U.S. GOVERNMENT PUBLISHING OFFICE

35–699 PDF WASHINGTON : 2019

S. HRG. 116–22 

MADE IN CHINA 2025 AND THE FUTURE 

OF AMERICAN INDUSTRY 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

AND ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED SIXTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 27, 2019 

Printed for the Committee on Small Business and Entrepreneurship 

( 

Available via the World Wide Web: http://www.govinfo.gov 

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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED SIXTEENTH CONGRESS 

MARCO RUBIO, Florida, Chairman 

BENJAMIN L. CARDIN, Maryland, Ranking Member 

JAMES E. RISCH, Idaho 

RAND PAUL, Kentucky 

TIM SCOTT, South Carolina 

JONI ERNST, Iowa 

JAMES M. INHOFE, Oklahoma 

TODD YOUNG, Indiana 

JOHN KENNEDY, Louisiana 

MITT ROMNEY, Utah 

JOSH HAWLEY, Missouri 

MARIA CANTWELL, Washington 

JEANNE SHAHEEN, NEW HAMPSHIRE 

EDWARD J. MARKEY, Massachusetts 

CORY A. BOOKER, New Jersey 

CHRISTOPHER A. COONS, Delaware 

MAZIE K. HIRONO, Hawaii 

TAMMY DUCKWORTH, Illinois 

JACKY ROSEN, Nevada 

MICHAEL A. NEEDHAM, Republican Staff Director 

SEAN MOORE, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS

Page 

Rubio, Hon. Marco, Chairman, a U.S. Senator from Florida ............................... 1 

Cardin, Hon. Benjamin L., Ranking Member, a U.S. Senator from Maryland .. 3 

WITNESSES

Setser, Mr. Brad, Senior Fellow, Council on Foreign Relations, New York, 

NY ......................................................................................................................... 5 

Atkinson, Mr. Robert, President, Information Technology and Innovation 

Foundation, Washington, DC .............................................................................. 14 

Rush, Mr. Andrew, President and CEO, Made In Space, Inc., Jacksonville, 

FL .......................................................................................................................... 41

Glaser, Ms. Bonnie S., Director, China Power Project, Center for Strategic 

and International Studies, Washington, DC ...................................................... 51 

ALPHABETICAL LISTING

Atkinson, Mr. Robert 

Testimony .......................................................................................................... 14 

Prepared statement .......................................................................................... 16 

Responses to questions submitted by Chairman Rubio ................................ 86 

Cardin, Hon. Benjamin L. 

Opening statement ........................................................................................... 3 

Glaser, Ms. Bonnie S. 

Testimony .......................................................................................................... 51 

Prepared statement .......................................................................................... 53 

Responses to questions submitted by Chairman Rubio ................................ 92 

Rubio, Hon. Marco 

Opening statement ........................................................................................... 1 

Rush, Mr. Andrew 

Testimony .......................................................................................................... 41 

Prepared statement .......................................................................................... 43 

Responses to questions submitted by Chairman Rubio ................................ 89 

Setser, Mr. Brad 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 7 

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MADE IN CHINA 2025 AND THE FUTURE 

OF AMERICAN INDUSTRY 

WEDNESDAY, FEBRUARY 27, 2019 

UNITED STATES SENATE, COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, Washington, DC. 

The Committee met, pursuant to notice, at 2:28 p.m., in Room 

428A, Russell Senate Office Building, Hon. Marco Rubio, Chairman 

of the Committee, presiding. 

Present: Senators Rubio, Risch, Ernst, Young, Kennedy, Romney, 

Hawley, Cardin, Cantwell, Shaheen, Coons, and Hirono. 

OPENING STATEMENT OF HON. MARCO RUBIO, CHAIRMAN, A 

U.S. SENATOR FROM FLORIDA 

Chairman RUBIO. Today’s hearing on the Senate Committee on 

Small Business and Entrepreneurship will come to order. 

I want to thank all of you for being here and really thank our 

witnesses for being a part of this today. 

The title of the hearing is ‘‘Made in China 2025 and the Future 

of American Industry,’’ and it is really applicable, given both conversations going on about the trade issues, but also the impact that 

it has on small businesses, more importantly, just the huge impact 

that global trade can have on small business and huge disruptions 

in trade and changes in those dynamics it can have on small businesses. 

When the history of this century is written, I believe that one of 

the defining factors, if not the defining factor, will be the relationship between the United States and China on multiple fronts. 

We see a threat to American competitiveness that is unprecedented in recent memory and recent history from an all-of-government approach that we see from China. We have not encountered 

anything like this, as I said, but unlike our previous competitors, 

they have developed tremendous commercial power that they have 

been able to use against American interests across the world. 

While the challenge we face with the Chinese government is ultimately one of national security and more fundamentally about 

whether or not in the future of the world, whether the future of the 

world will be marked by authoritarianism, one of the most immediate concerns that we face, especially as it applies to small business, comes in the form of China’s industrial policy. 

Their government has a plan. It is called ‘‘Made in China 2025.’’ 

It is a plan for industrial dominance in 10 key technological sectors, some of which the U.S. is the current global leader—all of 

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which, and these industries will set the tone for the 21st century 

economy. 

For Chinese companies to meet the production targets that the 

plan sets out, their success will have to be at the expense of the 

United States. 

To some extent, this is already happening. The initial period following China’s accession to the World Trade Organization witnessed a devastation to American small- and medium-sized manufacturers in concentrated areas throughout the country, an effect 

that is now known as the ‘‘China Shock.’’ 

Understanding the goals of Made in China 2025, we must decide 

whether the shock should be allowed to expand up the value chain 

and across industries. I for one believe that this cannot be allowed 

to happen. 

The Committee produced a report. It was recently released, titled 

‘‘Made in China 2025 and the Future of American Industry.’’ It lays 

out the challenges posed by this whole-of-society industrial plan, as 

well as a potential path forward to strengthen American economic 

security. 

One thing is clear. Just as business firms compete, so do nations. 

Through plans like Made in China 2025, the Chinese government 

has set its sights on many of the high-value industries that America simply cannot afford to lose. 

Through this whole-of-society strategy, the Chinese government 

attempts to steal and subsidize and ultimately compete its way to 

the top of the global production value chain. In sum, they aim to 

supplant American industrial leadership by any means necessary, 

including illegal ones. 

Fortunately, our system contains intrinsic advantages that their 

totalitarian system does not. Our market-based economy and free 

society operate with an efficiency and openness that is impossible 

in China’s command and control regime. 

American freedoms and the open exchange of ideas attract talented and idealistic individuals from across the globe who contribute to the continuous building of our Nation’s capabilities. 

American ingenuity and innovation in combination with our political freedoms have created the world’s most successful and most 

forward-thinking companies. 

Small businesses, which support dignified work, strengthen families, and sustain communities, are particularly susceptible to the 

dangers of state-backed import competition. Trade normalization 

with China occurred with the optimistic promise of fair-market access, economic liberalization, and an improvement in Chinese political and human rights. 

However, instead of opening, China took advantage by discounting international trade rules and norms to the detriment of 

American productive capabilities. 

Chinese industrial and trade practices including large-scale subsidies, forced technology transfers, and obstructing market access 

to foreign firms underscore the nation’s disregard for its international trade commitments. 

Beyond merely breaking the rules, the Chinese government is 

seeking to dictate the terms and conditions of the future of global 

trade and to do so for their own benefit. 

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In the absence of a concerted American policy response, Made in 

China 2025 threatens to replicate the effects of China Shock on 

high-value capital goods, such as computers and aerospace products. It is important to note that these threats to American competitiveness are not contingent upon the total success of Made in 

China 2025 or any other industrial plan. Command and control 

central planning is a flawed economic approach with countless pitfalls and downsides. 

However, as many American workers know personally, this does 

not mean that such an approach cannot have devastating impacts 

on U.S. production, jobs, and particularly U.S. small businesses. 

In many important measures, China has already achieved success, capturing leading positions in global economic standings that 

were previously held by the United States. In order to confront this 

challenge, we must choose to prioritize national development, economic dynamism, and small business competitiveness. 

This growth agenda entails a focus on domestic physical investment and labor market stabilization. It also means that we must 

enact in-kind responses to malicious Chinese trade and industrial 

practices. 

As an economic development agency, the Small Business Administration is particularly suited to support innovation-focused production ecosystems. Programs such as the Small Business Investment Company and the Small Business Innovation Research and 

Small Business Technology Transfer, these serve as tools which can 

be used to further promote a nimble, innovative, and high-growth 

industrial strategy. 

I look forward to engaging with the witnesses to explore the findings of our study, our report, and also their views on this and its 

implications for the future of American competitiveness. 

And now I turn it over to the Ranking Member. 

OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, 

RANKING MEMBER, A U.S. SENATOR FROM MARYLAND 

Senator CARDIN. Well, Senator Rubio, thank you very much for 

convening this hearing. I think it is an extremely important subject 

to take a look at the impact that Made in China 2025 will have 

on American small businesses. 

I do point out that this morning, Ambassador Lighthizer, our 

USTR, testifying before the House Ways and Means Committee, indicated that he could not predict the outcome of negotiations between China and the United States. 

Therefore, the points that our Chairman has made that we need 

to be prepared to act is one that I fully support. That we are going 

to need to take action in order to make sure we have a level playing field for American businesses. 

In May 2015, the government of China released a 10-year plan 

known as Made in China 2025 to transform its high-tech manufacturing capabilities and achieve new breakthroughs in 10 key industries, including aerospace, biomedicine, and artificial intelligence. 

China’s stated goal is to be 70 percent self-sufficient in high-tech 

industries by 2025 and a leading manufacturing power by the year 

2049, which is the 100th anniversary of the founding of the People’s Republic of China. 

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China’s aggressive strategy to dominate these emerging hightech manufacturing sectors raise serious concerns, not just in the 

area of national security, but also to U.S. businesses, both large 

and small. 

I am particularly concerned about the impact on small businesses. Small businesses, as we know, is the growth engine for jobs 

in America and innovation and are very much in the supply chain 

of many of these industries, and if there is unfair competition, 

small companies do not have the deep pockets. And we could lose 

that edge here in America of job growth and innovation. 

As our Chairman wrote in his recent report on the subject—and 

I really do applaud our staff and our leadership for the report, 

Made in China 2025, our Chairman said, ‘‘If Made in China 2025 

is successful, what the China Shock did to domestic U.S. productions of electronics, furniture, plastic, metals, and vehicle parts 

could threaten to be repeated itself in capital goods like machinery, 

automobiles, high-end computers, rail, and aerospace products.’’ 

The United States and American workers are willing to compete 

in the global marketplace, but that competition must be on a level 

playing field, where all nations are willing to follow agreed-upon 

international rules and standards. 

I am concerned that to achieve its goal, China will rely not on 

innovation and ingenuity, but instead on its ongoing practice of 

stealing U.S. technologies and other unfair trading practices. 

The administration’s investigation into Chinese trade practices 

found four major methods by which China attempts to coerce or 

steal U.S. intellectual property. First, China uses investment restrictions and licensing procedures to require or pressure technology transfer. Second, China imposes restrictions and intervenes 

in U.S. firms’ investments and activities, often leading to technology licensing terms that unfairly favor Chinese firms. Third, 

China directs and facilitates the acquisition of U.S. companies and 

assets to obtain cutting-edge American technology; and fourth, 

China orchestrates state-sponsored cyber theft to gain access to 

critical U.S. intelligence property. 

I recently joined six Senators in a letter to President Trump asking him to extract meaningful commitments from China on each of 

these elements and to end the threats that these policies pose to 

the U.S. economy and national security. And while I hope the 

President is successful, I am disappointed by his go-it-alone negotiating style in the state for our closest allies. 

As Bonnie Glaser, one of our witnesses today, wrote in the New 

York Times, ‘‘Alliances should be at the core of the U.S. strategy 

to effectively compete with rising China.’’ Until Washington heeds 

this advice, Beijing will continue to exploit the opportunities that 

are falling into its lap. 

I welcome all of our witnesses today, and I look forward to our 

discussion on this extremely important subject. 

Chairman RUBIO. Thank you to the Ranking Member. 

And now I would like to welcome our panel of witnesses. Brad 

Setser is a Senior Fellow for International Economics at the Council on Foreign Relations. He previously served in the U.S. Department of Treasury as Deputy Assistant Secretary for International 

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national Economics, serving jointly on both the National Economic 

Council and the National Security Council. 

Robert Atkinson is the president of the Information Technology 

and Innovation Foundation, a public policy organization that promotes policies based on innovation economics. He served in three 

previous administrations and as project director at the former Congressional Office of Technology and Assessment. 

Andrew Rush of Jacksonville, Florida, is the president and CEO 

of Made in Space, Inc., a company which specializes in producing 

additive manufacturing capabilities for use in outer space and 

other extreme environments. 

Bonnie Glaser is a Senior Advisor for Asia and the director of the 

China Power Project at the Center for Strategic and International 

Studies. Prior to her time at the Center, she consulted for a number of U.S. Government agencies, including the State Department 

and the Department of Defense. 

Thank you all for coming today. We will begin with you, Mr. 

