Ambassador O’Brien delivered remarks at the Hudson Institute on the importance of protecting global supply chains and maintaining America’s competitive edge against CCP influence.
Hudson Institute Remarks – Securing U.S. Competitiveness: The Importance of Critical Supply Chains in our Strategic Rivalry with China
Thank you to The Hudson Institute for organizing this event. It is time to talk China again.
We cannot discuss US competitiveness without focusing on semiconductors. Semiconductors are the bedrock technology of the 21st century – powering everything from F35s to sensitive satellites to our critical infrastructure to my F150 pickup. The secure and assured supply of chips is more important to the U.S. than ever before. The US will invest $52 billion dollars to onshore semiconductor factories which will strengthen our national and economic security.
Semiconductors enable our daily lives. Without them, virtually every sector of the global manufacturing economy would come to an abrupt halt. During the pandemic the automotive industry, for example, could not source legacy semiconductors, creating a months-long backlogs and sky-high prices.
Not surprisingly, the CCP has sought to dominate the semiconductor market.
While we can’t eliminate our reliance on semiconductors, we can, however, minimize the risks posed by Beijing’s efforts to become the world’s leading supplier of chips – both legacy and advanced. Diversification of the supply chain is one area in which the semiconductor industry is on the cusp of achieving success.
With geopolitical challenges, unprecedented in a generation, securing technological supply chains, particularly those for semiconductors, has never been more important.
Collaboration between chip software designers in the U.S., software developers in the Netherlands, and manufacturers across the globe, notably those in Taiwan, Japan and Korea, have improved the West’s position vis a vis China. This cooperation among allies is crucial if we are going to de-risk business and supply chains.
Just a few years ago, China’s economic rise provided hope that Beijing would one day become a partner in the supply of semiconductors, as it had done with other technologies. Recent history demonstrated that under Xi Jinping and the Chinese Communist Party, China is not interested in becoming a thriving economic partner. Instead, Beijing seeks to upend the entire global order to place itself at the top. Chairman Xi Jinping has made semiconductors China’s top industrial innovative priority since the Third Party Plenum of 2013. The CCP has invested one trillion yuan of state capital into the indigenous semiconductor industry through “the Big Fund”.
China’s semiconductor industry has demonstrated remarkable growth. In 2011, China had about 1,300 registered companies in the industry. By 2020, it had over 22,000 such companies. It is evidence of the significant incentives Beijing is offering Chinese firms to produce at scale. Most of these firms are focused on manufacturing larger legacy chips. While these are less technologically advanced than their smaller counterparts, they still are critical parts for many industries here in the U.S., including defense.
The US must wean itself off of this dependence on Chinese semiconductors and legacy chips. If we do not, we will be vulnerable to future supply chain disruptions similar to those that occurred during the Pandemic. Even worse, the CCP could deliberately choke this supply as a coercive measure against us when geopolitical tensions flare. Such a step would leave many American industries without the ability to manufacture products.
Coercion is the primary method by which the CCP seeks to promote its own interests. The CCP sees economic interdependence as a folly, and its own national interests as zero-sum.
In Xi Jinping’s eyes, for China to win, everyone else must lose.
China’s ambitions have become clear. Those ambitions must be addressed head on. Military exercises, communist propaganda, and coercive export controls seek to undermine the stability of our partners in Taiwan, Japan, and Korea. With the theft of American technology, and unfair trade practices Chinese firms flagrantly disregard national and international law.
Businesses have begun to wake up to the reality that China poses a tangible risk to their economic well being. The U.S. and its allies should find areas to cooperate where supply chains can be re-shored, near-shored, and friend-shored, to ensure uninterrupted of commerce throughout any geopolitical crisis brought on by Beijing. Doing so will come with added costs, however inaction in the face of the unprecedented risk we face today would be reckless.
One of America’s greatest advantages over the CCP is our network of like-minded allies and partners, countries with free governments, the rule of law, and open markets. The U.S. can best compete in the semiconductor sector, or any tech sector for that matter, when it does so in cooperation with its Free World allies.
Through important engagements such as this discussion, we can call renewed attention to the proposition that economic security, especially in technology sectors, is national security.