Industrial Security at Last?

...more people need to come to Jesus it seems...

A hard truth is that there are people who are driven primarily by money, position, and power - but money primarily and above all else.

With the People’s Republic of China (PRC), we have seen most of three decades of unbridled greed by myopic but powerful people who did not care what malevolent power on the Asian landmass was being built - what horrors were being committed to keep the money flowing their way - what national interests to the USA and her allies were being undermined … no; they saw profit to be made.

Sure, there were some wrong but well meaning true believers who thought a rising China would become some billion-strong, oh, I don’t know - Sweden? But the vast majority were along the lines of dual-use national betrayal starting in the Coffee Klatch Era up to today’s wholesale surrender of land and capabilities real and intellectual to entities whose primary goal is not profit or progress - but following the diktat of the Chinese Communist Party.

There’s a must read - and a fairly quick read - I will generously pull quotes from, over at FT that demands your time.

Tech decoupling between the US and China is about many things, but chief among them is the notion that western technology should not feed Chinese military modernisation and expansion. From an American standpoint, this seems pretty obvious. Why should US money, products and expertise aid the military strength of its chief strategic adversary?

Greed. That is the summary. Greed from those previously mentioned myopic but powerful people who only saw the potential for profit to be gained - second and third order effects down the road be damned. In many cases they were encouraged instead of checked by an American national government led by a political elite as myopic and in some cases as blinded by greed as they were. They were equally enabled by a corporate press that was happy to allow the personalization of wealth and socialization of risk when it came to a China crawling out of a century of malaise and strife.

That’s the rationale for last week’s new executive order from the White House limiting US investment into China in areas of technology that pose the most acute national security risks, like semiconductors, quantum computing and artificial intelligence. The idea is to expand on existing export bans to China, as well as limits on Chinese acquisition of US technology, by also restricting how US investors put capital into the most strategic sectors in China.

This is a good start, but more needs to be done.

The new rule is actually much more about expertise than money. “It’s not capital that’s in short supply,” deputy national security adviser Mike Pyle told me. “It’s capital plus the access to experts and additional assistance.” Translation: this isn’t about curbing passive investment into China via, say, public securities or exchange traded funds, so much as it is about preventing top US venture capitalists and private equity funds from transferring important western-made intangible assets — patents, data, software and other kinds of IP — along with their investments.

We need to foster a new national understanding between the leaders of our largely beneficial capitalist economy and the American people as they both face a hostile nations such as the PRC who have motivations as defined not by business interest and trade, but by things allowed by the Chinese Communist Party and their drive to maintain power for themselves and expand the power of the PRC itself on the world stage.

Our national understanding should be based on the simply construct that a very few people, companies, and institutions (including universities) will not be allowed to partner with the interests of the PRC to enrich themselves at the expense of the economic and military strategic future of the American nation writ large than enables their liberty. The nation has a duty to prevent citizens from enriching themselves by empowering bad actors on the world stage in a manner that can boomerang back such that others - not those who made all the money and accrued the power - will die in volume as a result.

We can forgive the light-headed unbearable lightness of being that took place in the 1990s (mostly), but as we head towards the mid-2020s? No. We are already late.

Where to draw lines about dual-use technologies isn’t the only hard problem. The White House has tried to keep defence-related technology transfer between the two countries separate from a broader discussion about US industrial policy. This discussion covers how to bolster the availability of critical mineral supplies and key pharmaceutical inputs monopolised by China. It looks at how to increase the location and supply of semiconductor manufacturing globally. But China’s communist rulers do not make the same distinctions. The free market is always in service to the state, not the other way around. 

This poses a fundamental challenge for the White House. Security hawks could do the best possible job of ringfencing dual-use technology behind a very high wall, and the US would still face critical national security vulnerabilities in areas like pharmaceuticals and biotech, green batteries, shipbuilding and many other areas. Securing those will require a much broader approach to tracking global supply chains, and understanding where chokepoints — be they controlled by states or corporations — lie.

