Chinese Peril

Eric Schmidt and other tech execs want government protection from China
By Eugene Kim
(L to R) Jeff Bezos, chief executive officer of Amazon, Larry Page, chief executive officer of Alphabet Inc. (parent company of Google), Sheryl Sandberg, chief operating officer of Facebook, Vice President-elect Mike Pence listen as President-elect Donald Trump speaks during a meeting of technology executives at Trump Tower, December 14, 2016 in New York City.

Donald Trump and the tech industry may have more in common than they realized.
Although the President was famously unpopular in Silicon Valley during the campaign, a new proposal from a group of high-profile tech leaders doesn't sound so different from Trump's protectionist trade rhetoric.
Pointing a finger at China and its 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 Federal Clean Air Act.
The report was published by the President’s Council of Advisors on Science and Technology, a group that includes Alphabet's executive chairman Eric Schmidt among others.
According to the report, US chip makers face major challenges from China, in large part due to Chinese industrial policies that work in favor of the countries 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 writes.
"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 Obama but likely to influence President 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 M&A if it undermines 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 home and from abroad, while increasing R&D spending in pre-competitive markets. It also calls for tax reform that makes it easy for asset-heavy companies, like chip makers, to do business in the US. 
3. "Help catalyze transformative semiconductor innovation over the next decade": Help the industry work together on "moonshot" projects. "Government should loosely coordinate industry, government, and academic efforts around solving these moonshots, with an aim to drive innovation with broader payoffs," it writes.

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 noted that the recommendations would have long-term benefits across a broad set of industries in the US.
"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.