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techsuch May 9, 2021 0 Comments

New Cold War With China Demands Radical Industrial Rethink for United StatesAn IBM worker walks inside the company’s 12-inch wafer chip fabricating plantin Fishkill, New York, on July 20, 2004. Mario Tama/Getty ImagesIn 2011, then-President Barack Obama attended an intimate dinner in SiliconValley. At one point, he turned to the man on his left. What would it take,Obama asked Steve Jobs, for Apple to manufacture its iPhones in the UnitedStates instead of China? Jobs was unequivocal: “Those jobs aren’t comingback.” Jobs’s prognostication has become almost an article of faith amongpolicymakers and corporate leaders throughout the United States. Yet China’srecent weaponization of supply chains and information networks exposes thegrave dangers of the American deindustrialization that Jobs accepted asinevitable.Since March alone, China has threatened to withhold medical equipment from theUnited States and Europe during the coronavirus pandemic; launched the biggestcyberattack against Australia in the country’s history; hacked U.S. firms toacquire secrets related to the coronavirus vaccine; and engaged in massivedisinformation campaigns on a global scale. China even hacked the Vatican.These incidents reflect the power China wields through its control of supplychains and information hardware. They show the peril of ceding control of vastswaths of the world’s manufacturing to a regime that builds at home, andexports abroad, a model of governance that is fundamentally in conflict withAmerican values and democracies everywhere. And they pale in comparison towhat China will have the capacity to do as its confrontation with the UnitedStates sharpens.In this new cold war, a deindustrialized United States is a disarmed UnitedStates—a country that is precariously vulnerable to coercion, espionage, andforeign interference. Preserving American preeminence will requirereconstituting a national manufacturing arrangement that is both safe andreliable—particularly in critical high-tech sectors. If the United States isto secure its supply chains and information networks against Chinese attacks,it needs to reindustrialize. The question today is not whether America’smanufacturing jobs can return, but whether America can afford not to bringthem back.America’s superpower might was made on the factory floor. The nation’s vastindustrial capacity carried it to victory in World War II and gave it acommanding advantage over the Soviet Union. As recently as the early 2000s,iMacs—a symbol of American high-tech dominance—were still made in Elk Grove,California. But since the 1970s, more than 7 million American manufacturingjobs have evaporated—over a third of the country’s entire manufacturingworkforce. In the first decade of the 21st century, more than 66,000manufacturing facilities closed down or moved overseas. America’s share of theworld’s printed circuit board production has dropped 70 percent since 2000;China accounts for around half of global production today. The high-techindustry is hardly exempt: As of 2015, Chinese factories produced 28 percentof the world’s cars, 41 percent of ships, more than 60 percent of TVs, and astaggering 90 percent of the world’s mobile phones. Indeed, Apple’s Elk Groveplant is now an AppleCare call center. Plant workers gather after hearing that their metalworking company, Revere Copper Products Inc., in New Bedford, Massachusetts, will close March 6, 2007. The company, founded by Paul Revere, once provided copper sheathing for the city’s whaling fleet but shut down because of foreign competition. Peter Pereira/The New Bedford Standard Times/The Associated Press Apple employees work on iMac computers at an Apple manufacturing plant in Sacramento, California, on May 24, 1999. Getty ImagesAt the same time, a new Silicon Curtain has begun to descend. As FBI DirectorChristopher Wray recently pointed out, China does not seek a world where itscompanies lead alongside other global companies but one where its companiesexploit a domestic monopoly at home to drive other companies out of businesseverywhere else. In the energy sector, China’s vast web of state subsidiessupporting its domestic solar-electric industry dropped world prices of solarpanels by 80 percent between 2008 and 2013. A report by the U.S. SenateForeign Relations Committee echoed this trend in more cutting-edgetechnologies: “Foreign technology platforms are restricted from operating inChina, allowing Chinese platforms that offer similar services to thrive andexpand into new markets.” The report also highlighted examples of Chinese“national champions” expanding internationally thanks to unfair governmentsupport and subsidies, noting, “Huawei’s price was so low that, absent thesubsidies the company had been provided, Huawei would have been unable to evenproduce the necessary network parts.” Beijing’s “Made in China 2025”initiative outlines in blunt terms China’s ambitions for dominance inartificial intelligence, robotics, aerospace equipment, andbiopharmaceuticals—high-tech industries that represent the future of theglobal economy.The United States’ industrial overdependence on China poses two profoundnational security threats. The first is about access to the supply of criticalgoods. As I warned in June, U.S.