Setser. 

STATEMENT OF BRAD SETSER, SENIOR FELLOW, COUNCIL ON 

FOREIGN RELATIONS 

Mr. SETSER. I want to thank the members of the Committee for 

the invitation to testify here today. 

I also want to commend the Committee and its staff for their recent report on China’s industrial policies. 

I share the report’s conclusion that a vibrant advanced manufacturing sector is critical to a strong American economy, and that 

Made in China 2025 poses a challenge to many American businesses, to U.S. trade policy, and the rules now governing the global 

trading system. 

The policies outlined in China 2025 are troubling not because 

China is looking to strengthen its own development. Rather, they 

are troubling because they appear to mobilize the substantial financial capacity of China’s state to back a strategy of substituting 

domestic products for imported goods and technology. 

China’s government often effectively can guarantee a captive 

market for Chinese producers, while informally constraining, if not 

walling off, foreign firms from full access to China’s market. 

They are troubling because China’s government appears to have 

sought to accelerate China’s technological development by subsidizing the purchase of leading-edge global firms with state funds, 

and in some cases, supporting efforts to steal technology from foreign firms. 

It is not yet clear how much progress was made on these issues 

in the current round of trade negotiations. I suspect that it will be 

difficult to negotiate an agreement that completely addresses the 

concerns that China’s party state is uniquely able to rig China’s domestic market. 

I would also note that as China increasingly aims to supply the 

capital goods, central to the technological backbone of a modern 

economy, security considerations are bound to have a bigger impact 

on our economic relationship. 

I want to focus the remainder of my testimony on two points; 

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anced commercial relationship and then turn to the specific challenges posed by China’s import-substituting industrial policies. 

First, currency. Before the global crisis, there was a credible argument that ending China’s currency manipulation on its own 

would do much to bring better balance to our trading relationship. 

Today, currency intervention is not the primary way Chinese policy 

distorts global competition. 

In fact, after the dollar appreciated in 2014, China has more 

often intervened to keep the yuan from depreciating and to block 

its appreciation, but it is worth remembering that the value of China’s currency remains central to the character of our commercial 

relationship. 

The U.S. has benefited from China’s domestic stimulus, which 

helped China pivot away from excessive reliance on exports, but 

there is now concern that the reduction in China’s external surplus 

after the global crisis was based on an unsustainable expansion of 

credit. Putting the reduction in China’s overall surplus on a sustainable footing needs to be a major U.S. policy priority. 

China still saves too much and consumes too little. It often taxes 

low-wage work too heavily, while leaving capital income largely 

untaxed. To echo the words of the Senate Committee report, China 

also needs a policy agenda that does more to meet the needs of 

working families. 

I will not review in detail the various ways China rigs its domestic market to support its manufacturing development. I do want to 

note that I support the call for stronger screening of inward Chinese investment and would even support limits on Chinese investment in certain sectors as a means of putting additional pressure 

on China. 

I also support proactively preparing dumping and countervailing 

duty cases against those sectors targeted in China 2025 and preparing to file more legally difficult adverse effect WTO cases. 

I also believe that the United States should be ready to match 

China’s export financing to balance the competitive landscape in 

third-party markets. 

Chairman RUBIO. I apologize for interrupting. If you could move 

the mic. I have been told people on C–SPAN are watching, but they 

do not know what you are saying, and the closed caption guy is 

going nuts. 

Mr. SETSER. There we go. I apologize. 

Chairman RUBIO. Can you start from the beginning? I am kidding. 

[Laughter.] 

Mr. SETSER. I think my time has expired, unfortunately. So my 

testimony, therefore, will remain in the dark. 

[The prepared statement of Mr. Setser follows:] 

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Testimony of Brad W. Setser 

Steven A. Tananbaum Senior Fellow for International Economics, Council on Foreign Relations 

Before the Senate Committee on Small Business & Entrepreneurship 

Hearing on Made in China 2025 and the Future of American Industry 

February 27, 2019 

I want to thank Chairman Rubio and Ranking Member Cardin for the invitation to testify today. 

I also want to commend the Committee and its staff for their recent report on the challenges to 

American businesses and workers posed by China's industrial policies, including Made in China 2025. 

I share the report's conclusion that a vibrant advanced manufacturing sector is a critical part of a strong 

American economy, and that the policies that China is pursuing to support the development of the 

sectors identified as priorities in Made in China 2025 are troubling. They pose a challenge to many 

American businesses, to U.S. trade policy, and to the rules now governing the global trading system. As 

the Chamber of Commerce has noted, "[Made in China 2025] is a ten-year comprehensive blueprint 

aimed at transforming China into an advanced manufacturing leader ... in concert with the 13'h Five-Year 

Plan ... and other state-led development plants, [Made in China 2025] constitutes a broader strategy to 

use state resources to alter and create comparative advantage in these sectors." 1 

As China develops, the sources of China's comparative advantage will naturally evolve. It is unrealistic to 

expect that China-or any other country-would aspire only to conduct assembly work for companies 

based in other countries. The policies outlined in China 2025 are troubling not because China is looking 

to support its own development and strengthen its technological base, but because they appear to 

mobilize the substantial financial capacities of China's state to back the development of sectors where 

China is now a substantial importer of the rest of the world's goods. These policies are particularly 

troubling because China's state has a unique capacity to tilt its domestic market toward preferred firms. 

Through its influence over the purchases of large state-enterprises, China's government can effectively 

guarantee a large captive domestic market for Chinese producers while informally constraining, if not 

walling off, foreign firms from full access to China's market. And they are troubling because China's 

government appears to have sought to accelerate China's technological development by subsidizing the 

purchase of leading-edge global firms with state funds, and in some cases, supporting efforts to steal 

technology from foreign firms. 2 

The manufacturing sectors identified for preferential development in China 2025 account for roughly 

$50 billion of U.S. exports to China-or about a third of all goods exports to China and Hong Kong and 

about a quarter of total exports of goods and services to China and Hong Kong. Aircraft, integrated 

circuits, agricultural and construction equipment, and high-end medical equipment are all significant 

1 "Made in China 2025: Global Ambitions Built on Local Protections," U.S. Chamber of Commerce, 2017, 

Chuin~Wel Yap, "Taiwan's Technology Secrets Come Under Assault From China," Wall Street Journal, July 1, 2018, 

https://www.wsi.corn/articles/taiwans~technologY--secrets-cqme-under~assault-from-china-1530468440 and Paul Mazur, 

"Inside a Heist of American Chip Designs, as China Bids for Tech Power," New York Times, June 22, 2018, 

https:l/www.nytimes.com/2018/06/22/lechnology/china-micron-chips-theft.html. 
8 

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components of America's industrial base. As the committee report notes, U.S. exports in these 

industries are supported by deep domestic supply chains that sustain many small businesses and U.S. 

jobs. 

It is certainly worthwhile to seek to address some of the concerns raised by Chinese industrial policies 

through the current round of trade negotiations. 

But it is still unclear how much progress will be made in the negotiations, as some of the most important 

distortions are deeply rooted in the nature of China's economic and political system. It will be difficult, in 

my judgement, to negotiate an agreement that completely addresses the concern that China's state is 

uniquely able to "rig" China's domestic markets in ways that discriminate against foreign firms so long as 

China's party-state directly controls much of the commanding heights of China's domestic economy, and 

so long as there is a sense that China's largest private firms can only remain successful and private with 

the support of the party and China's government.' 

As Daniel Rosen of Rhodium Group and Scott Kennedy of CSIS have argued, the United States' 

"commercial relationship with China must be bounded both by fairness and the expanding needs of 

national security." 4 

I want to focus on two points in particular: 1) the importance of macroeconomic balance and a fairly 

valued Chinese currency to a balanced overall commercial relationship and 2) the specific challenges 

posed by China's import-substituting industrial policies. 

But it bears repeating that trade with China-measured in the most expansive way-is around 4 percent 

of U.S. GDP. The overall impact of China on the U.S. economy increases somewhat after taking into 

account competition between the United States and China in other markets. There should be little 

doubt that the economic future of the United States will be determined far more by the policy choices 

we make here in the United States than by our ability to influence the economic and commercial policies 

adopted in Beijing. 5 

Currency and Macroeconomic Balance 

The initial China shock-the loss of jobs in many manufacturing communities associated with the rise in 

imports from China that followed China's WTO accession-was not the product of the Chinese industrial 

policies that are the focus of today's hearing. 

It stemmed from the end of the uncertainty about U.S. tariffs created by the annual vote on extending 

China's access to the U.S. market on standard terms, liberalizing reforms undertaken by China that 

3 Mark Wu, "The 'China, Inc.' Challenge to Global Trade Governance," Harvard international Law Journal 57, no. 2 {Spring 2016), 

!1ttp://www.harvardilj.org/wp-content/up!oads/HLI210 croo.pdf. 4 Daniel Rosen and Scott Kennedy, "Building a Better Deal with China," Center for Strategic and international Studies, January 

28, 2019, https://www.csis.org/analysis/buildlng-better-deal-chlna. 

5 Total goods and services exports to China and Hong Kong totaled L2 percent of U.S. GDP in 2017; total imports of goods and 

services totaled 2.8 percent of U.S. GOP. 2018 should be broadly similar, though exports are likely to slip as a result of China's 

soybean tariffs and other retaliatory measures. As a share of GOP, u.s. trade with China has been nearly constant over the last 

five or six years. 
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increased its competitiveness, and the distortions created by China's peg to the dollar and its heavy 

intervention in the foreign exchange market to limit the appreciation of China's currency. 6 

At its peak, China was running a current account surplus of 10 percent of its GOP-and adding over 12 

percent of its GOP to its reserves. China's actual intervention was even larger, as China's state banks 

were also adding to their foreign assets at the time. 7 Such intervention kept the yuan undervalued by as 

much as 30 percent, and likely added well overall $100 billion dollars to China's overall trade surplus. It 

was a mistake not to make use of the special safeguards negotiated as part of China's WTO accessionthe special421 safeguard8 -to mitigate the impact of China's undervalued currency on the U.S. 

manufacturing sector and the small businesses that the U.S. manufacturing sector supported. Claims 

that there were no import surges that met the criteria for the 421 safeguard protection are not credible; 

overall imports from China were at the time growing by around 20 percent a year, and careful analysis 

indicates-contrary to the assertion of some-that these imports did not primarily displace imports 

from other Asian economies. 

Before the global crisis, there was a credible argument that ending China's currency manipulation on its 

own would do much to bring better balance into the trading relationship with China. Today, currency 

intervention is not the primary way Chinese policy distorts global competition-in fact, after the dollar 

appreciated significantly in 2014, China has more often intervened to keep the yuan from depreciating 

than to block its appreciation. 

The challenges posed by China are consequently in some ways more complicated now, as they stem less 

from policies that have promoted China's exports and more from policies that have distorted 

competition inside China. But it is worth remembering that the value of China's currency remains central 

to the character of the commercial relationship between the United States and China-and has a bigger 

impact on the conditions facing most American small businesses than most Chinese industrial policies. A 

stronger yuan encourages firms to produce more in the United States, and to source less from China. A 

weaker yuan by contrast helps lower the costs of those businesses that have built their operations 

around low-cost Chinese supplies. 

The United States has on net benefitted from the adjustments that China undertook after the global 

financial crisis that reduced its overall current account surplus and reduced its reliance on exports. U.S. 

imports from China grew at about one quarter of their pre-crisis pace from 2011 to 2016. But there are 

real concerns that some of the policies China used to pivot toward domestic demand are themselves 

unsustainable, as they hinge on heavy investment by now heavily indebted local governments and rapid 

growth in credit to state firms. Putting the reduction in China's overall external surplus on a more 

sustainable footing by encouraging policies that reduce China's excessive national savings rate should be 

a U.S. policy priority. Without such changes, I worry that China will eventually find the temptation to 

allow its currency to weaken to support a pivot back to an export-based growth model irresistible. 

6 C. Fred Bergsten and Joseph E. Gagnon, "Currency Confllct and Trade Policy: A New Strategy for the United States," Peterson 

Institute for International Economics, June 6, 2017, h!illiJJQ~COIY!/~~~-flllf~.l-QJIJ~ncy conflict 002.pdf. 7 Brad W. Setser "China's WTO Entry, 15 Years On," January 18,2017, Follow the Money, l:Jllils:l/www.cfr.org(blog[dlinas-)Vtoentry-15-years. 

8 Robert E. lighthizer, "Evaluating China's Role in the World Trade Organization Over the Past Decade/' 

Testimony Before the US-China Economic and Security Review Commission, June 9, 2010, 

https://www.uscc.gov/sites/default/fi!es/6.9.10Ughthizer.pdf. 
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Because reducing China's high savings rate is now essential to preserving China's domestic 

macroeconomic equilibrium, expanding China's system of social insurance may be almost as critical to 

the long-term health of the Chinese-American commercial relationship as are changes in China's 

industrial policies. 9 China, with a low level of household consumption relative to the size of its economy 

and relatively high taxes on formal work, also needs a policy agenda that does more "to meet the needs 

of working families." 

