Tech Groups Warn Treasury Not to Block China Chip Investment

The Biden administration’s effort to protect national security by limiting tech investment in China could have the opposite effect by putting American companies at a disadvantage, tech associations told the Treasury Department in comments due Thursday (see 2308100003).

The Treasury Department in August requested comment on a potential rule implementing an executive order targeting national security threats posed by technology in China, Hong Kong and Macau. The EO directed the department to issue a rule regulating transactions involving semiconductors, microelectronics, quantum computing and AI.

Comments from American industry groups and House Financial Services Committee Chairman Patrick McHenry, R-N.C., align with those from the China Chamber of International Commerce. The number of comments from industry groups far outweigh submissions from consumer advocates and individual citizens. The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) defended the EO, saying it should be expanded further to protect national security and labor interests.

There are questions about whether China abides by basic international trade rules, but Treasury’s Advance NPRM signals to the private sector that it “should not invest at all in certain markets and in specific areas as a matter of national security,” said CTA. U.S. investment in foreign markets strengthens commercial ties and creates opportunity for domestic job and economic growth, which is essential to national security, said CTA. The association recommended Treasury not introduce any restrictions on “contract manufacturing” for consumer goods like smartphones, laptops, video game consoles, televisions, monitors, connected devices and audio products.

The ANPRM ignores the reality that China’s own economic restrictions have driven down U.S. investment, said McHenry. Citing statistics from a May letter to Treasury, he said U.S. venture capital deals in China have plummeted by 87% since 2018. The ANPRM was written at a time when China is “cracking down” on foreign investment, he said. He added that Treasury hasn’t provided evidence of any sensitive Chinese technology developed through U.S. outbound investment. The ANPRM is “clearly based on a theory that is uninformed by real-world observations,” he said. If the U.S. opposes China’s state-run economy, it should be trying to encourage more private investment from Americans, not less, he said: “If we are truly concerned by China’s technology companies, we want as many Americans as possible steering them, spreading Western standards, and complying with U.S. laws.”

The U.S. is deliberately misinterpreting “normal cross-border financing and business activities of Chinese enterprises, using national security as a pretext to discriminatorily prohibit and censor international investment,” said the China Chamber of International Commerce. “Existing regulatory tools are more than sufficient to meet the U.S. policy goal of safeguarding national security,” the China chamber said.

Potential rules should only pertain to products that serve military, government and surveillance purposes in order to avoid creating unnecessary burdens for consumer goods development, said BSA | The Software Alliance. The U.S-China Business Council, which represents nearly 300 companies that do business with China, agreed, saying the “vast majority of trade with China has no nexus to U.S. national security interests.”

The U.S-China Business Council and the U.S. Chamber of Commerce said if American companies face more barriers to investment in China, foreign competitors who don’t face similar restrictions will fill those gaps. This “go-it-alone approach” risks “having a disproportionate and counterproductive effect on U.S. companies by limiting their ability to cooperate in large markets," the Chamber said. It encouraged the U.S. to push for mirroring policies set by foreign allies.

The Chinese market is critical for the semiconductor industry, said the Semiconductor Industry Association. China accounts for one-third of U.S. chip revenue, making it the single largest market for the industry, SIA said: “We hope the final rules allow U.S. chip firms to compete on a level-playing field and access key global markets, including China.”

China has undermined U.S. national and economic security, often with the support of U.S. investment, said the AFL-CIO. The organization recommended Treasury expand its focus on “military-enabling technologies.” Some argue that export controls and existing programs render the EO unnecessary, but “activities, programs and policies of the CCP make clear that the ongoing and growing threat to our national security and the U.S. manufacturing and technology bases requires a broad and comprehensive strategy,” it said.