The Emerging Techno-Nationalism

you my name is Chris Adams I'm director of training at the National Press Foundation we're thankful for all of you being here we're going to turn to our first speaker UConn Wong is a former World Bank country director for China and is a senior fellow in the Asia program at the Carnegie Endowment for international peace where he researches the Chinese economy he's going to give us an overview of what this term techno nationalism means how big of a how big of a threat or how big of an issue it actually is and kind of what it you know he's give us the wide parameters of what the topic means and Alexei's going to drill into one particular industry semiconductors and give us a case study on that and Martin Rosser is going to talk about some of you know some of the steps that the US and other countries and multilateral agreements might be taking or should be taking to kind of deal with Tecla nationalism so we're going to turn it over to UConn right now so a UConn thank you very much for being with us and the floors IRA's the pleasure to be with you here as Chris mentioned teknon a tional ism features very prominently in the us-china trade and investment tensions or simply it's linking a country's technical capabilities the national security of prosperity there from a Washington perspective the rise of China's technological and innovative capacity as seeing as a threat to America's dominance as the global great power and this shows up in the trade war and in what aspect let me just go to the first line but if you look at the issue from Beijing's perspective Beijing is always asking what is it that Washington really wants and the answer is quite complicated it's complicated because from Washington's perspective there's three constituents you have president Trump his major concern is about trade deficits try to capture the bulk of America's huge trade deficits and who basically wants Beijing or tried to buy more soybeans aircraft of energy products whatever and this is his focus most economists think that the focus on trade deficits actually doesn't matter America has been running a trade deficit every year for 45 years it has a by that I'll trade deficit with more than 100 countries it's not prevented in America from being strongest economic power globally so from a perspective of where I call the economists it's not really about trade the second constituents is the business community they want a greater access to China's domestic market they worry about being unfair competition they claim that they're being forced to transfer technology to be able to invest in China they want greater protection of intellectual property rights I think there's a lot of legitimate issues here and China is trying to struggle a deal with these concerns but the first contradiction I'd like to point out is that if you actually respond speaking out to respond to the concerns of the business community the trade deficit at you'll get larger and smaller so in some sense the president Trump's focus is larger than trade and less on the unfair foreign investment policies okay then you have the third constituents and their focus of today's discussions these is what I would call the foreign policy security Hawks for then the relationship with China is a great power battle for technological supremacy but they worry about the fact that China's innovative capacity is increasing dramatically and this is basically a threat to America's dominant position there's a problem here if the security hawks get their way they would favor decoupling separation of the two economies from any China for getting access to America's high-tech production but this runs directly counter to the business community because the business community want greater access in some sense the fate of her a greater integration so there's a contradiction between what I'll call the security Hawks and Business Committee the Business Committee is concerned largely with the fact that China is exceptional in adopting technology this is a graph produced by the World Bank adoption technology a technology adoption intensity as the coefficient which measures how successful country is in getting technology developed abroad particularly the US and the West and in being able to use it domestically and the lag about 10 to 15 years and you can see starting from about two or three decades ago China became extraordinary successful instability to get technology from overseas use it to produce the export better than any country we seen and how do you get it you get it from trade yet through foreign investment licensing and of course accusations that China gets it through theft and unfair competition so America's response and this is a diagram that was put up by America's security establishment their briefing seminar several months ago and basically what they see is a whole government trying to approach to acquiring technology from America who investments academic collaboration cybersecurity joint ventures mergers and acquisitions all sorts of potential approaches to secure technology from the United States and what is the response this is a chart it summarizes what I would call the various elements of the techno - ilysm war on the far left you can see that basically America is looking at it through trade policies vestment policies the flow of people research collaboration and they're using for trade tariffs an entity list meaning basically these companies cannot buy purchase American high tech equipment who controls of exports what can be shipped abroad and import restrictions in terms of foreign investment BSE feeis a regulatory agency which reviews for investment they make sure that China and other countries don't have access to high tech investments and equipment and knowledge America is starting to limit equity financial flows in China and they're getting to be visa restrictions concerns about counter espionage and research collaboration the impact is broad you see declining trade between US and China you see bands of exports to Huawei and ZTE and AI companies declining foreign direct investment going both ways decoupling in financial markets he said decline denials decline tourism the consequence is self-sufficiency on both sides that's a security concern become more dominant you have greater uncertainty erosion of trust and you have reduced growth on both sides very comprehensive negative kind of relationship is emerging here's the illustration of Huawei suppose you take far away deceit as a threat particularly is 5g operations the Huawei basically draws upon high-tech components produced variety of companies all over the world so the lighter red is basically Chinese companies but the dark blue are basically American companies you can see how many American companies actually export I took the equivalent the Huawei and then there's one here I would like to point this one out here this tsmc that's Taiwan if I wanted a major producer of semiconductors and America is just basically approached tsmc that basically say you should be investing and transfer your capacity to America but not particularly I try to no longer can you be exporting equipment semiconductors to the Huawei so this is the basically restriction you want decoupled and the impact upon