The Challenge Posed by Made in China 2025 

China has recognized that the Made in China 2025 industrial plan has created frictions in its relations 

with a number of countries, not just the United States, and is reportedly in the process of rebranding its 

industrial policies. But the basic policy thrust behind China 2025 hasn't changed-China still aims to 

build up its domestic industries in a set of strategic sectors through a combination of state subsidies and 

domestic preference for "indigenous" production and firms and in some cases selective application of 

competition law and using the standard setting process to favor national firms. 

The sectors identified in Made in China 2025 are at the heart of the United States' advanced 

manufacturing economy. The civil aircraft industry is, by far, America's leading export sector. It alone 

easily accounts for over 10 percent of all the goods the U.S. exports to China. The U.S. share of 

semiconductor manufacturing-actual fabrication-is more modest than it once was. 10 Yet exports of 

semiconductors "fabbed" in the United States are still an important U.S. export to China and Hong Kong, 

generating around $10 billion of U.S. exports, and circuit designs from U.S. firms account for about half 

of the global market. The U.S. position in the manufacture of telecommunications networking 

equipment also has slipped over time, but the United States continues to be a leader in many of the 

technologies that are central to the creation of a modern telecommunications network. Medical and 

agricultural equipment have long been an important part of the U.S. manufacturing base. Robotics and 

artificial intelligence are likely to be central to industries of the future. 

China's plan to reserve a portion of China's domestic market for its own production in these sectors thus 

represents a clear threat to a substantial portion of current and future U.S. exports to China. It is hard to 

see how overall trade with China can move closer to balance if China no longer wants to import U.S. 

aircraft and U.S. designed chips. China buys an awful lot of soybeans, but even if it replaced all of its 

current imports from Brazil with U.S. production, overall U.S. exports to China would increase by only 

$20 billion. U.S. imports from China are now around $600 billion. 

It is worth noting that the challenge China poses to American manufacturing has evolved over time. 

China today is increasingly designing and producing the capital goods central to the infrastructure of a 

technologically advanced economy, not simply assembling consumer goods for American and other 

multinational firms. China can now produce and export the equipment to generate and distribute 

electricity, whether from renewable or non-renewable sources; the handsets needed to connect to a 

phone network; the base stations and switching equipment needed to run an efficient 

telecommunications network; and the heavy machinery needed to build ports, roads, and other physical 

9 Longmei Zhang, Ray Brooks, Ding Ding, Halyan Ding, Hul He, Jing Lu, and Rui Mano, "China's High Savings: Drivers, Prospects, 

and Policies," fnternationaf Monetary Fund, December 11, 2018, 

httos:ijwww.imf.ore/en/Publications/WP/Issues/2018/12/ll[Chinas-High-S~-Drivers-Prospects-and-Policies-46437. 

10 Michaela D. Platzer and John F. Sargent Jr., "U.S. Semiconductor Manufacturing: Industry Trends, Global Competition, Federal 

Polley," Congressional Research Service, June 27, 2016, https://fas.org/sgp/crs/misc/R44544.pdf. 
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infrastructure. While in some cases China's exports of advanced capital goods still depend on access to 

imported foreign technology, China's growing exports in sectors central to the basic infrastructure of a 

modern economy necessarily mean that considerations related to security will play a larger role in our 

trading relationship over time. 

In some specific instances, the policies that China has adopted are direct violations of the WTO's rulesand in other cases, notably in informal expectations for technology transfer to a joint venture partner in 

order for a firm to access China's domestic markets, China's practices clearly violate the spirit of its WTO 

commitments.'' 

But it is also important to note that in some cases Chinese policies aren't direct violations of the current 

trade rules-in part because the rules weren't really designed with expectation that the state would 

continue to occupy the commanding heights of one of the world's two largest economies. 12 

Subsidies to domestic industries, for example, are not a violation of China's WTO commitments. Foreign 

partners have the right to take action to offset the impact of specific subsidies that can be demonstrated 

to have a caused a material injury to their business, but not to stop the subsidies. But in China's case, 

proving the existence of a sector-specific subsidy that is actionable under U.S. trade law can be 

challenging. Any firm that can access the state banking system rather than having to rely on the informal 

financial system effectively gets a subsidy, particularly as China has been willing to absorb the losses 

that state banks incur on lending to priority sectors. In many cases, the support has been provided by 

government backed investment funds and development banks that notionally are state enterprises, 

rather than through the government budget-complicating the legal case for trade action. 13 

The need to wait for evidence of material injury effectively means that trade action is often only legally 

permitted after Chinese subsidies have already altered the competitive landscape of the industry. No 

other country can provide over $50 billion to national funds that support the development of the 

semiconductor sector-and also provide an additional $100 billion in support from multiple provincial 

funds. 14 China's state enterprises, backed by these funds, are making large investments in 

semiconductor manufacturing capacity that could drive down prices-and then the state funds could 

help China's new national champions acquire their foreign competitors and their technology. 

China's large subsidies for strategic sectors gain additional potency because of how they interact with 

China's capacity to put pressure on its leading firms to substitute domestic production for imports. For 

example, China is clearly seeking to leverage Huawei's leading position in the telecommunications 

industry to strengthen its domestic semiconductor manufacturing industry. Germany's Mercator 

Institute noted "Chinese high-tech industries, in particular the national champions, are expected to 

11 "Findings of the Investigation into China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, 

and Innovation Under Section 301 of the Trade Act of 1974," Office of the United States Trade Representative, March 22, 2018, 

https://ustr.gov/sites/default/files/Section%20301%2DFINAL.PDF .. 

12 Wu, "The 'China, Inc.' Challenge to Global Trade Governance". 

tl Jennifer Hillman, "The Best Way to Address China's Unfair Policies and Practices is Through a Big, Bold, Multilateral Case at 

the WTO," Testimony Before the U.S.-China Economic and Security Review Commission, June 8, 2018, 

https;//www.uscc.gov/sltes/default/fi!es/Hi!!man%20Testimony%20US%20Chlna%20Comm%20w%20Apoendix%20A.pdf. 

14 Bob Davis and Eva Dou, "China's Next Target: U.S. Microchip Hegemony," Wall StreetJournaf, July 27, 2017, 

https://www.wsl.com/articies/ch!nas-next-target-u-s-microchip-hegemony-1501168303. 
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acquire the capabilities to create independent innovative technological solutions and replace their 

foreign competitors on the domestic market and increasingly also on global markets." 15 

The civil aviation industry provides the best example of how China potentially can leverage the states' 

broad role in the economy to discriminate against imports. China now account for about 20 percent of 

total global aircraft demand. All of the major Chinese airlines are effectively state controlled, and can tilt 

their future purchases toward China's own nascent civil aviation industry {Hainan airlines is privatelyowned, but its leveraged parent-HNA-now relies on state backing.) 16 China is not a signatory to the 

WTO's government procurement agreement, and such purchases would not be covered by the 

procurement agreement in any case (most purchases by state firms are considered commercial not 

governmental purchases). 

The market structure in sectors like railway equipment and telecommunications networking equipment 

is similar to that of the aircraft industry: China's central government owns the companies that account 

for the bulk of Chinese demand. In other sectors, such as medical equipment, selling into the Chinese 

market requires navigating multiple procurement lists, including provincial procurement lists for devices 

eligible for reimbursement by public insurance. China's government has indicated that it wants to raise 

China's share of the domestic hospital market to 50 percent by 2020, and 70 percent by 2025. 17 

As Mark Wu of Harvard Law School has argued, China-and the Chinese Communist Party-possesses a 

set of policy levers that impede the ability of U.S. and other firms to successfully export to China yet are 

hard to counter through standard trade tools. Chinese imports of manufactures have consistently grown 

more slowly than China's own economy; they are now a smaller share of China's economy than they 

were prior to China's WTO accession. 18 Few U.S. firms outside of the commodity sectors believe that 

they can successfully produce in the United States and sell large quantities to China; Boeing is more the 

exception than the rule. 

I should note that it is particularly important for small business that the United States prioritize opening 

Chinese markets to U.S. exports, not just making China safe for investment by U.S.-based multinational 

companies. Small businesses are more likely to be able to export to China than to be able to navigate 

the hurdles associated with establishing a Chinese subsidiary and producing inside China. Concerns 

about the impact of "buy China" policies on U.S. exports would not go away even if China ended all of 

the informal technology transfer requirements imposed on U.S. firms seeking to invest in China. China 

could still give preference to foreign firms that have set up inside China over foreign firms looking to 

export into China. 

U.S. Policy Response 

15 Jost WDbbeke, Mlrjam Meissner, Max J. Zenglein, Jaqueline lves, and BjOrn Conrad, "Made in China 2025 

The making of a high-tech superpower and consequences for industria! countries," Mercator Institute for China Studies, August 

2016, https://www.merics.org/en/p~:on-chiDa/made-china-2025. 

16 Lucy Hornby and Sherry Fei Ju, "Beijing leans on lenders to back debt-hit HNA's bond sale," Financial Times, June 15, 2018, 

httos:ljwww .ft.com/content/613379f6-70af-11e8-92d3-6c13e5c92914. 17 Tom Hancock, "Multinationals Jose ground in China's medical devices/' Financial Times, May 27, 2018, 

https:l/www.ft.com/content/ea032bba-5f33-11e8-9334-2218e7146b04. 

18 Brad W. Setser, "China Should Import More," Follow the Money, November 7, 2018, https://www,cfr.org/b!og/china-shouidlmport-more. 
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The committee's report identified a number of potential policy responses to the Chinese industrial 

policies embedded in Made in China 2025 and its likely successors. 

I support stronger screening of inward Chinese investment-and even outright limits on Chinese 

investment in certain sectors as a means of putting pressure on China to drop its most egregious 

industrial policies. Such restrictions on investment are generally compatible with the United States' WTO 

commitments. I also believe that the United States should be proactively preparing CVD and antidumping cases against imports in those sectors that China has targeted in China 2025, and should be 

ready to self-initiate such cases-and also to file more legally challenging "adverse" effects WTO cases 

to counter the loss U.S. firms could face on their sales in China and third-party markets. The United 

States should also be ready to match Chinese export financing to balance the competitive landscape in 

third party markets and to encourage China to sign up to international disciplines on its own export 

financing. 

I am more leery of prohibitions on U.S. exports of critical components as a means of trying to impede 

Chinese industrial development. Such restrictions have a role in protecting U.S. national security and as 

a punishment for violations of sanctions and the outright theft of U.S. intellectual property. But if 

applied broadly as part of a "counter-industrial policy" strategy, they would likely reinforce China's 

efforts to build up its own domestic capacity across a broad range of sectors. 

Many traditional U.S. allies share the United States' concerns with the trade-distorting impact of China's 

import and technology-substituting policies, so there also may be scope for joint action. Several U.S. 

allies, for example, are currently considering tightening their own restrictions on Chinese investment. 

Conclusion 

The United States ultimately cannot determine how China manages its own domestic economy. The 

policy variables under our control are our openness to investment from China-and our willingness to 

continue to trade with China on standard WTO terms while China acts to limit its imports from us. 

China equally cannot set the conditions for competition and innovation here in the United States. The 

United States should not ignore Chinese policies that are adverse to U.S. economic interests, but our top 

priority should always be to reinforce the United States' own sources of competitive advantage. China 

doesn't determine how much we invest in our own infrastructure, how much support we provide for 

research and development, how much we invest in our own workforce, how we use the tax system to 

incentivize and reward low-wage work, or how we tax the international activities of U.S. multinational 

companies. While it is no doubt controversial, I attach particular importance to ending the provisions of 

the new tax code that appear to continue to reward the offshoring of intellectual property and certain 

factories and jobs. Rather than courting Chinese state investment, the United States should be 

encouraging American firms to invest more here at home. Provisions that artificially lower the tax of 

large multinational companies only shift the tax burden onto American small business. The committee 

report helpfully noted a set of policy areas where agreement might be possible even with different 

parties in control of the House and Senate. Policy decisions made in these areas, far more than any 

policy decision made in China, will determine our economic future. 
14 

Chairman RUBIO. What a great witness. Thank you, sir. I appreciate it. 

Mr. Atkinson. 

STATEMENT OF ROBERT ATKINSON, PRESIDENT, 

INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION 

Mr. ATKINSON. Thank you, Chairman Rubio and Ranking Member Cardin and members of the Committee. Press the button; turn 

the mic. It is a pleasure to be here with you. 

I am not going to focus specifically on all the egregious things 

China is doing. We have written about that. We have heard about 

that today. I will say that ITIF as a think tank has been focusing 

on this for almost a decade. We wrote a report in 2012 with the 

provocative title ‘‘Enough is Enough: Confronting Chinese Innovation Mercantilism,’’ and since then, things have not gotten any better. 

I want to really discuss four major points that the Committee’s 

report alluded to that I think are critical. 

I think the development of widespread clarity and agreement on 

these points is one of the most important things we can do in 

Washington in this space. If we can agree on these major principles, getting the right action to follow is a lot easier. 

