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How to Retain U.S. Foundational R&D Leadership Over China

The bottom line: China aims to overtake the United States’ global innovation lead, by hook or by crook.

China has for some time pursued a “military-civil fusion” strategy. This concerted effort is gradually strengthening China’s technological prowess and economic competitiveness in emerging, strategic technologies, including semiconductors and 5G wireless connectivity.

State-owned, -backed or -controlled companies such as Huawei and ZTE have rightly spurred Washington’s concerns. Lawmakers and the Trump and Biden administrations have increased scrutiny of and tools for blocking Chinese acquisition of U.S. innovations. Indeed, dual-use technologies raise valid national security concerns.

However, the U.S. government’s approach has sometimes failed to take into account important distinctions and aspects of the situation. This threatens U.S. innovators’ leadership, risking ceding the contest to China.

As the Center for Strategic and International Studies’ William A. Reinsch has noted, “the challenge is . . . to navigate the fine line between too little control, where technology leaks out to our adversaries, and too much control, which undermines U.S. industries’ ability to innovate and ‘run faster’ than the competition.”

Several proposals in Congress would bar U.S. companies from licensing chips to Chinese end-user device companies and restrict U.S. R&D firms from involvement in global standards-development organizations where China’s state-run companies also participate. Although intended to cripple China’s strategic microchip gains, they would actually cripple U.S. leadership in the most critical part of the chip space.

Fifth-generation wireless connectivity is in the middle of implementation and standards development. It would be disastrous if private-sector U.S. technological leaders were barred from engaging in standards-development organizations.

That would yield the field for Huawei and other nefarious Chinese actors to politicize the standards process in favor of adopting Chinese technology as industry standards, rather than the highest quality technology—usually American.

In 5G, two companies outpace the rest: Qualcomm and Huawei. The U.S. contender holds the global lead in foundational R&D.

Understanding the nuances and details matters here. In 5G wireless, semiconductor technology has two main pillars: foundational technology and semiconductor design.

Foundational technology involves discovering and developing scientific and mathematical solutions to fundamental, complex problems related to wireless Internet and telecom connectivity. This type of R&D is arduous, riskier, expensive and longer-term.

Research and development apply those solutions to form the system on which end-user devices operate. These key inventions lay the foundation of a new technological ecosystem, such as 5G itself in wireless connectivity.

For instance, Qualcomm engineers invented a way of successfully reaching 5G mobile browsing speed of almost 1.5 Gbps using millimeter wave. That’s a whole lot faster than 4G’s average downloads of between 14.5 Mbps and 21.5 Mbps.

Using mmWave in itself is a real feat. Qualcomm spent a decade inventing foundational means of using these high-band radio waves, which until now have been largely unused. This breakthrough enables faster data transmission and accommodates many more connected devices.

Leading American innovators license their patents, which include standard-essential patents. The licensing revenue funds their R&D. These foundational inventions end up in broadband infrastructure, such as cell tower and base station equipment, to which iPhones and Surface tablets connect.

Chinese favored companies’ such as Huawei’s R&D isn’t market-based. The Chinese government funds its national champions. And China would love to capture the lead in foundational wireless technology R&D.

By contrast, semiconductor design relates to chips that go into consumer or end-user mobile and wireless devices. A mobile phone contains about 200 microchips.

These chips don’t present a national security threat. American firms don’t typically face forced technology transfer for consumer devices. They license their technologies to Chinese device producers, who use them in cell phones, tablets, etc. These Chinese device makers pay U.S. chip companies, representing U.S. exports on the trade ledger.

This constructive model keeps Huawei at bay. It would be ruined if the most innovative U.S firms cannot engage competitively in licensing and participate in SDOs on equal terms with Chinese companies.

To avoid a self-inflicted disaster for U.S. innovation, Congress should stick with incentives-based, patent-respecting approaches: the CHIPS for America Act; S. 1260, the U.S. Innovation and Competition Act; H.R. 4792, the Countering Communist China Act; and H.R. 5649, the BEAT CHINA Act; while rejecting proposals that prohibit U.S. companies from licensing and standards activities with Chinese companies.

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