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

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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.

(What’s Left of) Our Economy: Has Intel Been Cutting its Own Throat in China?

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America Competes Act, China, Digitimes, Intel, microchips, national secuity, semiconductors, subsidies, tech, tech transfer, Vladimir Lenin, {What's Left of) Our Economy

There’s one crucial fact missing from this crucial news item – which features an Intel executive’s prediction that, within five years, strong Chinese rivals will emerge to the giant U.S.-owned semiconductor manufacturer. This development, which has massive implications for America’s national security and economy, will stem in no small measure from Intel’s own major transfers of technology to the Chinese economy.

Just as important: Intel’s tech transfers are continuing even though the company has been lobbying hard to secure huge U.S. government subsidies it claims it needs to build more advanced microchip production in the United States – in order to improve its competitiveness versus China. But since money is fungible, these taxpayer dollars could indirectly find their way into China’s tech sector if – as likely – a big legislative package of support for American technology development is approved by Congress.

Like many big U.S. tech companies, Intel has been helping strengthen China’s technology prowess for literally decades. In 1998, the company announced plans to build a $50 million research center in Beijing, and by 2007, had opened another in Shanghai. According to the above linked account, Intel was focusing on developing software, not semiconductors. But the same piece reported that this work aimed at helping Chinese programmers “get ready for processors wih multiple cores,” and that “Some of the work surrounding Intel’s so-called terascale research–most recently showcased through its 80-core chip prototype–is also being done” in Beijing.

More broadly, an Intel China executive said that “The company is spending a lot of time and money working with the local university education system on science and technology education” – including electrical engineering programs.

Since then, as RealityChek has reported, Intel’s research and development operations in China have expanded significantly. A 2014 post contained the news that the company was working with a state-owned Chinese partner to produce microchips “for the cheapo but technologically advanced phones selling so well in low-income countries like China.” Its involvement in this venture, moreover, built on its “establishment earlier this year of a Smart Device Innovation Center and $100 million venture fund in the same field, and tie-up with a Chinese fabless chip-maker.” Although the semiconductors in question were not cutting-edge, who can doubt that teaching Chinese engineers how to build so-called legacy semiconductors was bound to increase their ability to build more advanced devices down the road?

The following year, I summarized a post from the Taiwanese tech website Digitimes.com (also the source for the Intel prediction leading off this piece) that detailed how Intel had committed a total of nearly $1.8 billion to help Chinese entities develop advanced new products and services. They included unmanned aerial vehicles, smart devices, robotics, cloud computing services, artificial intelligence, machine vision, three-dimensional modeling, virtual reality technologies, and advanced optics.” None of these could ever be relevant to semiconductor production – or advanced weapons systems – could they?

And just last November, I mentioned a Wall Street Journal piece finding that Intel is ntel “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.”

As I’ve written repeatedly, such activities amount to U.S. companies – and U.S. administrations that ignored or approved them – selling China the rope with which to hang America (paraphrasing the famous prediction of Vladimir Lenin, leader of the Bolshevik Revolution that created the Soviet Union). In Intel’s case (and it’s not alone here), the companies keep undercutting their own fortunes. And unless Washington conditions handouts for Intel and other tech companies on halting these giveaways, American taxpayers will finance much of it.

Full disclosure:  Investment-wise, I’m neither long nor short Intel, though I am long TSMC – the Taiwanese chip manufacturer that’s Intel’s top competitor, and that recently replaced it as the world leader in semiconductor production technology. 

Those Stubborn Facts: How the U.S. Lost the Global Semiconductor Manufacturing Tech Lead

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capex, capital spending, China, infotech, innovation, Intel, investment, manufacturing, microchips, national security, Samsung, semiconductors, South Korea, Taiwan, Taiwan Semiconductor Manufacturing Company, tech, Those Stubborn Facts

“North America-” (i.e., U.S.-) Owned Firms’ Share of Global Semiconductor Capital Spending, 1990: 31 percent

“North America-” (i.e., U.S.-) Owned Firms’ Share of Global Semiconductor Capital Spending, 2019: 28 percent

“Asia-Pac/Others*- Owned Firms’ Share of Global Semiconductor Capital Spending, 1990: 10 percent

“Asia-Pac/Others*-Owned Firms’ Share of Global Semiconductor Capital Spending, 2019: 63 percent

*Excludes Japan. Includes Taiwan, South Korea, and China

(Source: “A Path to Success for the EU Semiconductor Industry,” by Michael Alexander and Thomas Kirschstein, Roland Berger, February 12, 2021, https://www.rolandberger.com/en/Insights/Publications/A-path-to-success-for-the-EU-semiconductor-industry.html)

Im-Politic: The U.S. Still Isn’t Even Running in the Global Semiconductor Supremacy Race

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appropriations, authorization, Chuck Schumer, Congress, Defense Department, House of Representatives, Im-Politic, innovation, Intel, microchips, semiconductors, Senate, subsidies, Taiwan Semiconductor Manufacturing Company, technology, TSMC

In a week, the United States will mark an anniversary that no American should want to celebrate: It was last June 10 and 11 that companion bills were introduced in both the House and Senate to increase greatly the U.S. government’s support for domestic semiconductor manufacturing. Since I’m a strong backer of such efforts, why am I so downbeat? Because despite the importance of strengthening the American footprint in this sector for both national security and future prosperity, and despite seemingly strong bipartisan support for this effort (at least in principle) nearly a year later, not a single penny has been been spent.