-China relations are now more volatile than atany time since Tiananmen, and it is an open question whether decoupling willbe slow and soft or hard and fast. As the bilateral relationship furtherdeteriorates, American companies face a growing risk of experiencing suddendelays or disruptions to their supply chains, either as an overt retaliationby the Chinese Communist Party (CCP) to U.S. policies or in the form of gray-zone tactics to kneecap U.S. companies and promote Chinese alternatives tofill the void in the global supply for key goods.This risk, once deemed far-fetched, recently came to life when Arm, aU.K.-based chip designer, recently appeared to have suddenly lost control ofits China-based joint-venture subsidiary, Arm China. As Business Insiderreported, “Arm fired Allen Wu, the head of Arm China, but Wu refused toacknowledge the decision and has continued overseeing operations of thebusiness unit, according to Bloomberg. Arm China also reportedly won’t letmembers of the UK parent entity onto its premises.” It has been seven yearssince the Alliance for American Manufacturing released a list of criticalmilitary hardware, with both offensive and defensive applications, that aresusceptible to supply chain interference. American missiles depend on Chinesepropellant; American night-vision goggles depend on Chinese metal.Clockwise from top left: An employee works on a cylinder production line at afactory in Hangzhou, China, on Jan. 17; workers produce medical supplies at afactory in Binzhou, China, on Feb. 13; a quality-control worker checks a podon the production line for the e-cigarette company Myst Labs in Shenzhen,China, on Sept. 25, 2019; and a worker checks chip component circuits at theOppo smartphone factory in Dongguan, China, on May 18, 2017. STR/AFP viaGetty Images; STR/AFP via Getty Images; Kevin Frayer/Getty Images; NICOLASASFOURI/AFP via Getty ImagesDuring the pandemic, the Chinese government is also believed to have givenpreferential treatment to its domestic semiconductor companies, allowingYangtze Memory Technologies to continue operating, all the while requiring allforeign-based chip makers, such as Samsung, to completely halt theiroperations. This is what political scientists have dubbed “weaponizedinterdependence”—exploiting control of critical nodes in the global economy toexert geopolitical leverage over one’s competitors.The second risk of U.S. industrial dependence on China is about the integrityof powerful dual-use commercial technology products: civilian goods such asinformation platforms, social network technology, facial recognition systems,cellphones, and computers that also have powerful military or intelligenceimplications. These products are increasingly becoming a “perfect weapon” forU.S. adversaries such as Russia and China that continuously seek asymmetricways to weaken the United States. The Senate Foreign Relations Committeereport noted, “the suites of new and emergent digital technologies …—including 5G infrastructure, social media, block-chain, digital surveillance,and genomics and biotechnology—are all widely acknowledged as being on thecutting edge of this new competition.” China’s command over critical nodes ofthe world’s supply chains provides it with vast strategic leverage over theintegrity of critical hardware products.A 2018 Bloomberg investigation reported that Chinese operatives had inserted aminiscule microchip into the servers of Supermicro, a company whose systemsare used by institutions ranging from major banks to the Pentagon. Though allparties involved denied that such a breach occurred, even the possibility ofsuch a hardware hack sent shudders through Silicon Valley and the U.S.national security apparatus. Even if disputed, the report laid bare thedangers of outsourcing American manufacturing to an American adversary.Public concerns over the integrity of Chinese-built technology systemsrecently reached a boiling point in the software world, with the U.S.government calling on ByteDance, a Beijing-based global technology company, todivest from TikTok, its U.S. subsidiary. In some cases, senior governmentofficials, ranging from President Donald Trump to Senate Democratic LeaderChuck Schumer, went as far as floating the possibility of a completesuspension of the app. A worker packs up new smartphone devices at the end of the production line at Huawei’s production campus in Dongguan, China, on April 11, 2019. Huawei has faced allegations that its equipment includes so-called back doors that the U.S. government perceives as a national security risk. Kevin Frayer/Getty Images An employee walks outside the headquarters of ByteDance, the owner of the video-sharing app TikTok, in Beijing on Aug. 5. NOEL CELIS/AFP via Getty Images The public’s justified concerns trace back to China’s civil-military fusiondoctrine, which blurs the line between the CCP and China’s private sector.Under China’s 2017 National Intelligence Law, the CCP could compel anindividual engineering employee at TikTok based in China to provide the partywith intelligence assistance and keep that assistance entirely confidential,without any of TikTok’s U.S.