We Need to Stop this Technological Suicide Immediately

Steve Bannon says China will be central to the 2020 election. He wants President Trump to run against Joe Biden and his son Hunter as sellouts to Chinese communism.

On the assumption that the Chinese Communist Party is deeply vulnerable, Bannon is also launching a new overseas “China Federated government” with American financier Kyle Bass and exiled Chinese billionaire Miles Kwok. Bannon thinks he can overthrow the Chinese Communist party with heroic proclamations.

Meanwhile last week, President Trump conducted a pugnacious anti-China press conference on the White House Lawn with everybody wearing masks and sitting glumly six feet apart, illustrating our self-inflicted lockdown dementia.

Trump still refuses to defy the masked and muddled viral new-mania despite their crippling effect on the US economy and national security, and despite the lack of any evidence that such measures can abate the predictable but hardly unprecedented depredations of the coronavirus.

Trump did announce several new measures that he alleged would protect American security and prosperity. Citing China’s “well-known” pattern of misconduct,” he said that “for decades the Chinese have ripped off the US like no one has ever done before.” He claimed that hundreds of billions of dollars were lost dealing with China. “They raided our factories, offshored our jobs, gutted our industries, stole our intellectual property, violated agreements with the World Trade Organization.”

They also manufactured much of our technology and made it possible for the US to survive a litigation explosion that bankrupted 36 chemical companies and an environmental cult hostile to all US manufacturing. By outsourcing to China, the US economy produced five out of the top seven companies in market cap in the world, with margins 80% higher than their Chinese enablers.

Some of Trump’s charges were true and some of his measures reasonable. But the claimed damage to the United States was all self-inflicted.

Meanwhile, contributing nothing to the Chinese relationship were such US actions as military displays in the South China Seas and arrest of Huawei’s Chief Finance Officer at an Airport in Vancouver. Also unhelpful, is the move of Trump’s former campaign chief Bannon to bring down the Chinese government.

A Reality Check for the United States

As the world’s leading exporter, China has zero interest in threatening navigation in South China Seas. But US conduct of military maneuvers in that critical area is as needlessly provocative and bellicose as would be Chinese maneuvers in the Gulf of Mexico.

Does anyone in Washington have a clue? China is now 20 times more powerful than it was when the US used to push her around. And even then, we were driven out of North Korea by Chinese troops.

Now the US wants to manipulate all the world’s technology supply chains to bring down China. It wants to scrap all the commitments made by US companies to enable China to use US technology standards and chip architectures. Our technique is to ban from US markets any company that uses chips that were made with semiconductor fabrication equipment with roots in the United States.

How can Americans invest in an environment where our tech companies are excluded from the world’s largest and fastest growing markets?

Whether we like it or not, China and its 1.4 billion people and near millions of trained engineers is crucial to development, manufacture, and consumption of most advanced technologies. Most companies that fail to participate in the China market will lose market share, scale, scope, and profits and slip back into less contested niches.

Some — such as Google, Amazon and Facebook — are dominant enough for exclusion not to be a critical peril. In any case, China is banning these US information companies chiefly because of their failure to adapt to Chinese anti-free speech rules.

Although a conservative like me balks to recognize it, the fact is that China is rapidly growing more powerful in both economics and technology than the locked-down and climate-change demented United States.

Although still harboring the world’s most pullulating entrepreneurial economy, China lamentably remains under the control of the Communist party. So, companies that want to enter its market have to recognize that anti-communist political interference is unacceptable.

The chief threat to America’s high-tech giants is stupid efforts by officious politicians in the US and Europe to make these companies liable for every errant post on their vast networks. This principle provides an obvious precedent for similar Chinese interference. Moreover, policing fake news and hate speech is simply impossible without bias, lawsuits, and constant controversy that will end up seriously degrading these sites and undermining these companies.

Political dominance of our social networks is rendering them hardly more useful than their Chinese rivals. Chinese companies such as Alibaba and Tencent are increasingly well integrated and efficient for anything except attacking the Chinese government and are better for conducting transactions.

Also jeopardizing leading edge US technology is the pathetic failure the US Supreme Court to police the runaway US system of litigation against any deep pocket. Such necessary defense of the Constitution cannot come from a Congress full of lawyers.

But the most-dire threat to US technology leadership is political interference in semiconductor capital equipment. The US government, is attempting to stop US suppliers of chip gear from selling their tools to any company that supplies chips to China. As a result, imperiled today is a half-century of arduous and ingenious US leadership in many key areas of semiconductor capital equipment. But chip gear is inexorably a global web, from Tel Aviv and Palo Alto to Frankfort, Singapore and Shanghai.

Today’s Prophecy

The critical semiconductor fabrication technology is photolithography, which determines the size of the smallest geometries that can be imprinted on chips. With the loss of GCA and eclipse of Ultratech, arguably as a result of previous US government interference, the US contribution in photolithography for chips has diminished to a few mostly foreign owned redoubts of optics.

Notable are San Diego’s Cymer Laser, owned by the world’s dominant photolithography company ASM of the Netherlands, and Access Laser Company of Everett, WA, now owned by Trumpf of Germany, an ASM supplier. These companies all have offices or research centers in China and are unlikely to prevail in the future if they are banned from China.

US-leaders such as Applied Materials, Lam Research, Teradyne, and KLA continue to prevail in their specialties. These companies also all maintain deep relations with China and Taiwan. Located in Singapore, Hong Kong, and Shanghai are such technical stars in chip equipment as ASM Pacific Technologies and AMEC (which performs Molecular Organic Chemical Vapor Deposition and etch).

Trump’s effort to use US participation in the global microchip supply chain as a way to force China to its knees in trade negotiations is a deadly threat to the entire US semiconductor industry, which in turn is crucial to US security.

We should stop this technological suicide immediately.

Regards,

George Gilder
Editor, Gilder’s Daily Prophecy

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George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology — and its impact on our lives.

He’s an established investor, writer, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

And he’s certainly no stranger to the financial newsletter...

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