Press Room

Editor’s note: If it feels as though the world is changing, that’s because it is. Global economic reconfiguration, demographic decline and geopolitical realignment have fundamentally altered long-held conventional political wisdom, perhaps nowhere more markedly than in the United States. Like all countries, the U.S. is mutable. But unlike most others, changes there have global consequences. The situation in America signals a break in the natural process of a country. America has surprised the world many times, and it is doing so again. The following essay is the first in a series by George Friedman seeking to explain why that’s the case. America needs a sense of perspective. In this time, all is not wonderful, nor is it all terrible. We need to find the order in the United States. We need to understand America’s soul. In business, we don’t succeed by rushing into a deal – we wait for a chance and make sure it’s the right chance, because if it’s the wrong one, we risk losing it all. Paradoxically, the United States lives off that fear. America needs to recognize this and make peace with itself. America is a sober country. It speaks quietly and honestly. When we look at the nature of the country, this makes sense. The United States has a vast central plain running from the north to the south. In that plain, there was always great hope, deep loneliness and uncertainty about the future. It is a place where humans lived heroically. As you move through the western plains, you are struck by how empty the country is and by how hopeful it is. This story is found not only on the plains but also in the darkness of the cities. Each city has a different meaning, a different promise and different threats. I grew up in a city, and I have lived in the plains. There is something fearsome in the cities and desolate in the plains. This is really a story about the American people. In “The Storm Before the Calm,” I wrote:

Most nations define nationality in terms of shared history, culture and values. The American people had none of these. They did not even share a language. Rather they came as aliens, having nothing in common. But an odd evolution took place. The immigrants came to have two cultures. One was a culture of their families, recalling their past. The other was the culture of their nation into which they merged without disappearing. The American culture was defined by this dichotomy, and hence the "American people" is a very real – but artificial – construct.

The encounter with reality amid the quietude of the plains is what introduces Americans to their country. They learn the extreme promise, the real pain – and from this the American homeland becomes powerful. There are those who would like to cleanse the homeland and take away the pain, but then what would be left? It is not a pleasant life, nor is it just. But where else in the world could such a diverse people come together and form one nation under God? The question we must answer is: What will all this become and what will America’s future be? And we will answer that, but first we must wallow in the reality of the country. We can speak of income, investment, etc., but in the end, people must confront their fellow countrymen. Out of this, we must consider the nature of America and what lies ahead. But as I said, unless we understand America now, we will be blind. One of the problems in discussing America is the simplicity of vision and the failure to understand how complex it is. America is dedicated to speaking the truth about itself, but frankly, its glory is found where we came together and stood the line. America needs to make peace with itself. We are at war with each other, but we need to recognize that we are bound together in making history. When the settlers went inland, they faced hardships that made them stand together. When immigrants settled in cities, it was the same story. To be successful, Americans stand guard, whether it’s over their property, their business or their country. They do so because they have nowhere else to go. These are the men who are the foundation of the republic. They went where they had to go and refused to apologize. To understand America in the future, we need to understand the people who are doing the building and the defending. Americans are proud, and with that pride, they invent starships and other things that are said to be impossible. They take big risks and fight every way they know to win. Thomas Edison, Henry Ford, Steve Jobs, Elon Musk and people like them denied the impossible and did what others said could not be done, just like the nation’s founders did. To see the American perspective, you need to understand the people who founded the country, who founded the businesses, and who stood guard over the land. How does this spirit move into the future?