Huawei is potentially very serious but it also has an impact upon America's high tech companies so here are America's high tech companies and other companies but per share of the revenues come from China and so you see the high tech companies at Qualcomm micron Broadcom Intel everything they get anywhere ever maybe 10 20 as much as 50 60 percent of the revenues from China if they're no longer able to export products to China their profitability would be severely reduced and from a Defense Department perspective they've actually wondered whether or not putting up these restrictions in order to preserve America's security actually does the reverse that America loses the capacity to produce high-tech equipment and components and actually this is served like a self-fulfilling negative 4 negative policy you restrict exports of high-tech equipment to China supply chains are shifting because of these restrictions these tariffs these export import restrictions companies are starting to relocate from China major firms however were likely maintaining a major presence in China commercial reasons but some will establish regional centers whatever the invitation will take many years he coupling will put downward pressure and investment tight in unser uncertainties impact of graders for manufacturing ninfa services catered Chinese domestic markets and we now see the impact of some of these supply chain shifts over the last year or two because of the tariffs and this is a diagram that temps to show it's what happened in supply chains if you go back to 1996 what you see here is that America imported approximately 45% of manufacturing products from Asia and approximately 15% of that 8% came from China the other all the rest came from other Asian economies then in 2001 when China joined WTO it was still like one-quarter of Asia's exports to manufacture products to the United States came from China but three-quarters came from the other countries prison we Japan South Korea Taiwan Hong Kong Singapore that was WTO China joins it becomes the assembly plant of the world by 2009 global financial crisis you can see that China's share becomes the majority shear and it's assembly all these parts and components produced elsewhere sending it to the United States but interestingly enough America's imports of manufactured products over the last 20-30 years has always stayed within a very narrow range between 40 and 46 percent it hasn't changed what has changed is how much of it is actually shipped directly from Beijing or China and how much it comes from other Asian economies even up to 2018 that pattern did not change at all basically China's accounts of the bulk of these manufactured imports this was the view that China is dominating trade and it was unfair competition and as a major bilateral trade deficit with China the tariffs in 2019 on 370 million dollars of China's products coming to the United States 30 to cause a shift and you see it in the last bar a decline in China share a manufactured exports in the United States an increase in the share coming from other Asian economies but overall a decline in manufactured imports from Asia generally and that is going to Mexico it's going to Europe it's going to other countries let me just spend the last a few minutes about what's going to happen in the future and first of all President Trump will ratchet up economic tensions with China and the run-up to the elections tries more aggressive diplomatic gestures that trigger more negative global sentiments the pandemic exacerbating these trends the trade war is going to intensify and you're gonna see more pressures for decoupling and restructuring of supply chains let me stop here okay yeah so you can thank you very much we got one question for you here and then we'll turn to Alex Yukon you indicated that in the measure of technological adoption intensity China shot up in the 1980s rocketing ahead of South Korea Russia India and Brazil then it leveled off stagnated in the early 2000s what's happened since then is it as it as their adoption intensity in accelerated again or is it still kind of at the same level that was before well let me go back to the definition what the did was study technologies which are developed in the United States and Europe then ask the question when did these technologies become used in production exports in developing countries and the lab takes about 10 to 15 years in many cases countries don't adopt it at all that's they never get this technology never use it so they found that starting from the early 80s onwards China's ability to do this was enormous much higher than they've ever seen and basically continued it's basically continued and at gos they accelerated slightly which more or less mar raid because it's already so high so the question today is these restrictions if you restrict the exports of these technologies if you prevent American companies are investing in China if you prevent China from buying or buying or investing in the United States well this intensity index or measurement decline and the answer it takes time for this to show up now in some sense it may be ironic because if China becomes more independent if it is able to establish these technologies itself it may be able to be self-sufficient but that self-sufficiency it's an even as possible probably would not show up for another four five or six seven years but we just don't know now okay all right well thank you very much and we'll have more questions for UConn in just a little bit if you have a question you can send it in by a text or you can raise your hand and then we will call on you and turn the mic over to you but we have with us next Alex Capri who is a Heinrich Foundation research fellow and a visiting senior fellow at the National University of Singapore Business School he's written extensively on techno nationalism and the us-china tech war including an analysis he's going to talk about just right now about the semiconductor sector I it's a it is you know almost 11 p.m. in Singapore alex has been teaching this evening his class ended at 10 o'clock and then he immediately turned to us so I want to thank you very much for staying with us late this evening Alex adding a turn it over you to talk about semiconductors and some of your other research okay thanks christen thanks you Khan for the landscape layout there so let me let me just lay out how I'm going to spend my next 8 9 minutes talking about what techno nationalism means it for the semiconductor sector but more broadly in us-china relations trade relations as well as the global commercial business landscape in general I would I would say that the way I've defined techno nationalism is it's essentially the linkage between a country's level of innovation and its enterprises and how those bolster national security economic strengths but I would add I would add and this is very important this is a key issue going forward for China US and China versus the West ideology ideology is manifest in technology or I would put it another way the way technology is used ie for things like censorship surveillance monitoring etcetera is now going to become a major factor when we talk about export controls and restricted entity lists etc for the use of American and Western technology