-based executives even being aware.In effect, this means companies based in China could be subject to a dualreporting and corporate governance structure—their company’s executives on theone hand, and, on the other, a shadow governance structure reporting toofficials from the Chinese Communist Party. China-based companies musteffectively answer to two masters. Arm’s U.K.-based executives learned thisthe hard way. But the principles were spelled out in broad daylight by ChinesePresident Xi Jinping himself when he compared the relationship between Chinesecitizens and the CPP to “stars revolving around the revered moon.” “Listen towhat they say,” the Taiwan-based analyst Ben Thompson cautioned.The United States’ slow drift toward deindustrialization is not a threat toDemocrats or a threat to Republicans—it’s a threat to the United States.Addressing it will require an American solution that transcends party lines.It will require an extensive collaborative effort between the government andprivate sector to take inventory of the products salient to nationalsecurity—determining which high-tech and vital goods must be produceddomestically, which can safely be sourced from allies and friendlydemocracies, and which can still be imported from the global market, includingfrom authoritarian states like China. Carrying out this strategy andoperationalizing it will take time and substantial resources. Still, a fewelements for such a strategy are worth highlighting.Before the creation of the Strategic Petroleum Reserve in the 1970s, theUnited States was vulnerable to geopolitical blackmail by OPEC nations.Eventually, public investments in expanding the country’s domestic alternativesources of energy helped move the country toward energy independence.Similarly, the United States must define and reconstitute a “minimum viableindustrial capacity,” based on the production capacity it needs not simply tomeet a national emergency but to wage a long-term competition. A potentialinitial area of focus for such an effort could be the production ofsemiconductors and microchips, given that high-performing chips areindispensable to make headway on nearly every other front—AI development,robotics, computers, cellphones, and more. Currently, Taiwan—which China dubsa renegade province—is home to Taiwan Semiconductor Manufacturing Company,which accounts for half the global supply of computer chips used in everythingfrom F-35 fighter jets to Apple devices. The United States cannot afford toignore China’s plans to eventually seize control of Taiwan and theconsequences this would entail for the entire U.S. technology industry. In this undated photo, manufacturing engineers test transistorized IBM 7070 data processing systems at IBM’s Endicott, New York, plant. George Rinhart/Corbis via Getty Images Workers check laptop parts in a factory in Luan City, China, on Nov. 19, 2018. The factory produces equipment for Toshiba, Matsushita, and other international brands. STR/AFP via Getty Images Reconstituting America’s domestic production capacity will be contingent onprocuring a reliable, abundant supply of key natural resources at a low cost,building up a large talent pool of skilled industrial workers, and makingsubstantial investments in fostering hotbeds of innovation.For starters, the goal of reopening factories won’t be economicallysustainable if the United States can’t ensure cost-effective access to naturalresources and raw materials those factories need to produce finished,manufactured products. China has made acquiring premium access to resourcessuch as zinc, cobalt, and titanium a national priority. By making investmentsand loans worth hundreds of billions of dollars across the developingworld—particularly in Africa—it has established a model of trading technologyand infrastructure for resources. In one such case, China struck a deal with aCongolese mining consortium, Sicomines, to secure access to critical mineralsfor electronics like copper and cobalt in exchange for investing in essentialinfrastructure projects like hospitals and highways.To compete, the United States and its allies will need to play a shrewd gameof macroeconomic chess, offering their own funding for infrastructure anddevelopment, but without the predatory debt-trap qualities that oftenaccompany Chinese funding. Many African countries have interlocked theireconomic futures with China because they see little alternative—if Chineseloans once came with few strings attached, they now often require adherence toa variety of CCP norms. Last month, the Senate Foreign Relations Committeeoffered one idea: an International Digital Infrastructure Corporation thatwould offer these countries