Trump Acts on Semiconductor Firms’ Concerns over China
China and US technology IP rift is not new
China (MCHI) has long been criticized by US technology companies for using unfair trade practices to acquire IP (intellectual property). The SIA’s (Semiconductor Industry Association) president, John Neuffer, stated that the Chinese government forces multinationals that are looking to do business in China to enter into JVs (joint ventures) with local companies. He noted that these JVs can ultimately result in IP infringement.
Interested in INTC? Don't miss the next report.
Receive e-mail alerts for new research on INTC
IP is the lifeblood of US semiconductor companies. These firms spend up to 20% of their revenues in R&D (research and development) to stay ahead in the technology race. Neuffer added that China is the largest consumer of semiconductors and is vital to the global semiconductor industry.
Neuffer noted that “market-distorting” aspects of China’s industrial policy can put US semiconductor companies at a disadvantage, threatening their intellectual property.
According to the National Bureau of Asian Research’s latest update on its 2013 report,1 the US economy lost up to $600 billion in IP theft, of which an estimated 50%–80% of cases were caused by China.
Technology industry’s recommendations
In January 2017, the President’s Council of Advisors on Science and Technology published a report that called for the government to protect US companies’ leadership positions.
The report was created by tech leaders such as Intel’s (INTC) former CEO, Paul Otellini; Qualcomm’s (QCOM) executive chairman, Paul Jacobs; and Microsoft’s (MSFT) former chief research and strategy officer, Craig Mundie. The report offered three recommendations, which we detail below.
“Push back against innovation-inhibiting Chinese industrial policy”
This first point calls for improved transparency around China’s technology policies and stronger government measures to protect US national security. This measure includes opposing any Chinese M&A (merger and acquisition) that is critical for US national security.
In September 2017, President Donald Trump blocked the proposed $1.3 billion acquisition of Lattice Semiconductor (LSCC) by Canyon Bridge Capital Partners after reviews revealed that the acquirer was funded by the Chinese government.
“Improve the business environment for US-based semiconductor producers”
This recommendation calls for tax reforms that support R&D and encourages capital-intensive companies to do business in the US. This recommendation has been considered in the Republican’s tax reform plan, which we discussed earlier in this series.
“Help catalyze transformative semiconductor innovation over the next decade”
This recommendation calls for the US government to support the efforts of industry and academics in transformative research projects such as quantum computing.
Trump investigates China’s trade practices
Trump also issued a memorandum to investigate China’s trade practices and actions that may be discriminatory and threaten American intellectual property. Neuffer supported Trump’s memorandum.
Next, we’ll look at this situation from China’s perspective.
- The Theft of American Intellectual Property: Reassessments of the Challenge and United States Policy ↩