by Chinese companies so those would be the three things now I would say that hallway and I'm sure everybody is very familiar with Huawei represents the perfect microcosm of this us-china techno nationalist issue it's the perfect microcosm because all of those three areas that I've just mentioned are manifest in in the the business footprint and the geopolitical footprint of hallway and if you for those of you who may be familiar with this there was this so-called section 301 report under the the Trade Act of 1974 which listed not very well quantitatively but listed the key areas that were the most problematic when dealing with the state centric sort of state capitalist system of China and it's systemic differences with the US and the West which have now become a real problem now that China is you know 18 19 percent pushing 20 percent of global GDP and those were forced technology transfer essentially sort of vague very very somewhat pernicious licensing laws that allowed for local companies to be able to make very very small adjustments to Western technology and thereby claim that as their own technology the the the portion that I think is going to be the most significant going forward and this is where we're gonna see a shift of attention it's going to be the economic subsidies and the economic support that companies like Huawei have been getting and I think we're going to see ray of countermeasures put out by the US which which will go beyond export controls and so on and then of course the last area that that Huawei has been accused of is and this is the one that we're hearing the most about and this is cybersecurity that is somehow you know if y5g systems are an infrastructure is built that somehow the Chinese Communist Party will be able to access data and will be able to spy there's been no evidence that this is true at least publicly but I think that's going to be a moot point anyway because I think we're going to come back to the economic side of things much more so when we start looking at economic techno - ilysm so this brings us to to semiconductors and why semiconductors have become so important in this in this so-called techno nationalist you know jousting contest that we have going on and there and it's very very simple a semiconductor is the single most important technology for any industry of the future for any emerging and foundational industry and anything that's you know anything that's going to be important in furthering both hard and soft power for any country is going to be driven first and foremost by semiconductors as Chris mentioned I've done a comprehensive report on this please take a look at that I also have a report coming out tomorrow on decoupling strategic decoupling in the tech sector with China um so if you look at China's made in you know the made in China 2025 plan there are ten key industries that they have targeted semiconductors are number one and then you've got you know autonomous vehicles robotics and and and others not one of those industries can advance without semiconductors so what we have what we have playing out now is we have a situation where we have US companies which are dominant in the semiconductor field they're way head as you con mentioned they have a huge market in China but the flipside to that is China is way way behind when it comes to semiconductors they simply don't have the capabilities to make leading-edge chips and semiconductors so you know some people would say that this made in China China 2025 plan is not really a plan to dominate but it's a it's an act of desperation to try and catch up I think in many areas at least based on my analysis I think the level of sophistication of Chinese technology sectors this might be a little bit overstated but at the end of the day the Achilles heel for any kind of Chinese advancement or development is semiconductors and it's a big big problem for China so from a tech9 analyst perspective the US has seized upon this and they have essentially weaponized technology supply chains around semiconductors they have of course put quoi way and a number of other critical Chinese companies on restricted entity lists meaning that they cannot access this technology without special permission or in some cases they can't get it at all so a couple of things I'll highlight and again always at the center of this the first is that let's be honest I mean you con mentioned ZTE ZTE was in deep deep trouble because of the degree of American technology that went into their phones there was a proposed seven year ban and it was it was Google and Intel and all the American companies which represented about 35% of the value in one of those phones they went back and lobbied the government and said hey you can't do this the collateral damage is going to be really bad it's going to hurt all of us but I think with Huawei it's going to be different there's no question that the u.s. semiconductor industry is highly exposed that if they're you know if they're locked out and cut out of the of the market based on US sanctions and controls they're gonna lose market share there's no question about that the Chinese are gonna double down on their efforts to D Americanize their supply chains there's no question about that but what's interesting about that is this is this is a little bit different you know we you throw in the kovat 19 pandemic and how that exposed an over reliance on Chinese supply chains to begin with in key strategic industries and you look at what the US has just done to tube to block TSMC from producing chips for hisilicon which is a subsidiary of hallway and it is an absolute a potential death blow I mean it is if if hisilicon cannot obtain its 5 nanometer chips for its for its 5g infrastructure and even for smartphones that is going to be a major major blow and possibly an existential threat to to all way so what we've seen now is in the last three weeks or so we had the u.s. changing a foreign direct product rule which now says that even for foreign-made products of any kind if they've got us technology in them you cannot sell that product period to do to a restricted entity so for for hallway this was a big blow because TSMC which is the world's largest subcontractor it's foundry in other words it makes chips most of his clients are American by the way they're the supplier and so they use American manufacturing equipment American companies control of almost 60 percent of the market there and they use design and designs and software where American companies control about 90 percent of the market so it's a chokehold it's an absolute chokehold so the question is what happens where do we go from here well we're already seeing that we're in a period now of strategic decoupling it doesn't mean that the entire trade relationship between China and the US is going to decouple what it does mean is there will be cific strategic sensitive industries all of whit's are going to be on the dual use list meaning that it's technology that doubles is both commercial and military technology which is a which is pretty much everything today you know cutting edge technologies they're going to be very key specific D couplings they're one because the Chinese have to do it because they they can't remain exposed and vulnerable