First, the report highlights the need for a wake-up call when it 

comes to understanding the nature of the threat from China. There 

are still too many people in Washington who have the view that 

China cannot innovate; they can only copy. And I think that is 

false. We are already seeing that where they have gained considerable advantage in industries like jet aircraft, high-speed rails, solar 

panels, personal computers, super computers, telecommunications 

equipment, and internet services. We have to remember that people said the exact same thing about Japan in the 1960s, Korea and 

Taiwan in the 1970s. All three of those nations are clearly global 

technology leaders. There is no reason China cannot become a global technology leader. 

Second, the report rightly notes that globalization, while the narrative that is dominant is that globalization can be harmful to 

some workers, that it is beneficial for us overall. And to be sure, 

two-sided free trade like trade with China, with Canada and Mexico, is welfare maximizing for the U.S., but I would argue that 

trade with nations like China that is premised on systemic innovation mercantilism reduces overall U.S. economic welfare, not just 

hurts a few individual workers or communities. 

Third, the report rightly notes that it is a mistake to posit only 

two choices—laissez faire, free-market capitalism on one side and 

heavy-handed industrial policy on the other side. This was always 

a false choice, and as every governor in America knows, regardless 

of party, every single governor has an economic development strategy. Florida has one. Maryland has one. And it does not matter the 

party. They know that if they are not putting in place good economic development policies for their State, their State will be left 

behind in global competition. We have to think the same way in 

Washington as governors do around the country. 

Finally, the report rightly notes that the choice should not be between rolling back Chinese innovation mercantilism and getting 

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15 

better policies at home. We saw that recently in a Washington Post 

op-ed by Lawrence Summers who said—I am paraphrasing essentially—we should not worry about China; we should only do the 

things we have to do at home. And he got that half right. There 

are other people who say, well, we should only worry about China 

and not do things at home. We have to do both. If we do not have 

a good and aggressive policy to force China to comply by the rules, 

which, by the way, I would agree has to be alliance-based, we are 

not going to have the kind of success Chairman Rubio was alluding 

to. And if we do not have better domestic policies around innovation competitiveness, we will not. 

Let me just take the last minute here to say a few things. I alluded to a number of what I thought could be promising policy 

changes, but let me mention a couple that relate to small business. 

Right now, the SBA has, as you all know, a 7(a) loan program. 

Most of those loans go to companies that are in sectors that are not 

traded. They are going to be here, no matter what. SBA funds liquor stores. If they do not give loans to liquor stores, we are still 

going to have liquor stores in America. Only 7.5 percent of SBA 

loans go to manufacturers, and I think it is an important area to 

work with SBA to help them figure out how can they make sure 

that more of their loans and more of their assistance are going to 

the kinds of companies that are facing tough global competition. 

Secondly, and I know this is not the Finance Committee, but 

there are a number of provisions in the Tax Code that are problematic for small technology startups. One is a current law regarding 

how passive investors can take advantage of the research and development tax credit, something I know Senator Coons is focused 

on. Under that law, it makes it harder for when a company is sold 

for those R&D credits to go with the investor, making it less valuable as a company. 

Finally, Congress should, in our view, allocate, allow a small 

share of SBIR and STTR grants award to be used for commercialization activities. Again, Senator Coons, you had a bill on that, 

and we fully support that. SBIR and STTR are great programs, but 

unless you commercialize the technology, it is not as effective as it 

could be. 

Finally, last idea, 10 countries now around the world, including 

many of our allies, have programs to provide very small vouchers, 

about $25,000, to give to small innovation-based companies to go 

to a National Lab or a Federal lab or research universities and 

spend it on getting technical assistance or cooperative R&D. We 

have advocated for a small sort of test pilot program to be run by 

perhaps NIST, the National Institute of Standards and Technology, 

and basically allow companies to give them more access to our Federal labs and our universities. 

With that, I will stop and apologize for going over my time. 

[The prepared statement of Mr. Atkinson follows:] 

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IT IF INFORMATION TECHNOlOGY 

& INNOVATION FOUNDATION 

Testimony of 

Robert D. Atkinson 

President 

Information Technology and Innovation Foundation 

Before the 

Senate Small Business Committee 

Hearing on 

"Made in China 2025 and the Future of American Industry" 

February 27, 2019 

Washington, DC 

Good afternoon Chairman Rubio, Ranking Member Cardin and members of the Committee; 

thank you for inviting me to share the views of the Information Technology and Innovation 

Foundation (ITIF) on the issue of unfair Chinese trade and technology policies and practices and 

what the federal government should do in response. 

INFORMATION TECHNOLOGY AND INNOVAI"ION FOUNDMION 1 1101 K SrREET NW SUITE 610 "'"'~"''"'"' 

MAIL@ITIF. ORG (202) ~49·1351 
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The Information Technology and Innovation Foundation is a non-partisan think tank whose 

mission is to formulate and promote public policies to advance technological innovation and 

productivity internationally, in Washington, and in the states. Recognizing the vital role of 

technology in ensuring prosperity, ITIF focuses on innovation, productivity, and digital economy 

issues. ITF has long focused on the issue of not only how unfair foreign policies and practices, 

particularly Chinese, negatively impact the U.S. economy, but why and how the federal 

government should establish a robust national competitiveness and innovation policy. I very 

much appreciate the opportunity to comment on these issues today. 

In my testimony I first discuss the importance for a new framework for how to think about the 

economic challenge from China and the key points in this regard raised in the recent report from 

Chairman Rubio- "Made in China 2025 and the Future of American Industry". Second, I discuss 

the nature of China economic challenge from "Made in China, 2025." Finally, discuss components 

for more robust trade, innovation and competitiveness strategies, including components to help 

small businesses. 

The Importance of a New Doctrine for Responding to the Economic Challenge From 

China 

Before discussing some of the major issues vis-a-vis China's "Made in China, 2025" program, I 

would like to first comment on a number of major points made in Chairman Rubio's report. The 

report makes a number of critical points that are all too often ignored or misunderstand. The 

development of widespread clarity and agreement on these points is the single most important 

task facing the Washington economic and trade policy making community today. 

First, the report highlights the need for a wake-up call when it comes to understanding the nature 

and extent of the economic threat from China. Until recently, the Washington trade and 

economic policy establishment largely turned a blind eye to the China challenge, perversely 

arguing either that China's unfair trade and economic practices helped the U.S. economy by 

keeping prices low or that the effects were inconsequential.' Even after China has gained global 

market share in a number of extremely complex, advanced technology industries like jet aircraft, 

high-speed rail, solar panels, personal computers, supercomputers, telecommunications 

equipment, and internet services, many still dismiss China's capabilities and assume China will be 

incapable of even partial success meeting their aggressive MIC25 goals. While mastery of some 

particularly complex technologies like semiconductor logic circuits remains a challenge for China, 

Chinese companies have made significant progress in an array of other technologies, including in 

some kinds of semiconductors (e.g., chips for internet-of-things devices). Moreover, the fact that 

nations like Japan in the 196os and 70s and Taiwan and South Korea in the 198os and 90s could 

rapidly progress to become advanced technology economies suggests that there is nothing 

inherently keeping a nation like China from making similar progress, especially given the massive 

amount of government support for the effort.' 

Second, the report rightly notes that globalization can be harmful not just to some U.S. workers, 

but to the U.S. economy overall ifit is based on unfair, predatory trade practices. Yet, the 

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Washington trade and economics community persists in advancing a narrative that while trade 

may hurt some workers, regions, firms or industries, overall it is a net positive for the U.S. 

economy as a whole. Many even argue that one-sided free trade, where America obeys the rules 

and our competitors do not, is still welfare maximizing. This is wrong. To be sure, two-sided free 

trade- like trade between Mexico, Canada and the United States- is welfare maximizing for the 

United States, but trade with nations like China, whose entire trading system is based on 

"innovation mercantilism," reduces U.S. economic welfare. Foreign mercantilist trade practices, 

especially those designed to challenge America's core competitive advantage in higher-wage, 

innovation based industries harm not just a few "losers" from trade, but the entire U.S. economy. 

Thus, as the Rubio report rightly calls for, it is time to move "beyond the false choices poised 

about economic growth and trade." For too long, the Washington trade community established 

set up a Manichean choice: one was either for free trade or protectionism. In fact, one can and 

should be for free trade and against foreign protectionism. 

Third, the report rightly notes that it is a mistake to posit only two choices: laissez faire, freemarket capitalism vs heavy-handed "industrial policy". This choice was always a false one, but 

never more so than now. For U.S. governments (local, state or federal) to help companies in the 

United States, particularly in advanced industries, compete globally, especially against China, 

does not necessarily imply, as some on the right claim "inappropriate industrial policy" or as some 

on the left would claim wasteful "corporate welfare". The reality, as every U.S. governor knows, 

regardless of political party affiliation, is that jurisdictions are now in intense competition for 

advanced industries, and that governments have to play a supportive role or risk losing those 

industries and the good jobs that come with them. Therefore prioritization of the high-wage 

industries of the 21" century, as the report calls for, is not some kind of statist, misallocation of 

resources, but rather needs to be a core component of 21" century statecraft, one that the 

Washington economic policy community sorely needs to improve its understanding of and 

capabilities for. 

Because this point of the appropriate role for government is so poorly understood and even 

actively opposed by many in the economic policy community, it's worth elucidating it. 

Notwithstanding the efforts of rigid free-market economists to blur the differences between smart 

industrial policy and heavy-handed, distorting industrial policies, there are real differences. To 

illustrate this, it is useful to envision a continuum of government-market engagement, increasing 

from left to right in four steps: from (1) a "laissez-faire, leave it to the market" approach; to (2) 

"supporting factor conditions for innovation;" to (3) "supporting key broad 

technologies/industries"; to (4) "picking specific technologies/firms" (for example, supporting 

ABC Widget company as a national champion and picking xyz kind of battery technology, rather 

than storage technology generally) (see figure 1). Only the last type of actions quality as 

inappropriate "industrial policy." As the Rubio report points out there is a range of activities 

between these two poles that governments can and should take to spur innovation and 

competitiveness. 

Finally, the report rightly notes that the choice should not be between working to roll back 

Chinese innovation mercantilism and spurring more innovation and productivity at home. Some 

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who resist taking firm steps against Chinese policies and practices argue that only the latter is 

needed. Others who eschew a stronger federal rule in spurring competitiveness, including support 

for the public investment that must accompany that policy, argue that getting touch with China is 

enough. The reality is that the federal government will not restore the promise of the American 

dream if it does just one or the other. It must do both: roll back Chinese innovation mercantilism 

and put in place a robust national innovation and competitiveness policy. 

Figure 1: Continuum of Government Market Engagement 

Poor economic 

policy 

Leave it 

principally 

to the 

market 

Optimal focus for government economic 

policy 

Support factor 

conditions (e.g. 

science, skills) 

The Challenge From "Made in China 2025" 

Support key 

broad 

technologies/ 

industries/ activit 

ies 

Poor economic 

policy 

Pick specific 

firms and 

technologies 

Today the United States leads in the fifth industriai n technology) and 

hopes to lead in the sixth (artificial intelligence, robotics, biotechnology, etc.), but a major threat 

to our leadership is from China's unfair and harmful trade and technology policies. China is 

seeking global technology dominance in an array of advanced technology industries through an 

unprecedented array of predatory economic and trade policies and practices. The world has never 

seen a country like China before, with its organized and strategic system of authoritarian state 

capitalism and massive scale. It is not a market economy where private sector firms largely dictate 

their own strategy and actions. It is not a country governed by the rule of law. It is not a country 

constrained by global norms of acceptable economic and trade behavior. It is a country where the 

government is concerned with one and only one economic goal: winning in advanced technology 

industries by any means possible. 

As ITIF has documented across a series of reports-including "False Promises: The Yawning Gap 

Between China's WTO Commitments and Practices," "Enough is Enough: Confronting Chinese 

Innovation Mercantilism," and "Stopping China's Mercantilism: A Doctrine of Constructive, 

Alliance-Backed Confrontation "-China has deployed a vast panoply of innovation mercantilist 

practices that seek to unfairly advantage Chinese advanced-industry producers over foreign 

competitors. 3 These practices have included forced technology transfer and forced local 

production as a condition of market access; theft offoreign intellectual property (IP); curtailment 

and even outright denial of access to Chinese markets in certain sectors; manipulation of 

technology standards; special benefits for state-owned enterprises; capricious cases to force 

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foreign companies to license technology at a discount; government subsidies of Chinse 

companies, and government-subsidized acquisitions of foreign enterprises. U.S. and foreign 

enterprises across virtually every advanced technology sector-from aerospace and biotechnology 

to information and communications technology (JCT) products, Internet, clean energy, and 

digital media-have been harmed by China's aggressive use of these types of innovation 

mercantilist policies and will continue to be harmed if China cannot be pressured to roll back its 

egregious predatory practices. 

