How can the U.S. resolve competing interests with chip policies toward China?

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President Biden and policymakers face difficult choices with China over whether to discourage U.S. investment in Chinese chipmaking and research even as investors are interested in backing Chinese projects that receive that government's support. (White House. gov stream)

President Biden is meeting soon for the third time, this time virtually, with President Xi Jinping. It is a welcome sign, considering all the tensions that have built up between the U.S. and China.

Biden has mostly kept Trump-era tariffs in place amid concerns over allegations of human rights abuses in the world’s most populous country and the treatment of Taiwan. There are also worries that China is building up its military prowess in the South China Sea.

Behind all these worries is a lingering fear by both Trump and Biden that China will soon become the world’s largest economy—displacing the U.S. in the top spot.  That expected achievement is partly based on the country’s massive investment in technology, especially  critically-needed chips, computer components and the research needed for them. 

The U.S has several initiatives to boost investment in the chip industry and chip research, but experts and industry groups like the Semiconductor Industry Association agree that the U.S. is far behind China and even other Asian countries.

All of these concerns about China might sound like just more politics, but they have grave implications for chip companies and their investors. Smart CEOs understand the implications.  While U.S. presidents and diplomats sort through the maze of issues with China, some chipmakers like Intel are boosting manufacturing everywhere, including in China.

A recent study by Rhodium Group done for the Wall Street Journal found that chip giants like Intel, U.S. venture capital firms and other private investors participated in 58 investment deals in China’s semi industry from 2017 through 2020, more than double the number of the prior four years (Registration required). The sums invested in most of the deals are not disclosed.

Those China investments sound counterproductive to the several larger foreign policy concerns of the U.S., but looking at the issue another way:  What’s a strong capitalist to do?  Forget working with China, which has strong financial support from its own government in all matters of tech research from chips to quantum computing?

The U.S. Congress seems almost ambivalent to seeding tech research, evidenced by the failure to pass a $52 billion CHIPS for America Act and the $250 billion U.S. Innovation and Competition Act. Both have already passed the Senate.

Another bill in the U.S. Senate would screen outbound U.S. investments in tech to China and Russia, looking at investments not currently controlled by current export controls or the Committee on Foreign Investment in the U.S. (CFIUS). The National Critical Capabilities Defense Act  is sponsored by Sens. Bob Casey, D-Pa., and John Cornyn, R-Texas. The U.S.-China Business Council opposes the measure on the basis that current export controls are enough to protect national security.

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With China, the U.S. faces an apparent conflict between two inherent values: Promote U.S. growth and the economy and allow investors to make deals where they want while also holding the line on moral issues that involve human rights and making  attempts to prevent further tensions  or even war.  

It is clear there are competing viewpoints, even within the U.S., over how to deal with China and still preserve basic U.S. investment freedoms. . Perhaps those differences are a sign of the diversity of views in the U.S., a benchmark that has kept the U.S. strong. In the meantime, however, China continues to grow, influenced  by a coordinated, centralized set of policies and government  investments  to keep its tech industry resilient.

Matt Hamblen is editor of Fierce Electronics.