to the whims of you know US politicians and you know get get cut off at a critical time so they will double down on their efforts and they will speed up their efforts to try and develop things themselves or to go somewhere else outside of the US to get their technology so that's going to happen we will see restoring of key strategic industries and we've seen that with TSM see the United States got tsmc to agree to build a state-of-the-art fab in Arizona which will produce exclusively for American customers including the US military because there were fears that as the relationship between tsmc and faraway and other Chinese companies and increased that there would be potential espionage sabotage of chips made in Taiwan so they are moving so this is an example of how not only in the semiconductor industry but in strategic industries we will see some diversification meaning you know again moving ring-fencing and and and and producing creating new ecosystems for strategic and economic purposes so the other thing is is more broadly the world you know global value chains have been fragmenting anyway because of automation because of you know national data laws and so we we've seen a fragmenting of global value chains even before this trade war and even before Cobin 19 so now this is all accelerating and finally I would just say that there there will always be an in China for China strategy because it's going to be such a key market so if you're a big company and the Chinese market is important to you you're gonna have to spend the money and make the efforts to ring-fence you're in China operations right and we see this happening while at the same time the world is fragmenting into regionalised and localized value chains and you're gonna have to start building you know particularly if there are strategic issues around this so the semiconductor industry finally I'll close with this it's absolutely key there's no question about it but there's a China conundrum what I'll call the China conundrum for all of these these companies semiconductor companies and other tech companies the endgame in Chinese industrial policy is to supplant these companies and to have Chinese companies make these products that is the endgame that is the plan so at what so the game has been for American companies as long as they have a technological and foreign companies so I'm gonna hell an edge they can sell and make and produce and play in the Chinese sandbox but trying to keep you know one or two generations ahead but let's assume that at some point Chinese industry catches up what happens to Intel what happens to Nvidia and what happens to micron in Broadcom and all these companies they've got competitors right you've got competitors in China and potentially they've got competitors overseas so this is gonna take me right back to the Huawei microcosm this is why the US government is trying to crush hallway okay and so the world is you know don't yes there's going to be collateral damage no question about it there's going to be there's going to be real problems with collaboration and and there's going to be redundancies we're going to lose economies of scale in a lot of these industries we won't have hyper rationalized value chains because of these things so at the heart of that will be semiconductors okay right so thank you very much Alex I do you did mention you're talking about strategic decoupling going on right now that's the focus of your report that's going to be coming out tomorrow and that's called is from the from the Heinrich foundation it's called strategic us-china decoupling in the tech sector and you talked about a bit about that but that's officially be coming out tomorrow all of the registrants from this call will be sending you a link to that new report that report and the semiconductor report are both extremely extremely detailed and thoughtful 6070 pages or something like that so I would encourage you the great background documents for you to have so now let's let me give you a reminder for if you want to raise we have one more speaker here you want to raise your hand to ask the question then work your question into the Q&A session as soon as Martin is done talking or you can send in a question via chat and I will convey that to the panelists that way but we're gonna hear from Martin for about 10 minutes Martin Rosser is a senior fellow in the technology and national security program at the Center for a New American Security he previously worked on emerging technologies as a senior US intelligence officer and for an AI start-up and he's going to kind of talk about kind of where the US and other countries can and possibly should go from here to deal with the the technical nationalistic trend I'll turn it over to Martin who has a who has a PowerPoint so you can go ahead and share your screen now Martin all right thank you so much Chris and thank you Alex EU Khan it's it's real pleasure to be here so what I'll just focus my remarks on is you know and I'll just be skimming the wave tops here and the interest of time but the notion of a technology competition with China and and so that's part of the broader great power competition with China right now and what I'll do for you if I could oh there we go there's the slide just walk through talk about some areas where China is in a very strong position in some cases actually the leader but as looks pointed out earlier as well there's also important areas where China is behind so they are lagging and I'll talk a little bit about some policy recommendations where the United States needs to invest but then also what it should be doing in partnership with other leading technology powers and in particular the world's liberal democracies and then we'll talk specifically about what this new grouping of technology powers could work on together in order to better position themselves for this technology competition so China is a leader in several areas I'd say they're at parity or perhaps even ahead in genomics quantum science and artificial intelligence quantum science is going to be very important for computing and encryption artificial intelligence of course will be entangled in almost everything we'll do so these are some very fundamental technologies that will really drive the 21st century economy in terms of R&D spending in addition to what UConn showed you about just their ability to absorb foreign technology China is now truly innovating using their own knowledge and in fact from a purchasing power parity standpoint China may have already surpassed the United States in terms of total R&D spending now of course another thing that China is very good at in terms of its political system is setting very ambitious scientific and technological milestones and so this is very much a top-down strategy it's not to say they always meet those goals but there's very strong government support to pursue these very ambitious projects and that's a great motivator for the the countries companies and research institutes of course China is behind so Alex already mentioned semiconductors that's a critical vulnerability that the Chinese government is trying to rectify for decades now with little success really but even in technologies such as jet engines this is an area where China is