In the last few years, though, the focus of China's efforts has shifted. In 2015, Chinese President Xi 

Jinping unabashedly trumpeted a goal of making China the "master of its own technologies." 4 

China's arrival at that point resulted from the evolution of Chinese economic policy over the past 

two decades. Up to the mid-2ooos, China's economic development strategy sought principally to 

induce foreign multinationals to shift relatively low- and moderate-value production to China.5Jt 

used an array of unfair tactics, including currency manipulation, massive subsidies, and limits on 

imports. As ITIF and others such as M!Ts David Au tor have shown, the cost the United States 

millions of manufacturing jobs.6 However, that strategy changed in 2006 as China moved to a 

"China Inc." development model of indigenous innovation which focused on helping Chinese 

firms, especially those in advanced, innovation-based industries, often at the expense of foreign 

firms. Marking the shift was a seminal document called the "National Medium- and Long-term 

Program for Science and Technology Development (2oo6-2o2o)," which called on China to master 

402 core technologies, everything from intelligent automobiles to integrated circuits and highperformance computers. 

In recent years President Xi has doubled down on this approach, through new promulgations 

such as the "13th Five-Year Plan for Science and Technology," the "13th Five-Year Plan for National 

Informatization," "The National Cybersecurity Strategy," and of course, the "Made in China 2025 

Strategy," As the Mercator Institute for China Studies in Germany writes, "Made in China 2025 in 

its current form [means that] China's leadership systematically intervenes in domestic markets so 

as to benefit and facilitate the economic dominance of Chinese enterprises and to disadvantage 

foreign competitors."' For instance, with regard to ICT-enabled manufacturing the strategy calls 

for So percent domestic market share of high-end computer numeric controlled machines by 

2025; 70 percent for robots and robot core components; 6o percent for big data; 6o percent for IT 

for smart manufacturing; and 50 percent for industrial software. 8 

Unfair Policies and Practices Underpin "Made in China 2025" 

At the heart of China's strategy is foreign technology acquisition. The Chinese leadership knows 

that if it just relies on market forces few if any foreign technology leaders will provide them with 

the technology Chinese firms need. And domestic Chinese firms, while making progress, lag 

behind the global technology leaders. As a result, China has deployed a panoply of tools to 

unfairly obtain needed foreign technology. Once it obtains technology it relies on an array of 

tools, including protected markets and massive subsidies, to scale up and gain global market 

share. 

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Intellectual Property Theft: Intellectual property theft is an important tool in the Chinese 

arsenal. China has deployed industrial spies to obtain foreign secrets. As the New York Times 

documented, a leading Chinese computer chip maker allegedly paid employees of a Taiwanese 

chip company working with the U.S. company Micron to steal valuable chip designs.• 

Another vector is cyber theft. Seven percent of U.S. firms operating in China listed cyber theft as a 

problem, a number that presumably would be higher if every firm that had faced an intrusion was 

aware of it. w The IP Commission Report on the Theft of U.S. Intellectual Property found that China 

accounted for nearly So percent of all IP thefts from U.S.-headquartered organizations in 2013, 

amounting to an estimated $300 billion in lost business annually." An updated 2017 Commission 

report put the figure at S6oo billion." Then NSA Director Keith Alexander has called Chinese IP 

theft, "the greatest transfer of wealth in history."'' Even though President Xi made "commitments" 

to end Chinese cyber-theft, there is little evidence that the Chinese have followed through on this 

promise. As the China the National Counterintelligence and Security Center stated in its "2018 

Foreign Economic Espionage in Cyberspace" report: 

China has expansive efforts in place to acquire U.S. technology to include sensitive trade 

secrets and proprieta1y information. It continues to use cyber espionage to support its 

strategic development goals-science and technology advancement, military 

modernization, and economic policy objectives. China's cyberspace operations are part of 

a complex, multipronged technology development strategy that uses licit and illicit 

methods to achieve its goals. '4 

Meanwhile, China still has one of the highest rates of unlicensed software usage in the world, with 

74 percent of the software in use unlicensed and the market value of unlicensed software usage 

exceeding $8.7 billion in 2013.'5 240,ooo Internet cafes in China rely on illegal copies of 

entertainment software. '

6 Chinese firms even produce and sell technology to allow consumers 

around the world to circumvent encryption protection so they can pirate video games. 

Another vector for purloined intellectual property is to trick companies in the United States into 

thinking that a Chinese firm wants to invest in them. A seemingly independent Chinese 

investment fund will approach a small to mid-sized U.S. technology company and indicate a 

willingness to invest needed capital in the company. But before the Chinese company can do this, 

they must do due diligence and they send in employees, who turn out to work for a state-owned 

Chinese company, to obtain key information about the company, including trade secrets. The 

firm never hears back from the investment company again. 

Another path is through exchange visits and student enrollments in U.S. universities. At least at 

one time, it was common for Chinese exchange visitors to the United States to use opportunities 

to visit factories and other facilities to engage in industrial espionage, including measuring 

equipment, taking photos and writing detailed technical notes to bring back to China. And as 

Daniel Golden writes in Spy Schools there have been cases where Chinese graduate students 

enrolled in U.S. universities use their access to valuable scientific and engineering information to 

bring that back and provide it to Chinese companies. '

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Chinese trade secret theft also represents an increasing challenge. A prime example is Bostonbased American Superconductor (AMSC), which provides software, design, and hardware 

solutions for wind manufacturers and energy providers. American Superconductor's top 

customer, the Chinese-based wind turbine manufacturer Sinovel Wind Group, faced criminal and 

civil actions for paying an AMSC employee to steal proprietary power-converter and controlsystem software, which it then used illegally in its wind turbines to meet electricity grid 

standards.'8 The employee, an engineer at one of AMSC's subsidiary's, was recently found guilty of 

industrial espionage in Austria. In another telling case, the global agriculture firm Monsanto 

decided to open production and research facilities for advanced corn technology in China and 

proceeded to develop experimental fields growing genetically enhanced corn. It wasn't long 

before the advanced corn was systematically stolen, clearly an effort by the Chinese government 

to gain access to the IP embedded in Monsanto's corn.'9 

Weak IP Enforcement: Weak enforcement of!P law is another vector. Chinese firms can often 

copy and reengineer foreign technologies with impunity (what they call introducing, digesting, 

absorbing andre-innovating), even those technologies protected by patents. As a MIT Sloan 

Management Review article, "Protecting Intellectual Property in China," noted, "Intellectual 

property protection is the No.1 challenge for multinational corporations operating in China."'o 

According to the U.S. International Trade Commission, in 2009, U.S. IP-intensive enterprises 

conducting business in China reported losses of approximately $48.2 billion in sales, royalties, or 

license fees due to Chinese IPR infringement." In 2018, according to the American Chamber of 

Commerce in China, one-quarter of surveyed U.S. companies cited "Insufficient protection offered 

by text of IP-related laws and regulations," while 24 percent cited, "Difficulty prosecuting IP 

infringements in court or via administrative measures" as significant challenges." 

China also favors domestic over foreign patent applicants when it comes to strategic industries. 

As the 2016 report "Technology Protectionism and the Patent System: Strategic Technologies in 

China," finds, "Foreign applications in technology fields that are of strategic importance to China 

(as defined by being listed on the MLP) are 4 to 7 percentage points less likely to be approved 

than local applications, all else equal."'' As it notes, "Given the importance of industrial policy in 

China and the country's strong focus on indigenous innovation and intellectual property, the 

empirical results provide a case of technology protectionism by means of the patent system."'4 

State-Backed Purchases of U.S. Technology Companies: An increasingly important way for 

Chinese firms to gain access to needed technology is to simply buy up U.S. technology companies 

or invest in high-tech startups. Indeed, until recently, a not-insignificant share of Chinese foreign 

direct investment into the United States was in technology industries. According to Select USA, 

the top four industrial categories in terms of numbers of Chinese FDI projects from 2003 to 2015 

were electronics, industrial machinery, software and information technology services, and 

communications. ' 5 The Rhodium Group reports that over the last 16 years there has been roughly 

$18 billion of Chinese FDI into ICT and electronics industries deals, with most of that in just the 

last few years. Of the $4.9 billion invested in electronics, $4-2 billion was invested in 2016, with 

99·99 percent of that going to buy U.S. firms. '

6 Of the $14-2 billion invested in ICT, 74 percent was 

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made from 2014 to 2016, with more than 95 percent going to acquisitions. ' 7 These numbers would 

have been considerably larger if the federal government had not informally or formally blocked 

some deals through the Committee on Foreign Investment in the United States (CFJUS). 

Fortunately, Chinese inward FDI has dramatically fallen in the last two years as it became clear 

that the U.S. government would take a harder look at their attempts to buy U.S. technology. And 

of course, the recent enactment of the Foreign Investment Risk Review Modernization Act 

(FIRRMA) will hopefully help even more going forward. 

The role of Chinese government money in U.S. deals is underreported in part because of the 

opaque nature of this support. As Wang and Wang note, many Chinese firms lack transparency, 

making it difficult for host countries to know enough about the investing firm. '

8 This was evident 

for example in the attempted purchase of German semiconductor equipment firm Aixtron by a 

Chinese investor where there were "a web of relations among the customer, the buyer, and the 

Chinese state."'9 Moreover, the Chinese government channels funds to supposedly private 

investment bodies, making it look as if these deals are commercial. 

The main purpose of most Chinese technology companies buying U.S. technology companies is 

not to make a profit, but to take U.S. technology to upgrade their own technology capabilities. 

The Rhodium Group notes that in the aviation sector, "The dominant player is aviation 

conglomerate AVIC, which is looking to the US market to upgrade its technology and other 

capabilities."'" Likewise, in the electronics and electrical equipment sector, "Chinese investors are 

drawn to the US electronics and electrical equipment sector for building their brands, expanding 

their sales and distribution channels, and upgrading their innovative capacity and technology 

portfolios."'' Investments in pharmaceuticals and biotechnology are "often driven by upgrading 

technology (such as Wuxi's acquisition of AppTec, a laboratory services firm)." 3' As one study of 

Chinese FDI estimated, 30 percent of the private firm deals and 46 percent of the SOE deals are 

motivated by technology acquisition.33 The authors go on to state that Chinese acquisition of 

overseas firms "has become the most widely used methods [of investing overseas] for Chinese 

firms, largely because it provides rapid access to proprietary technology."l4 

China has also ramped up its efforts to buy into early-stage U.S. technology start-ups. A recent 

report from DOD's Defense Innovation Unit Experimental (D!Ux) finds that "Chinese 

participation in venture-backed startups is at a record level ofw-16% of all [U.S.] venture deals 

(2015-2017) and has grown quite rapidly in the past seven years."35 And some of this investment 

comes from venture firms that are backed by Chinese governments (federal or provincial). For 

example, the Zhongguancun Development Group, a state-owned enterprise headquartered in 

Beijing has set up "Danhua capital" to promote the strategy of "Zhongguancun capital going 

global and bringing in overseas advanced technology and talents." 36 Likewise, Shenzen Capital 

Group, a purportedly private venture capital firm that has invested in at least one advanced U.S. 

technology company,'7 has actually received about 8o percent of its invested capital from the 

Chinese government,'8 and its investments are focused, not surprisingly, to match the central 

governments key targeted industries. The firm even boasts a chart that compares the technology 

allocation of its investments and how it compares to the governments priorities. 3

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FDI acquisition is not the only path to U.S. technology capabilities. For example, China is 

investing in U.S. research universities to gain access to their research, often with U.S. state 

government-backing. For example, Maryland is committing nearly $6oo,ooo over three years to 

build up the Maryland International Incubator, in a bid to attract high-tech companies from 

China and elsewhere to collaborate with University of Maryland researchers. Of the 18 companies 

in the incubator, nine are from China, with most of these being biotech companies. 40 In addition, 

Chinese firms have become investors in early stage U.S. technology companies. These include the 

venture capital arms of Chinese Internet companies such as Alibaba or Tencent. The idea is to 

invest in start-ups and use that as a way to bring technology and knowledge back to China. 

Indeed, at least a few Silicon Valley experts report that they are seeing a significant uptick in 

Chinese venture investment in Silicon Valley. In just the first three months of 2018, Chinese-based 

venture-capital funds invested $1.4 billion into U.S. biotechnology companies. 4' This trend could 

very well increase in coming years as China sees that its traditional acquisition route becomes 

more difficult. We see this pattern in other nations as well. 40 percent of venture capital in Israel 

in 2015 reportedly came from China. 4' 

Forced Technology Transfer: Dwarfing these tools is forced technology transfer. Although 

China's World Trade Organization (WfO) accession agreement contains rules constraining it 

from tying foreign direct investment or market access to requirements to transfer technology to 

the country, 4' China routinely requires firms to transfer technology in exchange for being granted 

the ability to invest, operate, or sell in China. •4 As Harvard Business School professors Thomas 

Hout and Pankaj Ghemawat document in "China vs the World: Whose Technology Is It?," 

Chinese technology transfer requirements as a condition of market access have affected scores of 

companies in industries as diverse as aviation, automotive, chemicals, renewable energy, and 

high-speed rail. 4 'To be sure, because such conditions usually contravene China's WfO 

commitments, officials are careful not to put such requirements in writing, usually resorting to 

oral communications to pressure foreign firms to transfer technology. 46 In 2012, 23 percent of the 

value of all foreign direct investment projects were joint ventures. 47 And the U.S.-China Business 

Council's "2014 China Business Environment Survey" reports that 62 percent of companies had 

concerns about transferring technology to China, while 20 percent reported that they had been 

requested to transfer technology to China within the past three years. 48 

Forced technology transfer is not new. A 1987 Congressional Office of Technology Assessment 

report states, "Although most U.S. firms approach the China market with the intent to sell 

products, many find they must include technology transfer if they wish to gain access to the 

China market." 49 But what is new are two things. First, there are more foreign companies seeking 

to get in the Chinese market, such that the scale of forced technology transfer is much larger than 

it was two decades ago. In 2015 for example, 6,ooo new international joint ventures, amounting to 

$27.8 billion of FDI inflows, were established in China. 5" 

Second, the sophistication and value of the technology the Chinese government is now 

demanding is significantly higher than in decades past when U.S. companies could afford to give 

their Chinese "partners" older generations of technology, confident that the U.S. firms could 

innovate faster. Now for many foreign advanced industry companies, doing business in China 

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requires transferring ever-more valuable technology to Chinese joint venture partners. In 2013, 35 

percent of U.S. business respondents in China said that tech transfer requirements were a 

concern, and 42 percent in advanced technology industries voiced this concern. 5' Fifty-six percent 

of survey respondents who gave a response thought that tech transfer requirements were 

increasing.s' And as USTR points out in its 301 report on China, it is likely that these numbers are 

under-reported.53 

The Chinese government has employed the weapon of forced technology transfer to gain 

technological know-how in a variety of industries. A well-known case in point concerns highspeed rail. Over the past 15 years China built the largest high-speed rail network in the world. 