It cannot stop there. We need to rollback hard. We are a nation of laws - laws we make - laws bound by our Constitution that protects American citizens and their liberties. Not only should we change - we can. It is a decision. All it takes is leadership.

PRC related entities and even PRC nationals that have controlling interests in manufacturing, agriculture, and single family housing? The Salamander Bill would be fair to all parties; they can have 5-years to liquidate their holdings at market prices or their ownership will be taken with fair compensation by whatever legal term you want to make - eminent domain works for now - at their value (adjusted for inflation) for tax purposes in 2022.

If American citizens can have their multi-generational homes taken with compensation for freeways, members of the CCP can be treated with the same template.

PRC nationals are more than welcome to rent their hearts out ‘tho.

Not fair? OK. The PRC is welcome to do the same to American entities in the PRC and American nationals.

Ahem.

We can then move on to American universities. I am not in favor of a complete ban, but because each seat in Electrical Engineering filled by a PRC national at a tier-1 engineering school is a seat not filled by an American - choices have to be made.

We have what, 290,000 PRC nationals in our universities right now? Let’s move that decimal over one and make it 29,000. That is my compromise position. Don’t get me started on graduate school. I’ve covered that already.

Can all sides agree the post-Cold War fantasy is over? Will the remaining China doves agree to finally buy us the beers they owe us?

It’s a topic that is likely to come to the fore in autumn as Congress returns to work and decides whether to broaden the restrictions in the executive order. The current Senate proposal for outbound investment has some provisions that are weaker than the White House’s measure, but it would also require passive portfolio investors, joint venture and research projects to report activities in China. Meanwhile, there are politicians on both sides of the aisle, from Republicans like Senator Marco Rubio to Democrats like Representative Rosa DeLauro, who want to see trade and capital flows in a broader range of sectors under more scrutiny.

Like Dean Cheng outlined in yesterday’s Midrats - the PRC is clearly signaling what it is doing - we should believe them.

There are plenty of people who will say moves like the new executive order “escalate” conflict with Beijing. I’d argue they 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. The decoupling story is far from over.

Government oversight, even when attempted, is spotty.

An article in the WSJ is just another datapoint that there are many “American” companies who are more than happy to sell someone the rope to hang their neighbors’ sons and daughters with;

U.S. officials forged an uneasy compromise to let DuPont sell its sustainable-materials business last year to a Chinese company while ensuring the technology behind it never left the U.S.

The arrangement hasn’t worked as planned, according to people familiar with the matter, exposing flaws in a national-security review process on the front lines of a battle over technology between the U.S. and China—and ultimately prompting an investigation by the FBI.

Divisions on the cabinet-level committee that screens sensitive deals involving foreign buyers were so deep that the government review took more than a year, including an unsuccessful appeal for President Biden to intervene. And the solution members ultimately settled on was undermined in just a few weeks.

At issue was a DuPont technology used to make a key component of a more sustainable version of nylon. After initially describing the invention as revolutionary, DuPont decided a few years ago to sell the business. It found a willing buyer in China, prompting DuPont to apply for permission to proceed from the Committee on Foreign Investment in the U.S., or Cfius. The panel, led by the Treasury Department, includes representatives of the departments of Defense, Justice, Energy and Commerce and other agencies.

The Biden administration early on identified Cfius, whose job is to ensure that such deals don’t end up putting sensitive U.S. technology, data or real estate in hostile hands, as a linchpin in plans to square off with the world’s second-largest economy and reorient the U.S. economy away from China. In another prong of those efforts, the administration on Wednesday banned U.S. investments in some Chinese semiconductor and quantum-computing companies starting next year.

On DuPont, members of Cfius were split on how to proceed. The reason: a U.S. intelligence assessment that byproducts from one of DuPont’s manufacturing processes could theoretically serve as a high-quality base for fuel used in cutting-edge weapons. That had the potential to aid China when Washington is deeply concerned over Beijing’s military expansionism.

Read it all. Get mad; stay mad.