White House Report Part 2 of 2: Short-Term Profits Undermine Long-Term Resilience

A White House report last week offers a solemn assessment of American companies prioritizing profits over national security and long-term sustainability.

A focus on maximizing short-term capital returns has led to the private sector’s underinvestment in long-term resilience,” the 250-page report states.

The United States has a competitive advantage over China in the production of semiconductor manufacturing equipment (SME), which provides a chokepoint that can limit “advanced semiconductor capabilities in countries of concern.”

Yet, despite tighter export controls in recent years, sales to Chinese companies have been a major driver of American SME makers’ profits. Approximately 90 percent of Applied Materials’ and Lam Research’s revenues came from non-U.S. sales last year, the White House report notes. The percentage of Lam Research’s revenues from China nearly doubled between 2018 and 2020.

The Chinese government has propped up key tech industries, including semiconductors manufacturing and SME production, through a “novel subsidy strategy” meant to avoid “transparency requirements of the WTO subsidy regime.”

But the Chinese government’s approach to semiconductors doesn’t simply revolve around subsidies, Emily de La Bruyère, a senior fellow with the Foundation for the Defense of Democracies, cautioned during a roundtable forum hosted by CTT this week.

China is weaponizing industries,” de La Bruyère explains. “It explicitly encourages companies to go out and integrate into industry chains to achieve positions of power.”

Protecting the United States’ “incumbent advantages” will require more effective controls on upstream inputs, which should be implemented in coordination with the private sector and foreign allies, says Will Hunt, research analysist at the Center for Security and Emerging Technology.

“Lam, KLA, Applied Materials: so these are the more upstream companies…” explained Hunt. Export controls, continues Hunt, “can affect [China’s] ability to build manufacturing equipment firms that are supplying [Chinese] companies… That might hurt US companies a little bit in the short term, but in the long run I think that that there are actually real benefits to those same [US] companies.”

The White House report concludes: “The Administration should target and implement export controls on critical semiconductor equipment… such controls will protect U.S. national security interests by limiting advanced semiconductor capabilities in countries of concern while enabling continued leadership of the U.S. semiconductor sector.”