That massive purchase of rolling stock, signal systems, and related equipment was something no 

foreign rail producer could afford to ignore. As such, the Chinese government had enormous 

leverage to pressure foreign producers to give the Chinese state-owned enterprise competitors key 

technology and IP. The Chinese term for this is "exchanging market for technology." 54 As Chen 

and Haynes document, in 2004 the State Council of China adopted a new railway development 

strategy that shifted from just subsidizing domestic producers in order to help them improve 

their technology to one where they "introduce advanced technology through joint design and 

manufacturing, [with an ultimate objective to] to build a Chinese brand."" After that the state 

Ministry of Railways (MOR) launched three tenders for foreign high-speed electric trains and in 

each one MOR stipulated that foreign companies had to collaborate with domestic partners in the 

competition and had to transfer key technologies to achieve localization.'6 The tender included 

two key conditions: to win, the bidder had to transfer technology to China and the final products 

had to marketed under the Chinese state-owned enterprise rail car brand. This was all in support 

of the government's "Action Plan for the Independent Innovation of Chinese High-Speed Trains." 

As a result, multiple foreign train companies were pressured to transfer valuable technology to 

the Chinese companies (now principally one company due to the central government forcing the 

two main companies to merge into a powerful national champion, Chinese Railway Construction 

Corporation, now the largest rail producer in the world.) As Chen and Haynes write, "The result is 

a new HSR [high speed rail] industry in China has emerged which now serves the new vast HSR 

network and looks externally to export its new skill in HSR production and its new cutting-edge 

activity in HSR innovations." Not only are CRCC and related Chinese companies virtually 

guaranteed all Chinese rail projects, but CRCC is now aggressively exporting trains and train 

systems containing advanced foreign technology to other nations, backed with generous export 

subsidies from the central government. For example, the China Export-Import Bank (a state 

agency) announced in 2017 the equivalent of $30 billion in financing assistance for CRCC 

exports. '

6 (Surprisingly, the U.S. Department of Commerce International Trade Administration, 

in its document promoting U.S. rail export opportunities to China, makes no mention of the fact 

that the lion's share of these opportunities come with forced technology transfer requirements.") 

The Chinese have employed different tactics to the same end in the biopharmaceutical industry, 

where various policies enable Chinese firms to get access to U.S. technology. For example, the 

relatively short six-year term for data exclusivity, coupled with the lack of a formal definition of a 

"new chemical entity," means the Chinese government can pressure U.S. firms to turn over 

important data to Chinese generic drug firms. Similarly, the Chinese government requires that 

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any drugs sold in China must go through Chinese clinical trials, even if they are approved in the 

United States. This extends the time for sales before a company can sell a drug by as much as 8 

years, meaning that the company has only 12 years left of patent-protected sales in China before a 

Chinese generic company can copy the drug. Moreover, in China, unlike the United States and 

Europe, there is no extension of marketing exclusivity at the back end to take into account long 

clinical trial delays. Moreover, China also issues compulsory licenses for the intellectual property 

for particular drugs. 5

8 Finally, it presses foreign biopharmaceutical companies to form joint 

ventures if they want their drugs more easily put on the government list of drugs to qualifY for 

reimbursement. 59 

We also see this in cloud computing. China requires companies running cloud-computing 

operations to be locally controlled. This means that if a company like Amazon Web Services or 

Microsoft wants to serve the rapidly growing Chinese market it must partner with a Chinese 

company and sell their services under the Chinese company brand. And as part of this partnership 

the expectation is that the foreign cloud provider will provide the Chinese firm with technology 

and know-how. 6° Chinese cloud providers, like Aliyun, the cloud services unit of Alibaba, is able 

to establish its own data centers in the United States without any similar requirements. 

Subsidies: Once Chinese firms gain access to needed foreign technology, the next step of the 

Chinese strategy is to ensure that they have the capital needed to scale up. This involves direct 

and indirect subsidies and also designing markets protected from foreign competition so the 

Chinese firms can accumulate capital. Once firms have the technology, competencies and scale to 

go global, the government often subsidizes global market expansion, such as through the China 

Export-Import Bank (an entity the World Bank has funded) and China's Export and Credit 

Insurance Corporation (Sinosure). 6' Moreover, by leading to global overcapacity and selling below 

cost, China uses that overcapacity as a cudgel to disrupt the economics of innovation-based 

industries (i.e., subsidized competition prevents foreign competitors from earning reasonable 

profits from one generation of innovation to reinvest in future generations of innovation) and 

thus weaken foreign competitors, enabling Chinese firms to gain even more global market share. 

The Chinese government also works to limit foreign competition for its budding national 

champions. For example, in the high-end equipment manufacturing sector, China maintains a 

program that conditions the receipt of a subsidy on an enterprise's use of at least 6o percent 

Chinese-made components when producing intelligent manufacturing equipment.6' And despite 

the fact that China "clarified and underscored ... that it agreed that enterprises are free to base 

technology transfer decisions on business and market considerations" at a December 2014 

meeting of the United States-China Joint Commission on Commerce and Trade (JCCT), USTR 

notes that China has "announced two measures relating to [local procurement of] information 

technology equipment used in the banking services sector and in providing Internet- or 

telecommunications-based services more generally. "63 

China also lavishes Chinese firms that have obtained foreign technology with massive subsidies. 

As George and Usha Haley document in their book, Subsidies to Chinese Industry: State 

Capitalism, Business Strategy, and Trade Policy, China's game plan has long been to "aggressively 

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subsidize targeted industries to dominate global markets." As they document, in the 2ooos, China 

provided almost Swo billion in subsidies to just three industries alone: $33 billion for paper, $28 

billion for auto parts, and $27 billion for steel. 64 China's share of global solar panel exports grew 

from just 5 percent in the mid-2ooos to 67 percent today, with Chinese solar output turbocharged 

by at least $42 billion of subsidies from 2010 to 2012 alone. 65 China now wants to replicate this 

strategy in other advanced-technology industries, such as semiconductors and electric batteries. 66 

For instance, China's National Integrated Circuit (IC) Strategy calls for at least $160 billion in 

subsidies to create a completely closed-loop semiconductor industry in China, including explicit 

plans to halve Chinese imports of U.S.-manufactured semiconductors by 2025 and eliminate them 

entirely by 2035. The "Made in China 2025 Strategy" is supported by some 8oo state-guided funds 

to the tune of more than $350 billion, including advanced-battery manufacturing, wide-body 

aircraft, and robotics. 

Moreover, Chinese government-backed investment funds aim to control $1.7 trillion, equal to 

one-third of the assets in the global private equity market. 67 Since the global financial crisis, 

the Chinese government has moved aggressively to stimulate capital investment that will 

strengthen its competitive position, both domestically and in global markets. First created in 

2oo8, there are now more than 2,ooo of these so-called "government guidance funds," threequarters of which have been established between 2015 and 2018. Having raised $530 billion so 

far, the funds already represent a massive vehicle for Chinese governments to subsidize 

Chinese tech companies and acquire foreign tech companies under the guise of venture 

capital. And the goal is for them to more than triple in size: The funds have been tasked with 

leveraging $1.7 trillion, which is 33 percent of the $5.2 trillion that private equity firms now 

control globally. 

What is at Stake? 

Given China's Made in China 2025 plan, it is no exaggeration to suggest that, without aggressive 

action, the United States may face a world within two decades where U.S. jobs in industries as 

diverse as semiconductors, computers, biopharmaceuticals, aerospace, Internet, digital media, 

and automobiles are significantly reduced due to Chinese policies unabashedly targeting domestic 

and global market share in those industries. 

It is important to understand that the challenge to America's leadership in technology-based 

industries is much different than the process of losing more commodity-based, low-skilled 

industries to China in the 2ooos. If, for example, the value of the dollar was to fall significantly 

related to the yuan (and other currencies), it is possible that America could regain at least some of 

the production lost to China in industries like textiles and apparel, furniture, metal parts, and 

other similar low- and medium-value added products. Companies could simply buy machines, set 

up factories, and restart production domestically in a cost-effective way. But if America's 

technology companies were severely weakened or even put out business, no currency decline 

could bring them back because competitiveness in technology industries is based less on cost and 

more on a complex array of competencies at the firm- and ecosystem-level. For example, a firm 

cannot simply buy some semiconductor equipment and start producing chips. To do that would 

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require not just machines but deep and complex tacit knowledge embedded in the firm in 

workers (from the shop floor to scientists to managers) coupled with an innovation ecosystem 

(universities training the right talent, a network of suppliers, etc.). Once those capabilities are 

lost, they are essentially gone, and are very difficult to resurrect absent massive government 

intervention. 

There is an additional reason why losing advanced technology industries is problematic. Most 

technology-based industries have high barriers to entry. In contrast to the t-shirt industry where 

entry largely requires just capital to buy sewing machines, entry into innovation-based industries 

requires both physical and intellectual capital. In an industry like semiconductors, for example, 

firms spend hundreds of millions, if not billions, of dollars developing technical capabilities to 

enable production. Producing the first chip of a particular generation is incredibly expensive 

because of the amount of R&D involved. Producing the second chip is much cheaper because only 

the material and labor costs are involved. In this sense, fixed costs are extremely high, but 

marginal costs are low. In these innovation-based industries losing market share to unfairly 

competing firms supported by their innovation mercantilist governments means two things. First, 

sales fall. This is true because global sales are largely fixed (there is only so much demand for 

semiconductors, jet airplanes, and other similar advanced products), and if a mercantilistsupported competitor gains market share, the market-based competitor loses share. Second, 

because profits decline more than sales, it is now more difficult for the market-based innovator to 

reinvest revenues in the next generation of products or services, meaning that the mercantilistsupported entrant has an advantage in the next generation of products. This can lead to a death 

spiral whereby the market-based leader can lose complete market share. 

A loss of advanced technology industries has two major negative impacts on the U.S. economy. 

The first is on prosperity, as the average wage in these industries is approximately 75 percent 

higher than average U.S. wages.68 The second is on national security and the defense industrial 

base. U.S. defense superiority is based is in large part on technological superiority. Our service 

men and women go into any conflict with the advantage of fielding technologically superior 

weapons systems. But maintaining that advantage depends on the U.S. economy maintaining 

global technological superiority, not just in defense-specific technologies but in a wide array of 

dual-use technologies. To the extent the United States continues to lose technological capabilities 

to China, U.S. technological advantage in defense over China will diminish, if not evaporate, as 

U.S. capabilities whither and Chinese ones strengthen. It is certainly a highly risky proposition to 

assume that the United States can continue its weapons systems superiority over the Chinese if: 1) 

the Chinese continue to advance, largely through unfair, predatory practices at the pace they are; 

and 2) the United States loses a moderate to significant share of its advanced technology 

innovation and production capabilities. As ITIF wrote in 2014, "The United States defense system 

is still the most innovative in the world, but that leadership is not assured and is in danger of 

failing. This decline is not only impacting defense innovation and capabilities, but also overall 

commercial innovation and U.S. competitiveness."69 

What the U.S. Government Should Do 
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To respond to the challenge from MIC25, the federal government needs to do two main things: 1) 

more aggressively work to constrain and roll back the unfair parts of MIC25 and other Chinese 

government policies; and 2) institute stronger domestic policies to help firms in advanced 

industries increase output (and jobs) in the United States. 

Roll Back Chinese Innovation Mercantilism 

There are an array of policies that can be instituted that can limit the harm from Chinese policies 

on the U.S. economy and also exert pressure on the Chinese government to roll back its unfair 

policies. While I list several here, the most important is for the Washington policy community to 

work to identify and implement what an array of possible policy actions in an array of areas (e.g. 

financial regulation, trade law, intellectual property law, criminal enforcement, customs 

enforcement, etc.). 