still not able to produce a high-quality cutting-edge jet engine either for commercial aircraft or for military aircraft despite decades of investment joint ventures with Western companies and substantial investments now part of this stems from just broader innovation shortfalls so China ultimately has few world-class universities and research institutes particularly compared to the United States there's also the emphasis on patents a lot of people point to the fact that China is in many regards now the leading patents requesting nation in the war in the world but I would point out that this is often a matter of quantity over quality if you look at the actual both the monetary and the technological value of these patents China is still quite behind and more fundamentally the political system as a closed authoritarian system this typically isn't that conducive to innovation and scientific exchange so here again there are constraints what China's political system imposes on the overall innovation ecosystem to respond there's a few things the United States needs to do and frankly I think the United States has been rather complacent particularly in the areas of R&D investments so if you think back to the 60s and 70s for example particularly the US government was making a lot of investments in basic research and these this research them resulted in technologies like the transistor GPS the Internet you know these are the very technologies that are driving our economy today so in the 60s and 70s total US government spending on R&D was about 1.2 percent of GT GDP right now it's only 0.7% we really have to get back to that one point two percent target because what's particularly important about US government investments and R&D is that the US government remains the biggest funder of basic R&D and these are the early stages of research where the true breakthroughs happen the private sector has spent a lot on R&D but the incentive is to invest in Applied Research and because really that's where you have a much higher guarantee of return on investment so while overall US R&D spending has remained fairly constant as a percentage of GDP at about 2.8 percent over the past two decades or so it's that shift we're much more is being spent by the private sector and that's a ratio that needs to shift back and looking at the bigger picture at 2.8 percent of GDP we're really starting to fall behind that target should be closer to 4% if you look at countries like Israel and South Korea they're spending well over that and almost four and a half percent and so we really need to jumpstart this innovation ecosystem again because we're largely still coasting on scientific of research breakthroughs that took place in the 60s 70s and 80 so we need to get over that complacency and and renew our competitive edge in that front another important area is human capital so there's two components that there's American talent so native-born Americans right now we still face a dearth of stem graduates and that's been a long-standing problem but so far not much has been done to address this yes there has been increases in STEM education but we're still falling well short of the total number of stem graduates that we need to enter the workforce some progress has been made under the trump administration some progress was made under the Obama administration but we still need greater investments in not just educating our students but also training our teachers to make sure that they have the skills to impart the knowledge that's needed and of course our universities and research institutes more and more scientific research is dependent on computing resources compute for short much of the United States computing resources are now concentrated in some of the very large tech firms and this means that startup companies and universities in smaller cities have a hard time getting access to the amount of computing resources that they need to do their work and so there have been some very interesting proposals out there to create a national compute resource for example that was a proposal that came out of Stanford it's very broad support amongst the university regions and and presidents and so forth this is one way where we can address that shortfall and really democratize access to computing resources the other important human capital aspect is international talent we need immigration reform in the United States and obviously this is an extremely contentious issue particularly under the current administration but the simple fact of the matter is as I already mentioned America doesn't produce enough high talent high technology talent that is needed and if you look at the actual numbers immigrants and the children of immigrants have a disproportionate share of the number of startups they create disproportionate share of the number of relevant patents that are produced so foreign talent is truly critical to American being able to effectively compete and I won't go into the details of the specific recommendations here but at a high level the cap on h-1b visas which allows foreign talent to live and work in the United States that cap has remained flat for many years that needs to be raised or preferably eliminated altogether for graduate students but we also need new pathways for talent to come in so I have a report I'll share the link in the chat feature when I'm through here so you can read the details and I'd be happy to follow up with you one on one if you want to talk about how we could put something like this in motion most importantly what I want to talk about is a fresh approach to technology policy and this really needs to be done on a multilateral basis because right now what US policy is largely built on is unilateral action or ad hoc bilateral action so Alex mentioned semiconductors and specifically the more punitive steps being taken towards huawei but it's broader than that too because we are seeing issues in artificial intelligence I mentioned quantum computing there's also the illiberal use of technologies such as surveillance technology being used in cynjohn that same technology is being exported around the world where it's really bolstering autocratic regimes which in and of itself as a threat to liberal democracies worldwide so a project that I've been working on is laying out a blueprint for creating a new technology policy entity organization the membership would be the g7 countries and countries like South Korea the Netherlands Australia working together on a few areas of common interest in order to better coordinate technology policy with the ultimate goal of being more competitive now the necessity for this is that no one country will be able to successfully compete with China both just be from a resource standpoint no one has the scale of population for example that China can muster for these things but more broadly because just the diffusion of knowledge and our technology supply chains there's there's no way for one single country to be able to impact those to the extent that would need to and of course as I mentioned earlier China's achieving dominance and some very critical technologies if China does successfully establish leadership in these areas that's not just economic power but you also have a lot of military and