National Security is Economic Security

Last week, the White House released the much anticipated Executive Order on outbound investment. As Politico notably reported in a preview story, President Biden’s action will require “U.S. firms to notify the federal government if they invest in some lower-end semiconductor production not already covered by export controls.” This is a step in the right direction and comes as the Administration is starting to wake up to the threat of a China-dominated legacy chip market. But more needs to be done.

Financial Times columnist Rana Foroohar reacted to the Executive Order in a piece aptly titled, “The US now accepts national and economic security can’t be separated.” She says:

[W]estern technology should not feed Chinese military modernization and expansion. From an American standpoint, this seems pretty obvious. Why should U.S. money, products and expertise aid the military strength of its chief strategic adversary? …

[M]oves like the new executive order … merely draw attention to uncomfortable truths that have in fact always been there in plain sight. For years, the west thought security and market concerns were separate. But for China, national security and economic security are the same thing.

Foroohar is right. Applying this to legacy chips: We know that they’re critical to U.S. defense systems. We know that China is making moves to dominate the legacy market. And we know that American semiconductor equipment manufacturers are selling to top Chinese chip manufacturers with military connections like SMIC. Former Deputy National Security Advisor Matt Pottinger warned about the eventual outcome. He said, “It would give Beijing coercive leverage over every country and industry – military or civilian – that depend on 28 nanometer chips, and that’s a big, big chunk of the chip universe.” That is both a national and economic security problem. It’s time for everyone to get on the same page: National and economic security can’t be separated.

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