One step Congress can take is to instruct USTR to bring a WTO case against China over its 

ongoing failure to publish thousands of trade-related final measures, including subsidies, in a 

single official journal as it's required to do under WTO rules. One reason it's been difficult to 

bring subsidy cases against China at the WTO is that China fails to properly publish its subsidies. 

Getting the WTO to enforce China's publication requirements would make it possible to bring 

additional WTO cases for subsidy or other violations, such as forced IP or technology transfer. 

The United States also needs a new regime to contest China's strict technology-licensing laws. 

Under Chinese contract law and technology import-export regulations (or TIER), a foreign 

licensor into China is obligated to offer an indemnity against third-party infringement to the 

Chinese licensee. 7o In other words, a foreign licensor licensing into China has to provide 

insurance that practicing the licensed technology does not infringe any IP held by a third party. 

But, under TIER, this legal obligation only attaches to "technology import contracts." That is, this 

obligation only attaches to a foreigner licensing technologies into China; the Chinese licensor has 

no such obligation. This discriminates against foreign licensors. The foreign licensor is legally 

bound to offer something that the Chinese licensee is not, making it difficult for small companies, 

companies which may experience high litigation risks in China's litigious environment, and 

companies engaged in collaborative research and development (such as cross-licensing, opensource licensing, and charitable activities) to arrive at mutually beneficial licensing agreements. 

TIER makes it almost impossible for small companies, such as start-ups, to license their 

breakthrough technologies in China, because no start-ups (due to their limited resources) would 

be able to conduct the complex analysis required by China's high-litigation environment and 

industrial policies that limit the value of foreign IP in order to offer insurance against third-party 

infringement disputes. While large multinational companies could avoid this issue by licensing 

technology (e.g., through their China-based subsidiaries), start-up companies cannot do so 

because they typically do not have subsidiaries in China. Consequently, the impact of the 

mandatory indemnification requirement on small- and medium-sized companies, and especially 

start-ups, is particularly acute. 

Another provision in TIER mandates that in technology-import contracts, improvements belong 

to the party making the improvements, which typically is the Chinese licensee. Thus, foreign 

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licensors, including U.S. firms, cannot negotiate to own any improvements or to share the 

improvements with Chinese licensees, even if both licensing parties desire for the improvements 

to be shared or owned by the foreign licensors. Moreover, TIER prohibits any technology-import 

contracts to "unreasonably restrict the export channels" of the Chinese licensee, thereby impeding 

the ability of the two licensing parties to allocate markets as they see mutually beneficial. Put 

simply, U.S. companies are obligated under TIER to let Chinese firms own the improvements and 

cannot freely negotiate with Chinese entities. 

To address this discrimination, Congress should enact a regime whereby if Chinese entities seek 

licenses in the United States, then the Chinese enterprise must license on the same terms by 

which foreigners are required to license into China. Such legislation would specifically require the 

Chinese licensor to offer an indemnity against infringement by the U.S. licensee and to stipulate 

that the U.S. licensees are entitled to own the improvements they make and receive a reasonable 

market allocation under the licenses. Another possible approach would be for Congress to pass 

legislation requiring that the U.S. company whose original technology was improved by the 

Chinese entity receives an automatic exclusive license to use that improved technology [in the 

United States], such that the full potential of the original technology owned by the U.S. 

companies is not encumbered by improvements owned by the Chinese entity. Although 

technology-licensing law is usually a matter of state contract law, the legislation would be enacted 

pursuant to Congress's power to legislate international commerce. 

Congress should strengthen FBI-university partnerships to limit inappropriate IP transfer. The FBI 

should engage in a stronger partnership with U.S. research universities to help them better 

understand how to take steps to better identify students here for the purpose of intellectual 

property transfer and how to limit such access. The point is not to just limit access and transfer of 

sensitive military technology subject to deemed export controls, but also advanced technology 

that can help China compete with the United States. At the same time, Congress should support 

FBI efforts to beef up and better target commercial counterintelligence resources to better help 

enterprises in the United States stop Chinese commercial espionage.'' 

Congress should work to establish stronger authorities to prohibit Chinese firms that are stealing 

IP from accessing the U.S. banking and financial system. For example, it should empower the 

Treasury Department to deny Chinese-headquartered enterprises access to listing on U.S. stock 

exchanges if they fail to provide financial statements in line with generally accepted accounting 

principles. 

Congress should pass legislation that allows firms to ask the Department ofJustice for an 

exemption to coordinate actions regarding technology transfer and investment to other nations. 

One of the key levers China has is that it's a monopsonist: its market is so large it can essentially 

compel foreign companies to hand over technology in order to sell their products in China. But if 

companies in a similar industry can agree that none of them will transfer technology to China in 

order to gain market access, then the Chinese government will have less leverage over them. The 

same would be true if companies agreed that they would not invest in China until China 

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improved its IP protections. Such an amendment to antitrust law would be similar to the 1984 

Cooperative R&D Act, which allowed firms to apply to form pre-competitive R&D consortia. 

Congress should also stand up a new arm ofDOJ's antitrust division focused on foreign 

government-enabled and led antitrust violations. Currently, DOJ can bring actions against foreign 

firms if they are found to be acting in an anticompetitive manner. DOJ needs to not only be able 

to but be willing to bring actions against foreign firms if their actions are helped by their state in a 

way that leads to anticompetitive results. In the case of China, its subsidies, forced technology 

transfer, IP theft, and other unfair actions give Chinese firms unfair advantages that distort 

markets in an anticompetitive manner. DOJ should be able to investigate cases and if they found a 

violation, bring those to an administrative law judge who would adjudicate the case and the 

damages the U.S. government could impose on the Chinese companies that benefited from the 

anti-competitive Chinese government policies or practices. The challenge will be that not all 

Chinese companies likely to have cases brought against them are involved in the U.S. market. But 

some are, and for the ones that aren't such a ruling would effectively preclude them from entering 

the U.S. market. 

Take Stronger Actions to Support U.S. Advanced Industry Competitiveness 

While policies and actions to roll back Chinese mercantilist actions are critical, the United States 

also needs to do much more to boost U.S. competitiveness at home. Congress should take efforts 

to limit Chinese efforts to manipulate its currency for competitive advantage, as it has done over 

the last year to suppress the price effects from the Trump administration tariffs on Chinese 

imports. Congress also need send clear signals to the Treasury Department that the official policy 

of the U.S. government should not be to maintain a strong dollar (meaning any value of the dollar 

stronger than what is needed to run balanced trade). A strong dollar hurts American workers, 

especially in traded sectors, by increasing the pressure on companies in the United States to keep 

wages low as a way to stay competitive. Rather the policy should be to work to lower the value of 

the dollar until U.S. trade is in balance, and then after that to let market forces determine 

currency levels. 

But a more fairly valued dollar is not enough. Congress needs to consider policies to help U.S. 

companies boost productivity. As such, America needs its own "Invented and Made in America 

2029" program where the federal government identifies the technologies most important to 

America's national and economic security and allocates at least an additional $25 billion annually 

to support their development.'' As part of this a key area is to work to improve U.S. 

manufacturing productivity growth, which in the last decade has been anemic, averaging about 

one-third of the growth rates of the prior two decades. Lagging productivity growth makes it 

harder to companies, especially in traded sectors to boost employee compensation. There are host 

of steps Congress can take to help firms, especially manufacturers boost productivity, including 

significantly boosting funding ofNIST's Manufacturing Extension Partnership program, 

expanding the number of and funding duration of the Manufacturing USA Institutes, boosting 

funding for NSF's National Robotics Initiative, and establishing a program to fund community 

colleges to establish robotic test bed and training facilities that small manufacturers and workers 

could access. 
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There are other actions to consider, many of which ITIF has detailed in its report "The 

Competitive Edge: A Policymaker's Guide to Developing a National Strategy."" These include 

expanding lending authorities for the Export-Import Bank,74 increased efforts to develop STEM 

talent, and spurring more technology transfer from universities and federal labs.?' Moreover, the 

federal government should work to establish a deeper North American supply chain, which would 

provide U.S. companies with an alternative to the Chinese supply chain. Approving the USMCA 

trade agreement would facilitate that. 

Finally, the recent tax reform bill allowed first year expensing of machinery and equipment helped 

spur more investment including presumably in robots, but it is due to expire at the end of 2022. 

And in 2022 companies will have to deduct R&D expenditures over five years. Congress should 

make expensing for capital investment and R&D expenditures permanent, while at the same time 

increase the Alternative Simplified Credit rate from 14 percent to at least 25 percent.76 (At least 26 

nations now field a more generous R&D tax incentive). 

The Challenge to Small Business and Policy Responses 

More robust small business growth and new firm formation, especially in trade sectors, will be 

critical to restoring robust and vibrant economic growth. For the purpose of thinking about 

competition from MIC25 there are three kinds of small businesses: 1) suppliers to globally traded 

original equipment makers (OEMs); 2) companies that themselves sell directly in global markets; 

and 3) domestic serving, consumer-facing companies (e.g. dry cleaners, barbers, grocery stores, 

etc.). Unfair competition from China hurts all three kinds, but the biggest impact is on the first 

two. As large companies close or contract domestic facilities, either because of Chinese 

competition or because they have moved production to China, most of the supplier contracts 

move to China. At the same time, why start a small manufacturing company if you know you will 

face robust and subsidized competitors from China or face a risk of having your IP stolen? 

Overall, there is less incentive to start a new manufacturing firm when many big U.S. customers 

are now overseas, or when you know you will face a big, subsidized foreign competitor, which is 

why efforts to roll back Chinese innovation mercantilism need to be a key part of any small 

business agenda. 

But there are also are a host of steps Congress could take to help new and small business, 

particularly in globally traded sectors. One step would to be encourage the Small Business 

Administration (SBA) to focus more resources on firms in traded sectors, like agriculture, 

manufacturing, and software, content and internet services. Currently the SBA treats all industries 

alike in its funding priorities, but industries serving local markets (e.g., liquor stores) play little 

role in supporting local or national economic competitiveness, and by and large providing 

funding to them simply shifts activity from one firm to another. Neither of these things is true for 

firms in industries that are globally traded, yet only 7·5 percent ofloans under the SBA's primary 

program for assisting small businesses (7A loan program) go to manufacturers. Congress should 

require the SBA to develop a plan to significantly increase the share of support going to tradedsector firms. 77 

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Congress should also establish a 401(k)-like deferred-investment program that would give small 

and mid-sized manufacturers greater resources to bootstrap themselves by allowing them to 

make tax-deferred investments through manufacturing reinvestment accounts. The funds would 

be available for tax-free withdrawal if used for R&D, workforce training, or capital equipment 

investments. Connecticut has already put such a program in place. 78 

Congress should also consider removing obstacles to the tax code to limit the growth of 

technology startups. Current law prevents passive investors from taking advantage of net 

operating losses or research tax credits of the companies in which they invest. This makes sense 

for tax shelters that are never meant to be profitable. But it makes it even harder for small 

research companies to find investors. Congress should create an exception for companies that 

devote over half of their expenses to research and development and that have fewer than 250 

employees and less than $150 million in assets. Investors could only use that portion of the losses 

or credit that was devoted to qualifying research activity. 79 In addition, firms can normally carry 

past operating losses forward in order to deduct them from future income, thereby lowering their 

taxes. Under Section 382 of the tax code, firms lose this ability when they undergo a change in 

ownership. Since small research-intensive startup firms often engage in successive financing 

rounds before achieving success, this provision makes it hard for them to ever recover their past 

losses and artificially inflates their historical income for tax purposes. Congress should exempt 

that portion of net operating losses that are generated by small firms that conduct qualifying 

research and development activities8 u 

Congress should introduce an Open Commercialization Infrastructure Act. One way to increase 

the use of America's national R&D infrastructure would be to pass an "Open Commercialization 

Infrastructure Act" that permits private use of bonded facilities-including universities, federal 

labs, and public libraries-for certain activities related to entrepreneurial education and training 

as well as for economic development and job creation. This would be useful because buildings 

that are financed through tax-exempt bonds currently are not permitted to develop private 

programming. For example, a small business trying to develop a commercial product would be 

restricted from taking advantage of a 3-D printer in a makerspace at a bonded facility such as a 

public library. This and many other kinds of private activities that benefit entrepreneurs-such as 

business incubators, accelerators, and training programs-are important for broader economic 

development. Congress should ensure more infrastructure is available for such purposes. 8' 

The current federal system for funding research also pays too little attention to commercializing 

technology and is still based on the linear model that assumes basic research gets easily translated 

into commercial activity. To address this, the administration should work with Congress to 

establish an automatic set-aside program that allocates a modest percentage of federal research 

budgets to technology-commercialization activities. For instance, Congress could allocate 0.15 

percent of agency research budgets to fund university, federal laboratory, and state government 

technology-commercialization and innovation efforts. The funds could be used to provide: 1) 

"commercialization capacity-building grants" to institutions of higher education pursuing specific 

initiatives to improve their capacity to commercialize faculty research, and 2) "commercialization18 
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accelerator grants" to support institutions of higher education pursuing initiatives that allow 

faculty to directly commercialize research in an effort to accelerate research breakthroughs. 8

" 

Congress should allow a greater share of SBIR and STIR grant awards to be used for 

commercialization activities. SBIR's impact could be much greater if some facets of the program 

were geared significantly more toward commercialization. Awardees currently are prohibited 

from using grant money to fund critical commercialization activities that would enable them to 

raise their profiles and accomplish certain key milestones so they can build prototypes of new 

products or services, acquire commercial customers, attract private capital, or accelerate market 

entry. These activities cover the gamut from intellectual-property development and prosecution 

to marketing and staff recruitment. To fill these gaps, SBIR awardees should be permitted to 

expend at least 5 percent of their SBIR funds on commercialization-oriented activities. For 

instance, in the lasts Congress, the Support Startup Business Act (S. 2149), co-sponsored by Sens. 