By Chris Siepmann On Dec. 23, the United States launched an investigation under Section 301 of the Trade Act of 1974 scrutinizing China’s policies regarding its foundational semiconductor industry. Over the past decade, much of Washington’s focus in its economic competition with China has been on advanced logic semiconductors. These are the chips at the heart of the newest cell phones, laptops and advanced AI processors. Foundational semiconductors, meanwhile, were largely ignored, lost in the concerns over China winning the race for smaller node sizes and more advanced architectures. Foundational chips are used for applications where low cost is more important than bandwidth or processing power. To keep costs down, they are produced using mature process nodes – i.e., larger, less-advanced chips manufactured using previous-generation technologies. Whereas advanced node semiconductors are typically reserved for specialized applications, foundational semiconductors are used in a dizzying array of consumer, industrial and defense applications – everything from toys and smart appliances to laser guidance systems for missiles and night vision goggles. However, China’s manufacturing aspirations were never limited to advanced chips. Its “Made in China 2025” industrial policy, first announced in 2015, does not differentiate between advanced and legacy chips in its top-line goals. It calls for China to produce 70 percent of the semiconductors it consumes by 2025 and 80 percent by 2030 – which, according to a report issued by the U.S. International Trade Commission, would result in China capturing 57 percent of the global semiconductor market and displacing production in the United States, Europe and Japan. China will fail to meet its 2025 goal; it presently lags behind Taiwan, Japan, South Korea, Europe and the United States in advanced chip production. However, according to Taiwanese semiconductor market research firm TrendForce, China will more than double its chip manufacturing capacity within the next five years, the vast majority of which will be for legacy chips. Between current and planned fabrication projects, Beijing is on track to capture more than half of the global semiconductor market by 2029, potentially fulfilling the Chinese Communist Party’s long-term vision. To accomplish this, China’s main policy tool has been a sustained torrent of targeted government subsidies. According to U.S. Secretary of Commerce Gina Raimondo, “[w]e know there’s a massive subsidization of that industry on behalf of the Chinese government, which could lead to huge market distortion," resulting in China capturing 60 percent of the global foundational semiconductor market in the “next handful of years.” Just one of these subsidy programs, the IC Investment Fund, is valued at $150 billion. For comparison, America’s CHIPS Act allocated a mere $53 billion to new domestic semiconductor investments. The Section 301 initiation notice highlighted that China’s policies have led to “significant capacity expansion, artificially and unsustainably lower domestic and global prices, a protected domestic market, and emerging overconcentration of production capacity in the PRC.” Indeed, analysts have projected that China’s subsidized investments in foundational semiconductor production between 2022 and 2027 are likely to result in supplies more than doubling global demand. U.S. policymakers believe this would allow China to manipulate supply chains, undercut prices and suffocate the manufacturing base for these “boring” but critical chips in rival nations. In addition to systemic overcapacity, the Section 301 initiation notice offers a long list of additional grievances, arguing that “the PRC pursues its targeting of the semiconductor industry through an extensive range of anticompetitive and non-market means, including through Chinese Communist Party guidance, directives, and control within state and private enterprises; activities of state-owned or state-controlled enterprises; market access restrictions; opaque regulatory preferences and discrimination; wage-suppressing labor practices; massive and persistent state financial support of industry, including government guidance funds; and forced technology transfer, including state-directed cyber intrusions and cybertheft of intellectual property.” In other words, an increasing number of U.S. policymakers now realize that focusing mainly on advanced chips was myopic. They now see China’s potential dominance of legacy chip manufacturing as a national security threat on par with its potential dominance of advanced chip manufacturing. The “small yard and high fence” strategy of selectively restricting China’s access to leading-edge technologies was intended to minimize unintended economic harm to the U.S. and its allies, but was too clever for its own good due to its granular complexity. Chinese companies, with limitless time and motivation to find loopholes, were slowed but not prevented from accessing restricted chips and equipment, and U.S. companies designed advanced AI chips for the lucrative Chinese market falling just outside the government’s specifications. The tightening regulatory noose both failed to halt China’s development of its indigenous semiconductor supply chain and steeled party leaders’ resolve to accelerate it. And while advanced node semiconductors are critical to maintaining the lead in the AI race and other economic battlegrounds, they comprise a small percentage of total semiconductor production. By turning a blind eye to mature process node semiconductors, the U.S. appeared to be ceding most of the global semiconductor market to China. Any attempt to remedy this situation with tariffs must confront the reality that most foundational semiconductors entering the U.S. do so as part of another finished product, such as a toaster, a television or a car. International customs conventions (the so-called “rules of origin”) permit tariffs based only on the classification of finished goods, not the parts contained therein. However, to be effective, any remedy resulting from the Section 301 investigation must somehow either target previously incorporated semiconductors (using a demand-side barrier such as tariffs) or the means to produce them (using a supply-side barrier such as export controls). This may lead to “ends justify the means” countermeasures that ignore rules of origin to accomplish policy goals. In addition to further undermining international trade agreements and bodies such as the World Trade Organization, tariffs on incorporated components would also be extremely disruptive for manufacturers and importers, who would be forced to account for the provenance of every chip soldered into their products. Some influential think tanks and policy voices have already advocated for “see-through” tariffs on integrated components for which importers would bear the burden of accurately declaring the presence of Chinese chips. The new Section 301 investigation is just one of many policy changes that could result from legacy chips’ accession to policymakers’ lists of strategic industries. Use of export control tools, such as the foreign direct product rule, could be broadened beyond AI-related chips and high-bandwidth memory to restrict Chinese access to a broader range of semiconductor equipment, including equipment for manufacturing legacy semiconductors. Other policy proposals, such as Sen. Marco Rubio’s “Stopping Adversarial Tariff Evasion Act,” would apply Section 301 China tariffs to legacy chips produced by Chinese-owned manufacturers even when not produced in mainland China. President-elect Donald Trump’s first term in office inaugurated a new era of U.S. trade policy, with broad tariffs and new export control rules that were maintained and expanded by President Joe Biden. During Trump’s second term, expect a whole-of-government approach to further economic decoupling from China, starting with industries deemed critical to national security (a list that will continue to grow). This decoupling will employ tariffs, sanctions, export controls and other enforcement levers to block China’s access to the buyers, knowledge, equipment and tools needed for its strategy of subsidized, systematic industrial overcapacity, while leaning on allies to follow suit. At the same time, expect a resurgence of U.S. industrial policy aimed at resurrecting previously hollowed-out U.S. manufacturing capabilities and developing new initiatives in strategic sectors. In the words of Chinese President Xi Jinping, “[t]echnological revolution is intertwined with the wrestling of superpowers, with the high-tech sector becoming the main battlefield.” Trump has already proved that he’s not afraid of causing disruption if it helps him win. Chris Siepmann is the managing director at Weller James, an advisory firm helping organizations navigate geopolitical and policy changes, reduce risk exposure, forecast future outcomes and build organizational resiliency. Previously, he served as director for trade enforcement at the Office of the U.S. Trade Representative during the Trump and Biden administrations, where he advised on and helped administer tariffs and exclusions under the first China Section 301 action, along with a variety of other issues. You can contact him at inquiries@wellerjames.com.