political power that flow from that and I would argue that that's not in the interest of the world's liberal democracies to have that happen so the ultimate purpose of this organization is to truly regain the initiative in a global technology competition and that's through investments in R&D for example subjoin research efforts in specific areas semiconductors being a great example but you also want to protect and preserve key areas of competitive technological advantage and finally as I mentioned protecting and promoting collective norms and values about how these emerging technologies are used because this is an increasing problem where you have suppression of populations autocratic tendencies that are then being proliferated around the world disinformation cyber security threats all these things need to be and we stand a much better chance of impacting those in a way that end up in our favor if we do that collectively so a few areas through the project that I've been working on where I see common ground forming is as mentioned R&D but supply cane supply chain diversity and security and that particularly became of much greater interest during the pandemic crisis standard-setting and various technology areas multilateral export controls and finally countering the illiberal use of technologies so in some specific areas where you could work rare earth elements not as much discussion of that of late but that still remains a critical vulnerability not just for the United States but for various countries around the world we are heavily dependent on China for these critical elements which are you know just foundational to electronics not just consumer electronics but various defense systems but also next-generation growth industries such as renewable energy like wind turbines for example require a lot of these materials I mentioned export controls so there's been a lot of focus on restricting semiconductors across the board specifically to Huawei but also a few other countries companies in China what I would argue that a more effective approach would be focusing on semiconductor manufacturing equipment because ultimately without the equipment to make and design semiconductors that that's the linchpin and so rather than denying China chipsets that go into mobile phones if we focus our effort on the manufacturing equipment we make it very difficult for China to be able to indigenized semiconductor manufacturing to begin with these are very complex hard to use machines that require a lot of know-how and again I would say it's not in any America and company's interests to have China be able to indigenous this because ultimately they'll be driven out of business but in order for this to be effective it has to be done on a multilateral basis because the other companies that make these devices are primarily located in Japan and the Netherlands so working collectively these countries can have a huge impact on China's future abilities in this area now of course you need a more affirmative approach at the same time if you're asking Western companies to not sell to China which is very important and growing market for all these companies you also need to provide some alternative sources of revenue and one thing I would propose here is an international fab consortium because semiconductor fabrication is expensive a new facility costs anywhere from 10 to 20 billion dollars depending on the type of equipment that's used it's it's a very daunting expense for every for any single company or single country to diversify the supply chain by setting up a new fab so again pooling resources here to diversify the supply chain opening up new fabrication lines and it could be in other allied countries doesn't necessarily have to be in the United States you can imagine one in France for example one in Australia but just to have that resiliency in the supply chain so you're not so heavily dependent on China or Taiwan as your source for semiconductors and finally of course since we mentioned Huawei one area in 5g that holds a lot of promise is shifting the makeup of the industry altogether because even if you can successfully keep Huawei out of 5g networks you still face the fact that the industry as a whole is nola Gothel e other than qual way that market is nearly entirely dominated by Nokia Ericsson and to a lesser extent Samsung that's still not a healthy competitive environment but there's some new technological breakthroughs that could break open that legacy way of doing business and by focusing on open architecture which means that the proprietary systems that dominate the market and now are set aside you can invite software companies to build a whole new ecosystem for telecommunications infrastructure happy to talk about that more in detail if anyone's interested but I think we'll stop here in the interest of time because I want to make sure that we have plenty of opportunity for Q&A thank you very much okay so our viewers out there raise your hands so you can ask an audio question we have some text chat questions in I'll be reading those out I have one question for Alex this is from your semiconductor report you write about the Chinese of the national IC plan can you maybe give me give us a sense exactly what is that and how is how are they supporting that well it's it's it's a massive fund essentially and you know Chinese techno policy for years now has been divided into two forks one is to attract a very very specific FDI through you know bringing bringing that technology in and through joint ventures and partnerships the other is to go out and acquire it so you know a lot of the money from these funds goes to you know state-owned companies or proxies that then go out and acquire that that has been pretty much shut down I think you can't mentioned this epheus action that's and it's not just being shut down in the States but the Europeans have shut that down as well so those are those are the primary reasons for the fund but I think Martin had some really really good points I mean I'm assuming we're gonna have a lot of questions if we don't I'd love to ask some questions to the other panelists but let's let's go and see what else you got in terms of questions okay well let me have we have one from mark Koehn from berkeley law on what basis can we definitely conclude that china is at parity or in the lead in genomics quantum science except etc seems to be that one of the regrettable characteristics of the current momentum is a paucity of reliable information on china's technological accomplishments may martin you kind of talked about that but any of the panelists i mean how much do we actually know about what China has and doesn't have oh yeah what's an in exact science of course it's hard to to quantify the specifics but a large a lot of these assessments are based on reviews of the scientific literature so that's you know decent gauge of what types of research they're doing the types of advances they're making specifically for artificial intelligence you know the Chinese are ahead of the United States and deploying certain types of artificial intelligence system so if you look at the surveillance driven technologies such as facial recognition for example these are actively being used not just for the the social