It’s gradually sinking in that the Biden administration has launched perhaps the greatest industrial policy experiment in history – stopping China from assuming technological leadership over the United States and the rest of the world.
The two major thrusts are (1) sweeping, coordinated restrictions on the sale of semiconductors and chip-making equipment to China and (2) massive investments in semiconductors and other advanced technologies in the United States.
I’ve been following these issues since the 1980s when we were worried that the Japanese were penetrating our semiconductor supply chain. It was a Republican president, George H W Bush, who created Sematech, an overt exercise in government-university-industry cooperation.
That was in 1987 and Japan made some gains in semiconductors but the US lead was not completely eroded. In other words, the policy worked. Sematech still exists and is now headquartered in Albany, New York, which is the center of an upstate New York semiconductor boom.
We saw another burst of industrial policy after the Obama administration took over in 2000 and tried to jump-start an electric car industry on the basis of lithium-ion batteries.
That had mixed results after Republicans created such pressure on the Department of Energy, which was administering the grants and loan guarantees, that the administration withdrew funding from Solyndra and A123 Systems. Both went bankrupt (and A123’s assets were acquired by the Chinese.)
Only one recipient of funding did really well: Elon Musk’s Tesla was given a lease on life that has really paid off. Another car company, Fisker, never made it.
What have we learned that we need to apply to this next exercise in industrial policy? One reality is that the key American weakness is not basic research. Our laboratories are filled with cutting-edge ideas.
Our key weakness is commercializing those ideas – meaning getting the technologies out of the labs and into commercially viable enterprises that scale and dominate their niches globally.
Being a technology entrepreneur in America is like being asked to walk a gauntlet of torment for years: They face enormous challenges in raising capital, in particular. Seed capital providers, venture capitalists and others obviously attempt to make money in the short term. Most of them are not terribly interested in five-year bets.
I see the Biden administration giving lots of money to the National Institutes of Health, for example, which is all well and good. But NIH knows little about commercializing technologies.
Some part of the billions of dollars being provided by the CHIPS and Science Act and the Inflation Reduction Act (which includes funding for electric batteries) should be funneled into investment funds administered by real industry experts.
This is what China does. It makes massive amounts of funding available to develop ideas that have been stolen or “licensed” from scientists in the United States and elsewhere.
Another lesson is that we must de-politicize this latest burst of industrial policy.
With Republicans poised to make gains in the election this month, it’s easy to see how they might start using committees in Congress to launch investigations and seek to embarrass President Biden in the run-up to the 2024 presidential elections. That would be a tragic mistake.
Industrial policy can only work when it is consistently administered over a long period of time. With technological leadership of the world at stake, I hope Republicans can avoid politicizing the policies now being rolled out.
The last lesson I will offer for now is that we have to get serious, finally, about stopping Chinese espionage in all its many forms. It will achieve absolutely nothing if we create the next generation of extreme ultraviolet (EUV) semiconductor lithography only to have it stolen by the Chinese.
Stopping the espionage will require facing up to some unpleasant truths. The Chinese have penetrated many of, if not most of, our computer systems, as co-author Michael McLauglin and I demonstrate in our forthcoming book Battlefield Cyber.
If they are not presently inside a system, their Ministry of State Security probably has inserted a backdoor that makes access possible. Our researchers have to use secure systems and that costs money.
The academic and scientific community is also going to have to face up to a truth that runs entirely counter to their prevailing culture and mindset: We need to retreat from unfettered, international sharing of research and scientists.
Purists would argue that an open international environment is what creates great ideas. That may be true. But it also creates an environment in which the Chinese can pretend to be engaged in genuine international collaboration and then simply steal ideas from others.
Lastly, and this is even more explosive, we need to recognize that the People’s Republic of China uses the presence of 360,000 Chinese students at American universities and the Chinese-American community to pilfer ideas.
This strikes at the core of how we define ourselves as a nation. We want to believe that everyone, of every race and ethnicity, will work to protect American secrets from authoritarian regimes.
A percentage of these students are learning in American laboratories and taking the ideas home – which is considered fair game. But other Chinese researchers and scientists are operating shadow labs in China paid for by the Chinese government or simply selling technologies to the Ministry of State Security and other arms of the Chinese party-state.
We don’t want to start another McCarthy-like Red Scare, but we need to understand that the PRC is very cynically using Chinese and Chinese Americans precisely because they are in a blind spot for us. We don’t want to be accused of racism. But if we want our grand, new industrial policy to work, we have to develop the sophistication to stop this avenue of thievery.
Making industrial policy work isn’t easy. We should learn from history.
Veteran Asia-focused journalist William J. Holstein learned to grapple with Beijing’s spies as China bureau chief for United Press International in the 1980s. Books he’s authored include The New Art of War. Follow him on Twitter @HolsteinWJ