Eric Schmidt and other tech execs want government protection from China, and it sounds a bit like Trump

January 13, 2017


President-elect Donald Trump and the tech industry may have more in common than they realized.

[Eugene Kim| January 9, 2017 |Business Insider]

Though Trump was almost universally unpopular in Silicon Valley during the campaign, a new proposal from a group of high-profile tech leaders doesn't sound so different from some of Trump's protectionist language on trade.

Singling out China as a threat to the US semiconductor industry, a new report by tech executives calls for the federal government to clamp down on cross-border acquisitions by Chinese companies, protect US intellectual property, and "fast track" new chip-manufacturing facilities by cutting red tape like aspects of the Clean Air Act.

The report was published by the President’s Council of Advisors on Science and Technology, a group that includes Alphabet executive chairman Eric Schmidt.

The report argues that US chipmakers face major challenges from China in large part because of Chinese industrial policies that work in favor of the country's own semiconductor companies. The report calls for stronger government support to protect US companies' leadership position.

Reshaping the market

"Now a concerted push by China to reshape the market in its favor, using industrial policies backed by over one hundred billion dollars in government-directed funds, threatens the competitiveness of U.S. industry and the national and global benefits it brings," the report says.

"We strongly recommend a coordinated Federal effort to influence and respond to Chinese industrial policy, strengthen the U.S. business environment for semiconductor investment, and lead partnerships with industry and academia to advance the boundaries of semiconductor innovation."

The report, addressed to President Barack Obama but likely to influence Trump's future policies, gives the following three recommendations:

  1. "Push back against innovation-inhibiting Chinese industrial policy": It calls for better transparency around China's tech policies and stronger measures that protect US national security (i.e., opposing Chinese mergers and acquisitions if they undermine defense-critical US companies) while working closely with allies.

  2. "Improve the business environment for U.S.-based semiconductor producers": Invest in growing talent, both at home and from abroad (one area in which the group seems to diverge from Trump, who has called for tighter immigration controls), while increasing research-and-development spending in precompetitive markets. It also calls for tax reform that would make it easy for asset-heavy companies, like chipmakers, to do business in the US.

  3. "Help catalyze transformative semiconductor innovation over the next decade": Help the industry work together on so-called moonshot projects. "Government should loosely coordinate industry, government, and academic efforts around solving these moonshots, with an aim to drive innovation with broader payoffs," the report says.

The group that helped create the report includes former Intel CEO Paul Otellini, Qualcomm executive chairman Paul Jacobs, and former Microsoft chief research and strategy officer Craig Mundie.

Morgan Stanley wrote in a note on Monday that the recommendations in the report could make it difficult for Chinese companies to buy foreign chip-related firms and bring more scrutiny to US firms making deals in China. But it also said the recommendations would have long-term benefits across a broad set of US industries.

"This would ultimately protect US companies market share even if China takes market share in low and mid end products (and pressures margins there) but also accelerate the digitalization of the economy, fueling more productivity growth and GDP growth for companies outside of semis and tech that actually rely a lot on the semiconductor industry without actually knowing it," Morgan Stanley's note said.

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