credit system in China but I also mentioned the the concentration camps in cynjohn so we can see firsthand what they're doing we've got a pretty good handle of what the Chinese are doing in terms of unmanned systems so there's a fair amount out there but yes it's not an exact thing to say they're ahead or they're at parity it's it's an approximation but by and large scientists and researchers in the fields agree that that is the case okay another question I think Alex maybe you can handle this one from Sebastian Moss one of the major companies behind semiconductor manufacturing equipment and what power if they need is a US government have over their export so can you maybe give us give us the the rundown of who's and what companies are involved and what can the u.s. you know administration do about them about their exports well so there's a handful there's there's there's you know there's Broadcom micron you know there's Intel which is a vertically integrated company there's Nvidia for example there's Marvell Tech there's a whole list so us semiconductor companies make up about 50 plus percent of the global market for for semiconductors and then of course you have Samsung which is which is a huge player and then you have TSM C which is a which is a foundry right it's a it's a it's a customized foundry you have TSMC manufacturing about 60% of the world's you know subcontracted chips so it's a mass and they're leading-edge organization they're they're they're pushing the envelope in terms of innovation but as Martin mentioned earlier the US has an absolute chokehold on manufacturing equipment and yes there are you know so these are the very very hyper specialized machines that are used the tooling machines the the machines that go into producing commercial level high-yield wafers and chips is I would argue that producing a commercial level high-yield commercial chips in you know large quantities is an accomplishment far greater than going to the moon I think that the you know state-of-the-art semiconductor production is probably the the zenith of human technological achievement I mean it's right up there so that's why it's so hard to do so what can the US government do with these companies so again it's a conundrum because the US doesn't have a long term plan right the current administration doesn't really have a long term plan and this is where again there has to be planning for more R&D for more production for next generations of innovation and for being able to create new markets that may not necessarily be in China right for new products so at this point in time the US government has tremendous power to to implement restricted entity lists and export controls which does a lot of damage right short term it does a lot of damage and there's a lot of collateral damage but there has to be a mid to a long-term plan here and part of that again is I think what Martin mentioned and that is you know forming these consortiums these public/private partnerships we're seeing this happening already you know with eu-us cooperation on the eu-us AI initiative and many others so I think we'll see more of that going forward okay so we have a question from David Nicholas who's a business columnist at the st. Louis post-dispatch David were unmuting you and so you can you can ask your question David welcome okay primarily for margin but maybe the other panelists have a thought as well if there's such an obvious incentive for the world's democracies to get together and talk about some of these issues and the issues have been apparent for a long time why hasn't that happened water that one of the stumbling blocks or the obstacles that are you know the preventing the US and its allies from from getting their act together on these issues and that's an important question I part of it is well it technology policy is very difficult and up until now I would argue that each country not only has each country looked at technology policy issues is really a national issue as opposed to a multinational one there's also the problem that governments have been approaching all these various technology policy issues as silos so you know 5g one day AI the other day quantum computing the next day well I would argue that we need to look at all these technology fields as being much more interrelated than we have been up to now because there's no single way that we can impact you know if the US policy outcomes for for 5g and huawei for example you can't divorce that as Alex pointed out from the broader issue of semiconductors you can't divorce that from the broader issue of just high-technology supply chains generally and so if we take a more holistic view of all these issues it'll become easier not just to to find the value and reason for cooperating than that but it's also easier than to find solutions that are less less damaging to to our respective business interests as well because you know it's Alex and you can point it out you don't want to to hurt your own industry in the process of doing so and by taking multilateral approaches on this not only can you do the restrictive aspects like the export controls but then you can also focus on the affirmative steps to help offset the results of limiting sales for example okay so if we have any other questions up out there raise your hands and I will get work your question in I have another question I guess this or anybody on the panel any comment on the open source RIS CV project that regionally recently migrated from California to Switzerland apparently to avoid US export controls I don't have a background in that topic so is this something one of you might want to take a crack at can I let me just take a quick crack at that here so there was a there was a rule that many would consider a loophole in US export control law which was called the de minimis rule which essentially said that something was a US technology and therefore became became liable or was you know was fell under the umbrella of US export controls if a certain percentage of that foreign aid finished product was of u.s. origin right so there was a 25% and there was a 10% threshold some have zero so what companies did - and this is why this is hallway when but it was initially put on the restricted NT list instructed all of its suppliers immediately recalibrate your supply chains to get under the de minimis levels and so what they've done is they simply move costs out of the u.s. overhead labor cost whatever so you can manipulate that overall percentage of US technology to below the de minimis threshold so what what's happened now though is that the US Department of Commerce has tweaked this foreign direct product rule which now which used to allow for you know companies to shift production out or to go through third parties and therefore then ship to restricted entities and not be subject to a license what's happened now is they've said there is no de minimis if you ship you need a license period if there's any technology this is this is what's happening with TSMC with the manufacturing equipment and the design equipment so it's become far more draconian and and it's it's essentially eliminated that loophole so we just need to wait and see whether or not a lot through lobbying efforts which is essentially I think this is