is still ahead in this sector, a China that no longer relies on American high tech products is going to be a China that’s caught up – and possibly grabbed the lead.

What’s the U.S. government doing about this dangerously unacceptable situation? It’s true that Washington has long maintained a system of export controls aimed at preventing China and other worrisome countries access to critical, militarily relevant goods and knowhow. But as the CSET study documents, this system is being completely overwhelmed – in part because of sorely inadequate funding and staffing, and in part because it’s never switched from a case-by-case approach to the kind of much broader denial strategy that’s clearly needed for a systemic threat like that posed by China.

There’s legislation in the works to plug some of the holes, and according to the Journal, the Biden administration seems supportive. Let’s just hope that the government gets its act together sometime before weapons powered by American technology and funded by American investors start killing American servicemen and women somewhere in East Asia.

BTW, thanks to friend Bill Holstein for calling my attention to these two items. 

 

← Older posts

Blogs I Follow

  • Current Thoughts on Trade
  • Protecting U.S. Workers
  • Marc to Market
  • Alastair Winter
  • Smaulgld
  • Reclaim the American Dream
  • Mickey Kaus
  • David Stockman's Contra Corner
  • Washington Decoded
  • Upon Closer inspection
  • Keep America At Work
  • Sober Look
  • Credit Writedowns
  • GubbmintCheese
  • VoxEU.org: Recent Articles
  • Michael Pettis' CHINA FINANCIAL MARKETS
  • RSS
  • George Magnus

(What’s Left Of) Our Economy

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Our So-Called Foreign Policy

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Im-Politic

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Signs of the Apocalypse

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Brighter Side

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Those Stubborn Facts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Snide World of Sports

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Blog at WordPress.com.

Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

RSS

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

Privacy & Cookies: This site uses cookies. By continuing to use this website, you agree to their use.
To find out more, including how to control cookies, see here: Cookie Policy
  • Follow Following
    • RealityChek
    • Join 403 other followers
    • Already have a WordPress.com account? Log in now.
    • RealityChek
    • Customize
    • Follow Following
    • Sign up
    • Log in
    • Report this content
    • View site in Reader
    • Manage subscriptions
    • Collapse this bar