To: Anna Dodge, Legislative Correspondent/Legislative Aide
From: Aghasthya Raavi, Intern.
Re: From High Tech to Heavy Steel: Combatting the PRC's Strategy to Dominate Semiconductors, Shipbuilding, and Drones.
Date: June 26. 2024
On June 26. 2024 1115 hours, the House Select Committee on the Chinese Communist Party held a hearing titled From High Tech to Heavy Steel: Combatting the PRC's Strategy to Dominate Semiconductors, Shipbuilding, and Drones.
Chairman John R. Moolenaar (R-MI), Ranking Member Raja Krishnamoorthi (D-IL), Rep. Robert J. Wittman (R-VA), Rep. Blaine Luetkemeyer (R-MO), Rep. Andy Barr (R-KY), Rep. Dan Newhouse (R-WA), Rep. Darin LaHood (R-IL), Rep. Ashley Hinson (R-IA),), Rep. Ben Cline (R-VA), Rep. Seth Moulton (D-MA), Rep. Ro Khanna (D-CA),, Rep. Haley M. Stevens (D-MI), Rep. Jake Auchincloss (D-MA), Rep. Ritchie Torres (D-NY), Rep. Shontel M. Brown (D-OH) were in attendance.
SUBJECT: To understand the scope of the problem and the needed legislative response from Congress to thwart threats to U.S. economic and national security from ongoing actions of the PRC in their state support to the Chinese drones, semiconductors, and shipbuilding industry.
WITNESSES:
· Mr. Adam Bry, Founder and Chief Executive Officer, Skydio
· Dr. Chris Miller, Professor at Fletcher School at Tufts University, Nonresident Senior Fellow at the American Enterprise Institute
· Mr. Scott N. Paul, President of the Alliance for American Manufacturing (AAM)
OPENING STATEMENTS:
Summary of opening statement by Chairman Molnar
Chairman Molnar emphasized the CCP's economic strategy, which involves competitive pricing, global expansion, driving out competition, and leveraging newfound dependencies to advance CCP interests. He likened this to a football team's triple option play, highlighting its effectiveness and difficulty in defense. Chairman Molnar underscored the need for the U.S. to install market access barriers in strategic sectors to prevent malign CCP companies from taking over the domestic economy. He also stressed the importance of leveraging and building upon crucial authorities to ensure data and communications security nationwide. The Chairman also called for cutting off access to U.S. technology and capital that fuels CCP national champions in critical sectors and coordinating with allies to encourage them to mirror these steps. Highlighting historical resilience, Molnar noted that the U.S. has always rebounded in technological races and emphasized the need to revitalize domestic industries, particularly in semiconductors and shipbuilding, to become an arsenal of democracy once again.
Summary of opening statement by Ranking Member Krishnamoorthi
Ranking Member Krishnamoorthi opened his remarks by highlighting the CCP's Made in China 2025 plan, which aims to ensure China's dominance in key industries such as shipbuilding and drones by next year. He pointed out that the CCP has set global market share targets in these sectors and has already surpassed many. Krishnamoorthi explained how China subsidizes domestic production and exports surpluses to other countries at prices designed to undercut competition, leading to market monopolization. Using historical examples from the glass and steel industries, he illustrated the devastating impact of CCP practices on U.S. jobs and market share. He warned against allowing history to repeat itself in shipbuilding and drones. Ranking Member Krishnamoorthi called for proactive measures, such as reviving Section 421 trade tools and investments similar to the Chips Act, to counteract CCP's strategies and bolster U.S. industries.
Summary of opening statement by Mr. Adam Bry, Founder, and Chief Executive Officer of Skydio
We are at a critical point for the drone industry and A.I., both vital for national security and competing with China. Autonomous drones are essential for advancing A.I. and aviation. Inspired by my grandfather's WWII service and my time at MIT, I co-founded Skydio, the largest U.S. drone manufacturer. Our AI-equipped drones are used for infrastructure inspection, public safety, and military operations. In Ukraine, drones are crucial for strikes and surveillance, though reliance on Chinese drones is concerning. Our latest drone, the Skydio X10, resists Russian electronic warfare and is in high demand. Supporting U.S. companies is crucial for technological independence and competitiveness. Immediate priorities include scaling up military drone use and providing Ukraine with U.S.-made drones.
Summary of opening statement remarks by Dr. Chris Miller, Prof. at Fletcher School at Tufts University
The United States and its allies are taking steps to maintain technological leadership in advanced semiconductors, focusing on preventing these technologies from reaching adversaries like China. The current emphasis is on foundational semiconductors, essential for various industries, including automotive and military sectors, predominantly produced by the U.S. and allied countries like Japan and Taiwan. However, China's heavy investment in foundational chip production could significantly increase its market share, posing risks such as decreased Western investment due to non-economic Chinese competition and increased reliance on Chinese-made chips. This dependency jeopardizes economic and national security, as evidenced by the pandemic's supply chain issues. Without policy changes, the U.S. risks becoming overly reliant on Chinese semiconductors, endangering economic stability and security.