hallways best hope is that the US industry will lobby the Trump administration and get them to walk back there they're they're their threats and and so forth and so on so that would be my response to that Chris okay Chris yeah you're gonna you can I get in here yeah make a comment and also in reference to previous comments here the predicament we face is that GDP growth economic growth everywhere assent it depends upon productivity increases linked to technological innovation and that innovation and technology the is greater for America than it is for China so America grows that say one and a half two percent a year that's very high probably more than half of that is due to its innovative technological progress now if you restrict America's exports and investment these high-tech areas because you don't want to try to have X you reduce the enormous presage of America's innovative capacity to grow and develop that's why a US Defense Department has some qualms against restricting the export of high-tech to China because it believes that it actually made lower America s ability to defend the security interests in the long term now the IMF did a study it basically showed that it is short term these kinds of restrictions hurt China more than America is trade and some of these investment restrictions but in the long term America actually suffers more it's growth rate to fall down to half a percent or five years down the line because it loses its market China could still grow let's say no longer five or six we could grow three to four because of these restrictions so it's all relative everyone loses but the second point I would make is the following we see this technology chol transfer technology as a zero-sum game either America wins or China wins not that both sides can win over the last 15-20 years local growth is increased by 50% that's been beneficial to everybody and the primary reason is that countries like China and developing world have been able to get technology and innovation from the West and therefore the growth is surged if we now start to restrict it we restrict their growth potential but if we ultimately restrict America's and the second point I'd like to make is we tend to over exaggerate China's superiority or advancement at high tech areas there are certain areas in AI or quantum computing that as good at and other areas that Americans could have as Alex is mentioned semiconductors charged really far behind if you think about it China cannot make a globally competitive car it can make a globally competitive high-speed rail but not a car and reason why it's too sophisticated okay if China makes globally competitive only because it has access to America's semiconductors it didn't have access to it it couldn't make them so we have to remember that it's so apparently a technological advancement is in some ways illusory why is it that Apple produces everything in China okay and you would think that would be the easiest way to steal it or for a child to copy it but Apple still does that how does Apple do that and still maintain its technological capacity because it basically changes an innovator single year Intel produces and does research in China at the same time they have had just worry about semiconductors how does Intel compete it competes by staying ahead of the game and frankly speaking by keeping some of its most advanced semiconductor research in the United States and elsewhere so the extra point is do we go for closed systems or do we go from open systems for example if we did the deal with technology geek regulate technology as Martin mentioned do we actually say that should be restricted only to the west or do we actually say here are rules of the game what we wanted to achieve in China do you want to be part of this because if you are part of this you're going to be regulated but if you're not part of this you're going to go your rogue way and that's what I would say we actually should have these guys arrangements but the trick is to exercise in China you need to be part of this rather than say you should be outside of this and then the question for China is am I willing to do so and that's the big tricky issue right now okay so we need to wrap this up in just a minute or so I do have a a question about how reporters can best cover this issue and background themselves on it so this is to all three of you but if you could maybe just give me one or two quick thoughts on this how can reporters best stay on top of this issue which agencies or depart as entities of the Commerce Department or CPS or the others that should journalists become familiar with so they can understand what's going on in this issue and which members of Congress are kind of most involved in another leadership capacity on this any we'll start with you UConn just a name or or two of the people who people are entities that journalists should pay attention to you need to unmute yourself UConn I think the problem is that there's a simple way of keeping abreast of what's going on because the views from the tragedy for example the Commerce Department Defense Department the security irishman they actually are quite different they have different motivations that's part of the problem when you review and try to deal with the question of who's ahead who's not a hit there are studies that try to differentiate but they're not consistent I think if you look talk to the Comus hate our security people they have different answers in this question my own feeling for the journalists which have a huge problem trying to address this unfortunately the mess out there means you have to actually look at variety of sources and you have to sometimes strike a balance between this and this is not going to be easy okay Martin same question any entities or or congressional leaders who are journalists should acquaint themselves with yeah absolutely on the Huawei 5g issue Department of State's deputy assistant secretary Rob Strayer is you know tip of the spear when it comes to promoting US policy on the issue and engaging with allies and partners so highly recommend him and then for broader technology issues particularly when it comes to the competition with China on the Republican side I would recommend senator Holly from Missouri and on the Democratic side senator Warner of Virginia okay and Alex a same question for both the u.s. sources and entities as well as global ones yeah so so keep a close eye on the Federal Register I mean the u.s. is a very transparent democracy and any laws that are coming out having anything to do with export controls or script identity lists dual use technologies they're all going to be published you have the Bureau of Industry and security bis which is part of the Department of Commerce that enforces that you have the Department of State that they all have fantastic resources websites it's all it's all they're available to and you know ready you know get yourself a bot to to collect all day all the news figure out how to funnel it all into your your bucket you

Channel: National Press Foundation

Views: 3,853

Rating: 4.7714286 out of 5

Keywords: China, USA, trade, semiconductor, technology, economics, commerce, journalism

Id: 1Bn-GFvKwsk

Length: 69min 22sec (4162 seconds)

Published: Wed Jun 10 2020