the financial incentive and support to buy andinstall American-made hardware. Providing that alternative—assistance andfinancing that authentically empower recipient governments and benefit thelocal population—could shift the economic orientations of nations that wouldprefer to be less entwined with an expansionist authoritarian power. It couldalso serve as a powerful tool to supply U.S. and allied manufacturers withcritical raw materials needed for the production of strategic hardware.Like a tech startup taking on an incumbent company, if the United States is totake on China’s dominance in global manufacturing, it will also need to staffthe so-called American team with a skilled and innovative workforce. Thismeans reversing the current suspension on H-1B visas to once again enlist theworld’s best and brightest minds. This also means addressing the so-calledtrade skills gap, which has left vital manufacturing roles—such as machineryand welding—unfilled. In a 2019 survey by the National Association ofManufacturers, almost 3 in 4 manufacturing employers cited “the inability toattract and retain a quality workforce” as their most significant businesschallenge. “We shouldn’t be criticized for using Chinese workers,” one Appleexecutive told the New York Times in 2012. “The U.S. has stopped producingpeople with the skills we need.”An employee welds pipe at Pioneer Pipe in Marietta, Ohio, on Oct. 25, 2016.The construction, maintenance, and fabrication company supplies products tothe oil and gas industry. Spencer Platt/Getty ImagesWashington must take note of these realities and invest in low-cost andspecialized, skill-based workforce training for employees in vital industries,in addition to deepening its pool of advanced scientists and engineers.Bureaucratic reorganization could help focus government attention and cohesionon this problem: Consolidating the Department of Education and Department ofLabor into a Department of Education and the Workforce would create a singleentity dedicated to endowing Americans with the skills they need throughoutthe full continuum of their professional lives. And while it’s true that notall jobs will return, focusing training on high-tech manufacturing willprepare a workforce that attracts new, potentially higher-paying jobs to U.S.shores.Although policymakers’ natural instincts—and political incentives—might pushthem to spread reshoring investments in a large number of cities across thecountry, some of America’s most successful global hubs of economic activityhave been geographically concentrated: Wall Street, Hollywood, Silicon Valley,the Motor City. Geographically concentrated regional hubs unlock networkeffects from the powerful forces of platform economics and could become growthengines for their state and the rest of the country.Much like magnets, hubs attract, in a self-reinforcing loop, talentedindividuals from around the world who self-select to relocate closer to theirindustry’s center of gravity. This clustering of specialized expertiseincreases the connections between the participants of the ecosystem, allowingthem to compound the institutional knowledge of the companies they work forand pattern-match problems and solutions more quickly than elsewhere.Together, the government and private sector could work to build manufacturingcenters to rival those of China’s Shenzhen.Once this new baseline is established, the United States and friendlydemocratic states must create an Allied Industrial Free Trade Area thatmaintains America’s industrial base and strengthens it across democracies,forming a new democratic bloc that preserves the benefits of efficiency andcompetition while helping American global companies’ wean themselves off theirdemand-side dependence on the Chinese market. The foundations for such a blocare already becoming apparent through ideas like U.K. Prime Minister BorisJohnson’s proposal to expand the G-7 to a new D-10, a 10-nation democraticcoalition that can collaboratively fund and create alternatives to reliance onChinese 5G technology.For a long time, we assumed U.S. deindustrialization was inevitable—today, thecoronavirus crisis has given Americans a small taste of the sour realitiesthat result from decades of industrial neglect and disrepair. The UnitedStates’ supply chains and information networks are precariously dependent on,and exposed to intrusions by, a hostile foreign government bent on undoingliberal democracies. U.S. policymakers and technology executives shouldconsider what might happen if, as the historian Yuval Harari warned, “Beijingknows the entire medical and personal history of every politician, every judgeand every journalist in your country, including all their sexual escapades,all their mental weaknesses and all their corrupt dealings?” Neglecting toquickly safeguard the access and integrity of American supply chains andinformation networks in the face of successive warnings would be a costlystrategic mistake and a blow to U.S. national sovereignty.

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