Summary of opening statement by Mr. Scott N. Paul, President of the Alliance for American Manufacturing (AAM)
The economic policies of the Chinese Communist Party (CCP) pose a significant threat to American workers, innovation, and national security. The "Shockwaves" report highlights how China's industrial overcapacity has already impacted industries like glass, paper, and tires and now threatens shipbuilding, semiconductors, and drones. Unfair trade practices and state support have led to China's dominance in global shipbuilding, with China starting 800 large vessels in 2022 compared to the U.S.'s five. Given the aging U.S. merchant marine fleet's reliance on foreign builders, this jeopardizes U.S. national security and supply chain stability. Urgent policy action, including supporting the USTR Section 301 investigation, is crucial to safeguard U.S. economic and national security interests.
TOPIC #1: SEMICONDUCTORS
The hearing primarily focused on the need to further the U.S. and its allies, prioritizing the maintenance of technological leadership in advanced semiconductors and aiming to prevent these technologies from falling into adversarial hands, especially China. The hearing also delved into how China’s significant investment in foundational chip production could notably increase its market share, posing potential risks such as reduced Western investment and heightened dependence on Chinese-made chips.
· Dr. Chris Miller highlighted the market distortion caused by China's state subsidies, stating, "China's massive state subsidies distort the market and threaten U.S. economic and national security." He stressed the need for policy measures to prevent excessive reliance on Chinese-made chips and emphasized the urgency to address this dependency to safeguard economic and national security.
· Congressman Loudermilk questioned the panel on the strategic importance of Taiwan in the semiconductor industry and the implications of a potential Chinese invasion. He emphasized the need for policies that enhance supply chain resiliency and support regional allies.
TOPIC # 2: SHIPBUILDING:
The hearing emphasized the decline of the U.S. shipbuilding industry, the Chinese subsidies to their domestic shipbuilding industry, unfair trade practices, how China annually builds nearly 800 large ocean-going vessels, compared to just five by the U.S., and the significant national security implications.
· Mr. Scott Paul described how supported by substantial state subsidies, China's shipbuilding capacity threatens U.S. maritime strength and security, stating, "China controls over half the world's shipbuilding. This has significant implications for our national security." He emphasized the importance of revitalizing the U.S. shipbuilding industry through decisive actions such as supporting the USTR Section 301 investigation into China's maritime logistics and shipbuilding sector.
· Congressman Khanna passionately argued for the need to counteract China's industrial policies with measures such as docking fees on Chinese ships. He criticized opposition from the Chamber of Commerce and called for bipartisan support to rebuild U.S. shipbuilding capacity.
· Congressman Barr, in response to Congressman Khanna’s remarks about docking fees, said that it is important to maintain our free market principles while addressing the unique threat posed by China. Congressman Barr maintained that docking fees should be China-specific and not undermine free trade with U.S. allies. He also said that the Chamber of Commerce's concern might be that it will be broadly used and not China-specific.
· Congressman Whitman highlighted the historical leadership of the U.S. in shipbuilding and the current deficit compared to China's massive shipbuilding capacity. Congressman Whitman highlighted the historical leadership of the U.S. in shipbuilding, stating, "We were the world's number one shipbuilder. We don't even produce 1% of the world's large ocean-going vessels now." He stressed the importance of workforce development and regulatory reform to enhance U.S. shipbuilding capabilities.
TOPIC #3: DRONES
The emphasis of the hearing was mostly centered on the dominance of Chinese drone manufacturing with special reference to DJI drones and how affordable they are compared to the ones produced by the drones manufactured here in the U.S. The hearing questioning and answers focussed on the critical role of drones in national security and various industries, including energy and infrastructure inspection.
· Ranking Member Krishnamoorthi showed a drone that he brought to the hearing, made by Skydio, which costs $1000, to highlight the significant difference in cost of a DJI drone, which costs around $300.
· Mr. Adam Bry, CEO of Skydio, emphasized the importance of U.S.-made drones and the strategic risks posed by reliance on Chinese drones, especially in Ukraine. He expressed, "The Ukrainian dependence on Chinese drones is extremely fragile. These are fundamentally a hostile platform." Bry called for U.S. investment in drone technology and scaling military use to reflect modern battlefield realities, particularly by providing drones to Ukraine. Mr. Bry also highlighted the need for improved immigration policy to attract high-skilled talent and airspace regulations to foster innovation in drone technology.
· Congressman Newhouse focused on regulatory challenges, saying, "We have to ensure that our supply chains are secured. We need to reduce these barriers and support domestic production to ensure national security."
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