It would actually be reasonable to argue that the federal government took way too long to take even that preliminary step. After all, as I documented in this article last October, America’s global leadership in producing (as opposed to designing) the microchips increasingly crucial to so many defense-related and civilian products and services – and indeed, entire industries – had been waning for decades, and was finally lost in 2017. That’s the year when U.S.-owned Intel became unable to keep up with Taiwan’s Taiwan Semiconductor Manufacturing Company in turning out semiconductors featuring the world’s smallest circuit sizes – the main indicator of a chip’s capabilities.

So it’s not terribly impressive that American political leaders took two years to begin responding in a serious way. (And P.S. – the executive branch, under President Trump, clearly wasn’t johnny-on-the-spot, either, in using the bully pulpit to sound the alarm and generate support for action.)

Still, the bipartisan nature of the legislative effort – at a time of heated partisanship on virtually every other national issue – seemed cause for encouragement. Even better: Just a month later, the House and Senate passed their respective semiconductor bills.

Since then, however, progress has been sluggish. The Representatives and Senators didn’t manage to get their acts together before that session of Congress ended in order to draft and pass the consensus bill needed to go to the President’s desk for signing. Therefore, the measures died, and work needed to begin all over again this past January, when the new Congress convened.

Semiconductor work was proceeding along another track in late 2020, and resulted in key provisions of the expired bill being incorporated into legislation authorizing the Defense Department’s levels and kinds of spending for this fiscal year. That bill became law this New Year’s Day (over a Trump veto for unrelated reasons), but according to Congress’ procedures, authorizing bills can’t trigger any spending. That requires an appropriations bill – which also must be passed in identical form by both chambers before enactment.

Six months later, there’s still no money flowing. The story is excrutiatingly difficult to follow, but it appears that Senate Majority Leader Chuck Schumer of New York tried to speed up the process in May with an emergency funding measure. Passage seemed likely at month’s end, before the Senate’s scheduled Memorial Day recess, but was stymied at the last minute by a sadly typical array of political shenanigans from both the minority Republicans (whose support was needed because of the Senate’s filibuster provision requiring super-majorities to pass most legislation) and Democrats. (See here and here for good accounts.)

Passage of a similar measure by the House looks to be easier, because of the Democrats’ slightly bigger majority. But there the process is less advanced, since the House Democrats’ own technological competitiveness proposals were only introduced in committee May 25.

It’s not like the U.S. private sector has been standing still. Intel, most significantly, seems determined to reemphasize manufacturing again, and has committed to put lots of money where it’s mouth is. But without a major helping hand from Washington, this campaign is sure to be swamped by the massive amounts of foreign government subsidies for promoting advanced semiconductor manufacturing that have been announced lately. (Here’s a useful summary.)

I’m generally a fan of the cautious approach to policymaking fostered by the U.S. Constitution’s separation of powers and checks and balances principles. And I wouldn’t be so fast, like so many Democrats, to junk the Senate’s filibuster rule (which is not found in the Constitution). Yet time is not America’s friend when it comes to regaining lost ground in a fast-moving industry like semiconductors, and if Washington continues its business-as-usual approach on this issue, history will likely conclude that the American political system failed a big test.

Full disclosure:  I own a not-trivial number of shares of TSMC common stock.

(What’s Left of) Our Economy: Intel – & Often China – Inside Your Hackable Electronics

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China, computers, counterfeits, cyber-security, Defense Department, electronics, globalization, hacking, Intel, microchips, semiconductors, smart phones, technology, Trade, {What's Left of) Our Economy

OK, who out there has an electronic device like a computer or a smartphone? I thought so. And who uses them like…nearly all the time? And engages in lots of financially or personally sensitive activity on-line? Thought so again. And you no doubt weren’t thrilled to find out yesterday that the computer chips vital to the operations of virtually all of these devices have some big security flaws that make them eminently hackable.

Well, here’s worse news: There’s an excellent chance that the hackers could be working for the Chinese government. And for that, you can thank decades of stupefyingly boneheaded American trade and globalization policies.

I can’t tell you how excellent the chances are, because one of the completely unnecessary failures of these policies has been pre-Trump Washington’s complete lack of interest, from either major political party, in tracking and letting the American public know how dependent they and their economy have become on products from potentially dangerous countries.

But I feel confident in claiming that the chances are at least pretty excellent. The reason? Private sector specialists have published detailed studies on subjects like the Chinese electronics industry. Thanks to them, it’s well established that, although China has yet to become a top global player in manufacturing semiconductors, and especially cutting-edge microchips, it’s a powerhouse in what’s known as “back end” semiconductor production – relatively low-tech phases of the process that involve activities like packaging, assembling, and testing.

So many U.S. and other non-Chinese information technology companies do so much of this activity in China that, according to a report from the consulting firm PwC, in 2015 (the latest available data) China-based facilities accounted for 44.6 percent of total global revenues from these back end operations. That’s up from just 20.3 percent in 2009. In other words, Chinese employees of these companies have ample opportunity to insert all sorts of bugs in them, and these opportunities have been growing rapidly.

Think I’m paranoid? Or just anti-Chinese? Then you need to learn that the Defense Department had admitted that, over a recent two-year period, its weapons systems had been studded with some 1 million counterfeit electronics parts and components – some 70 percent traceable to China. DoD now claims it’s solved much of the problem with a “trusted supplier” program. But good luck reliably inspecting the gargantuan Chinese electronics production complex over any serious length of time.

Longstanding American trade and globalization policies deserve most of the blame because, through priorities like indiscriminately expanding U.S. commerce with and export-oriented investment in China, they actively encouraged much of the world’s electronics industry to migrate to the People’s Republic.

The world’s current Number Two semiconductor producer, likes to tout “Intel Inside” a huge share of the world’s electronics devices. Maybe it, and others, should start to advertise “China Inside”?