“China Has Figured Out How to Weaponize America’s Advantages”

Just Announced: FDD’s Emily de La Bruyère to Join Tomorrow’s Webinar.

The outcome of the U.S. and China vying for control over modern technology markets will be decided within months or years, not decades, say Emily de La Bruyère and Nathan Picarsic, senior fellows with the Foundation for Defense of Democracies (FDD).

***Two weeks ago, Mr. Picarsic and Ms. de La Bruyère co-published a study, “Defusing Military-Civil Fusion: The Need to Identify and Respond to Chinese Military Companies.” Now Ms. de La Bruyère will join Dr. Roslyn Layton, Stephen Ezell and Will Hunt for tomorrow’s online panel discussion, “Let the Chips Fall at BIS?” Register for the event here.

While there is growing consensus about the need to counter China’s ascension, many policymakers and most businesses “don’t grasp full extent of vertical integration and redundancy that China is pursuing.” 

“The U.S. still has a couple of crown jewels left,” Picarsic says, identifying “upstream” semiconductor manufacturing equipment and “mid-stream” chip design capabilities.

Mr. Picarsic’s analysis matches that of famed CNBC “Mad Money” stock picker Jim Cramer, who said the same about semiconductor toolmakers when he called KLA, Lam Research, and Applied Materials “the jewel of what we have in our country, these three companies” and predicted a sharp increase in their stock price based on expectant sales to Chinese semiconductor manufacturers.

The U.S. response to the Chinese threat has escalated in recent years, but it has been largely reactive rather than proactive, says de La Bruyère. “Washington is effectively making a list of a couple dozen Chinese companies to restrict. We are cutting off hydra heads, not getting to the body of the problem.”

Entity List designations and even tariffs, de La Bruyère and Picarsic argue, are a game of whack-a-mole, which have “little effect in a contest for global supremacy.” While these may be necessary stopgap measures, policymakers—namely, Congress and the U.S. Department of Commerce—should define and protect critical sectors and invest to position U.S. industry to compete holistically.

China Tech Threat has noted the patchwork approach of U.S. export controls before. The Department of Commerce, for example, added Semiconductor Manufacturing International Company (SMIC), China’s largest chip manufacture, to the Entity List while other companies with known military ties, like Yangtze Memory Technologies (YMTC) and Changxin Memory Technologies (CXMT), continue to access U.S.-made technologies.

“Rather than trying to identify every Chinese company with military ties, policymakers ought to adopt a clear prioritization framework to target the companies that matter most,” says de La Bruyère.

“We need to play both offense and defense,” adds Picarsic. That includes reshoring the production of pivotal technologies, “investing in the right direction,” comprehensive export controls, and even procurement requirements. And the U.S. should not go it alone. It needs to build a coalition of likeminded nations to stop the Chinese government and state-sponsored companies from skirting the rules.

Picarsic and de La Bruyère also believe U.S. industry must be part of the solution. In fact, that conviction brought them to form Horizon Advisory, which consults with businesses on geopolitical, technological, and economic change. 

“We came to realize there is much more utility working with the private sector,” says Picarsic. “This conversation needs to be shared more broadly.”

“China has figured out how to weaponize America’s advantages,” concludes de La Bruyère. “Let’s not bring Chinese military supported industry into our economy.”