China’s push to develop its domestic semiconductor technology threatens to harm US chipmakers and put the US’ national security at risk, US President Barack Obama’s administration said in a report that called for greater scrutiny of Chinese industrial policy.
China’s goal to achieve a leadership position in semiconductor design and manufacturing, in part by spending US$150 billion over a 10-year period, requires an effective response to maintain US competitiveness in the industry, according to the report released on Friday.
“We found that Chinese policies are distorting markets in ways that undermine innovation, subtract from US market share and put US national security at risk,” the US President’s Council of Advisers on Science and Technology said in the report.
The warnings about China could give ammunition to US president-elect Donald Trump two weeks ahead of his swearing in. Since winning the election, Trump has backed up fiery campaign rhetoric toward China with a series of pronouncements on Twitter and the appointment of China hawks to key roles.
“China has gained from global openness, but has been less committed to sustaining it — and, in some cases, has worked against it,” the White House report said. “Now, globally, more countries are questioning the benefits of economic openness — a trend that will shape, and be shaped by, how the United States responds to challenges in the semiconductor arena.”
US industry leaders do not want Trump to engage in a standoff with China.
Giving corporate tax breaks to US companies is the way Trump advocates bringing back jobs to the nation, according to Intel Corp chief executive officer Brian Krzanich.
“The real answer is not a trade war, it’s not restrictions, it’s really about making the US more competitive,” Krzanich said on CNBC on Friday.
“Lowering the tax rates, making it easier for people to do manufacturing here, that’s what will bring manufacturing back to the US,” he said.
The council’s semiconductor working group includes several industry executives, such as former Intel chief executive officer Paul Otellini and Qualcomm Inc chairman Paul Jacobs.
Foreign acquisitions of US businesses are routinely reviewed for national security risks by a panel of officials led by the US Department of the Treasury.
That panel — the Committee on Foreign Investment in the US — has frustrated some Chinese investment in the US semiconductor industry. Last month, Obama blocked a Chinese company from buying the US business of Germany’s Aixtron SE, a semiconductor-equipment supplier.
The White House report recommends a strategy for US policymakers that includes countering “innovation-inhibiting” Chinese industrial policy and improving the business environment for US chipmakers.
It suggests broadening what is considered a national security risk as part of CFIUS reviews in certain circumstances, while also cautioning against blanket opposition to China’s advancement in the industry.
US officials should also work with allies to strengthen global export controls, according to the report.
The US has led the semiconductor industry since it took off in the 1960s. Companies such as Intel and Qualcomm have pushed the technical bounds of innovation in the US$300 billion market.
In 2015, China did not have one company among the top 10 industry suppliers.
The main rivals to the US’s dominance are in Taiwan and South Korea, where companies such as Samsung Electronics Co, the second-largest chipmaker by revenue behind Intel, and Taiwan Semiconductor Manufacturing Co (台積電) have gained ground over the past decade.
To strengthen its position in chip manufacturing, China relies on subsidies for domestic suppliers, according to the White House report.
That can harm US firms by allowing Chinese companies to sell below cost and reduce US market share, the report says.
China also encourages domestic customers to buy only from Chinese suppliers and requires technology transfer to China in exchange for access to its market, the White House said.
Underlining some of the difficulties that US chipmakers have faced gaining unfettered access to their largest market, in February 2015, Qualcomm announced it had paid US$975 million to settle a case brought by China’s National Development and Reform Commission accusing the company of abusing its dominant position in the chip market for mobile phones.
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