CTT-CPA “Ca$h Over Country” Report Exposes How 3 U.S. Toolmakers Are Boosting Dangerous Chinese Legacy Chipmakers

A new report co-authored by Coalition for a Prosperous America Chief Economist Jeff Ferry and CTT co-founder Roslyn Layton reveals how American semiconductor equipment manufacturing companies are earning billions from Chinese legacy chip manufacturers. That bad choice is undermining American national and economic security:

American semiconductor equipment manufacturers (SEMs) have succeeded in lobbying the U.S. government to permit them to sell some of the world’s most complex technology to Chinese government-aligned firms making legacy chips. As can be documented from public data, American SEMs Applied Materials, KLA, and Lam Research have grown their combined revenues from China by 103% between 2018 and 2022.

The Department of Commerce’s mission is to foster economic growth, and also to prevent adversaries from acquiring crucial technologies. In light of the DOC’s strategic responsibility and Secretary Raimondo’s pending visit, several lawmakers wrote her on August 18: “U.S. export control policy towards the PRC should not be up for negotiation, period. Decisions on the nature and scope of U.S. export controls should be taken in Washington, not Beijing.”

As the CPA/CTT paper details, bolstering Chinese legacy-node chipmakers is a major problem U.S. export control officials have done too little to confront. A China-dominated legacy chip sector will have destructive consequences for America:

Dependence on Chinese Legacy Chips Threatens American Military Superiority Legacy chips play vital roles in virtually every modern military system, including fighter jets, ships, land-based vehicles, handheld missile launchers, radar systems, and other tools. A reliance on China for chips for our military could have catastrophic implications for weapons stocks, information security, and protection against sabotage and espionage.

Dependence on Chinese Legacy Chips Threatens American Jobs China has heavily subsidized many industries to gain dominance as a global supplier, beginning with steel and aluminum in the 1990s, followed by computers, networking equipment, television sets, and solar panels in more recent years. Now China is doing the same with legacy chips: In 2022, China gave out $1.75 billion in subsidies to its chip companies, including $282.1 million to its largest legacy chip maker, SMIC.

Dependence on Chinese Legacy Chips Threatens American Economic Security The U.S. should not depend on China for semiconductors, the lifeblood of the digital economy. In the words of Ben Noon, writing in Foreign Policy, “Washington would have to worry at every turn about angering Beijing to avoid a ‘surprise’ semiconductor supply crunch for tablets, automotive parts, or smartphones.”

Layton and Ferry write in Cash Over Country that to solve this problem:

“Instead of capitulating to industry voices, the U.S. government should promote American security, economy, and integrity. Specifically, the U.S. government should broaden export controls to cut off Chinese chipmakers’ access to coveted Western technologies before China can achieve global market dominance in legacy chips, just as China has done in other vital industries such as LED screens and solar panels. Additionally, as part of an overall revitalization of the U.S. manufacturing base to support high-tech industries, the U.S. should use funds from the CHIPS Act to promote the domestic production of legacy chips and other semiconductor-related technologies such as printed circuit boards and computers.”

Read the full report here.