Chis Coons (O-DE) and Cory Gardner (R-CO), would allow program awardees to allocate up to 

$5o,ooo of their awards for commercialization-related activities, including services such as market 

validation, IP protection, market research, and business model development. 8

' 

Finally, Congress should create an "Innovation Voucher" program operated by NIST. As in almost 

a dozen other countries, these vouchers can spur innovation and stimulate knowledge transfer by 

allowing small and mid-sized enterprises to "buy" expertise from universities, national labs, and 

research institutions to conduct studies, analyze the innovation potential of new technologies, 

etc. A promising example has been the Small Business Voucher Pilot program in the Energy 

Department's Office of Energy Efficiency and Renewable Energy (EERE), which has provided 

vouchers to 114 small business across 31 states, disbursing more than $22 million since 2015. For 

example, the Oak Ridge National Laboratory (ORNL) collaborated to launch "RevV," a $2.5 

million manufacturing innovation program that offers vouchers for manufacturers in Tennessee 

to access the world-class researchers and facilities at ORNL. The administration should work with 

Congress to extend such vouchers across the entire federal lab system under the auspices of NlST 

by authorizing $50 million that would be state-matched. 84 

CONCLUSION 

In summary, taking firm and strategic action against Chinese predatory, mercantilist practices, 

while at the same time establishing and implementing a robust national innovation and 

competitiveness strategy are critically needed if we are to assure future U.S. advanced industry 

competitiveness. Whether or not such actions can be successful is an open question. But one 

thing is clear: not taking action will make it much easier for the Chinese government to achieve 

their goal of dominating advanced technology industries. 

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REFERENCES: 

1. Robert Atkinson, "With China, Step One is Admitting We Have A Problem," The Washington Post, 

February 7, 2019, https:/ /www.washingtonpost.com/opinions/2019/02/07/with-china-step-one-isadmitting-we-have-problem/?utm __ term;.d6978d52u311. 

2. Linsu Kim, Imitation to Innovation: The Dynamics of Korea's Technological Learning (Management of 

Innovation and Change), (Massachusetts: Harvard Business Review Press, 1997). 

3· Stephen). Ezell, and Robert D. Atkinson, "False Promises: The Yawning Gap Between China's WTO 

Commitments and Practices" (Information Technology and Innovation Foundation, September 2015), 

https:/ /itif.org/publications/zo1s/o9/17/false-promises-yawning-gap-between-china%E2%8o%99Swto-commitments-and-practices; Robert D. Atkinson, "Enough is Enough: Confronting Chinese 

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4· Robert D. Atkinson, "China's Strategy For Global Technology Dominance By Any Means Necessary," 

Forbes, November 12, 2015, http://W\VW.forbes.com/sites/realspin/2015/u/u/chinas-strategy-for-globaltechnology-dominance-by-any-means-necessa1y I# nb91b2o7242. 

5· Robert D. Atkinson, "Enough is Enough: Confronting Chinese Innovation Mercantilism" (Information 

Technology and Innovation Foundation, February 2012), 

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6. Robert D. Atkinson, "Worse Than the Great Depression: What the Experts Are Missing About 

American Manufacturing Decline" (Information Technology and Innovation Foundation, March 2012), 

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7· )ost Wiibbeke et al., "Made in China 2025: The Making of a High-Tech Superpower and Consequences 

for Industrial Countries" (Mercator Institute for China Studies, December 2016), 

https://W\VW.merics.org/fileadmin/user_upload/downloads/MPOC/MPOC_Made_in_China_2025/MP 

OCNo.2_MadeinChina_2025.pdf. 

8. Joseph Nahm, "China's Specialization in Innovative Manufactming" (power point, National Academies 

of Sciences Innovation Policy Forum, Washington, DC, May 23, 2017). 

9· Paul Mozur, "Inside a Heist of American Chip Designs, as China Bids for Tech Power," The New York 

Times, June 22, 2018, https:/ /WW\v.nytimes.com/2m8/o6/22/technology/china-micron-chipstheft.html. 

10. Katherine Linton, Alexander Hammer, and jeremy Wise, China: Intellectual Property Infringement, 

Indigenous Innovation Policies, and Frameworks for Measuring the FJfects on the U.S. Economy (U.S. 

International Trade Commission, November 2010), 

http:/ /www.usitc.gov/publications/332/pub4199·Pdf. 

n. The Intellectual Property Commission, The Report ofThe Commission on the Theft of American 

Inte/lecluall'roperty, (United States: The National Bureau of Asian Research, May 201)), n, 

http:/ /www.ipcommission.org/report/ip_commission_report_os221J.pdf. 

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12. Ibid. 

13. Keith B. Alexander, "Cybersecurity and American Power" (conference presentation hosted by the 

American Enterprise Institute, Washington, D.C., July 9, 2012). 

14- National Counterintelligence and Security Center, "NCSC Releases 2018 Foreign Economic Espionage 

in Cyberspace Report," news release, July 26, 2018, 

https:/ /www.dni.gov/files/NCSC/documents/news/2o18o724-ncsc-press-release-foreign-econ-espcyber.pdf. 

15. Business Software Alliance (BSA), "The Compliance Gap: BSA Global Software Survey" (BSA, june 

2014), 4, http://globalstudy.bsa.org/2013/downloads/studies/2013GlobalSurvey_Study_en.pdf. 

16. Katherine Linton, Alexander Hammer, and jeremy Wise, China: Intellectual Property Infringement, 

Indigenous Innovation Policies, and Frameworks for Measuring the Effects on the U.S. Economy 

(Washington, DC: U.S. International Trade Commission, November 2010), 

http:/ /www.usitc.gov/publications/332/pub4199·Pdf. 

17· Daniel Golden, Spy Schools: How the CiA, FBI and Foreign Intelligence Secretly Exploit America's 

Universities, (New York: Henry Holt, 2017). 

18. joan Lappin, "American Superconductor and Its Rogue Employee Both Duped by Sinovel," Forbes, 

September, 27, 2011, http:/ /wv.'W.forbes.com/sites/joanlappin/2on/o9/27/american-superconductorand-its-rogue-employee-both-duped-by-sinovel/. 

19. Robert Atkinson and Stephen Ezell, Innovation Economics: The Race .for Global Advantage (New 

Haven: Yale University Press), 202. 

20. Andreas Schetter and Mary Teagarden, "Protecting Intellectual Property in China" MIT Sloan 

Management Review, June q, 2014, http:/ /sloanreview.mit.edu/article/protecting-intellectual-propertyin-china/. 

21. Katherine Linton, Alexander Hammer, and jeremy Wise, China: Intellectual Property Infringement, 

Indigenous Innovation Policies, and Frameworks for Measuring the Effects on the U.S. Economy 

(Washington, DC: U.S.International Trade Commission, November 2010), 

http:/ /www.usitc.gov/publications/332/pub4199·Pdf. 

22. Ibid, 30 

23. Gaetan da Rassenfosse and Emilio Raiteri, 'Technology Protectionism and the Patent System: Strategic 

Technologies in China," College of Management of Technology, Ecole Polytechnique Federale de 

Lausanne (EPFL), Switzerland, https:/ /extranet.sioe.org/uploads/sioe2o17/de-rassenfosse_raiteri.pdf. 

24- Ibid. 

25. Select USA, "Foreign Direct Investment (FDI) China," accessed january 10, 2017, 

http:/ I selectusa.commerce .gov I count1y-fact -sheets/ Cbina_F act_Sheet. pdf. 

26. Rhodium Group, "Chinese Investment Monitor," accessed )anua1y 4, 2017, 

http:/ /rhg.com/interactive/china-investment-monitor. 

27. Ibid. 

28. Bijiun Wang and Huiyao Wang, "Chinese Manufacturing Firms' Overseas Direct Investment (OD!): 

Patterns, Motivations and Challenges" Rising China: Global Challenges and Opportunities, (August 

2011), 99, http:/ /ssrn.com/abstract=1907170. 

29. Paul Mozur and jack Ewing, "Rush of Chinese Investment in Europe's High-Tech Firms Is Raising 

Eyebrows," The New York Times, September 16, 2016, 

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http://www .nytimes.com/2ot6/ 09/17/business/ dealbook/ china-germany-takeover-mergertechnology.html?_r=o/. 

30. Thilo Hanemann, Daniel H. Rosen, and Cassie Gao, "Two-Way Street: 25 Years of US-China Direct 

Investment" (report, US-China FDI Project, Rhodium Group and the National Committee on U.S.-

China Relations, in partnership with the American Cham her of Commerce in Shanghai and the 

China General Chamber of Commerce, 2016), http:/lrhg.com/wpcontent/uploads/2016/n/TwoWayStreet_FullReport_En.pdf. 

31. Bijiun Wang and Huiyao Wang, "Chinese Manufacturing Firms' Overseas Direct Investment (ODI): 

Patterns, Motivations and Challenges" Rising China: Global Challenges and Opportunities, (August 

2011), 99, http:/ /ssrn.com/abstract=1907170. 

32. Ibid, 103. 

33· Ibid, 110. 

34- Ibid, m. 

35· Michael Brown and Pavneet Singh, China's Technology Transfer Strategy: How Chinese Investments in 

Emerging Technology Enable a Strategic Competitor to Access the Crown Jewels of U.S. Innovation, 

(Washington, DC: Defense Innovation Unit Experimental D!Ux, january 2018), 

https:// admin.govexec.com /medial diux_ chinatechnologytransferstudy _jan_2o18 _ ( 1). pdf. 

36. "Zhongguancun Development Group," accessed july 3, 2018, 

http:/ /www.zgcgroup.com.cn/business/overseas_funds.html. 

37· "Shenzhen Capital Group Made 6 New Investments in March 2018," Shenzhen Capital Group Co, 

accessed july 7 2018, http://www.szvc.com.cn/english/a/2m8o409/2388.shtml. 

38. "Government Backed Funds," Shenzhen Capital Group Co, accessed july 7, 2018, 

http://www.szvc.com.cn/english/OurBusiness/FundManagement/GovernmentBackedFunds/index.sht 

ml. 

39· "Investment Portfolio," Shenzhen Capital Group Co, accessed july 7, 2018, 

http://www.szvc.com.cn/english/OurBusiness/Investment/lnvestmentPortfolio/index.shtml. 

40. "Maryland Internationallncubator," accessed january 10, 2017, http://www.mi2.umd.edu/#companies. 

41. "Chinese Investment Floods US Biotech Pharmaceutical Start-Ups are Raising Money at a Breakneck 

Pace," The Gazette, April21, 2018, https://www.thegazette.com/subject/news/nation-andworld/chinese-investment-floods-us-biotech-2m8o421 

42. Hui l.i and Jonathan Browning, "China Inc Goes on a Buying Spree for Global Health Assets," 

Bloomberg, July 5, 2016, https://www.bloomberg.com/news/articles/2m6-o7-05/china-inc-goes-on-abuying-spree-for-global-health-care-assets. 

43· These steps were clearly laid out in the protocol on the accession of the People's Republic of China.: 

"China shall, upon accession, comply with the TRIMs Agreement, without recourse to the provisions of 

Article 5 of the TRIMs Agreement. China shall eliminate and cease to enforce trade and foreign 

exchange halancing requirements, local content and export or performance requirements made 

effective through laws, regulations or other measures. Moreover, China will not enforce provisions of 

contracts imposing such requirements. Without prejudice to the relevant provisions of this Protocol, 

China shall ensure that the distribution of import licenses, quotas, tariff-rate quotas, or any other 

means of approval for importation, the right of importation or investment by national and 

sub-national authorities, is not conditioned on: whether competing domestic suppliers of such 

products exist; or performance requirements of any kind, such as local content, offsets, the transfer of 

technology, export performance or the conduct of research and development in China." 

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44· Congressional-Executive Commission on China, "China's Working Party Report," (November 2ou), 49, 

http://www.cecc.gov/pages/selectLaws/WTOimpact/wkptrptPRCWfO.php; Atkinson, Enough is 

Enough, 13. 

45· Thomas M. Hout and Pankaj Ghemawat, "China vs the World: Whose Technology Is lt?," Harvard 

Business Review, December 2010, http:i/hbr.org/zow/12/china-vs-the-world-whose-technology-isit/ar/I. 

46. Wayne M. Morrison, "China-U.S. Trade Issues" (Congressional Research Service, April2018), 38, 

https://fas.org/sgp/crs/row/RL33536.pdf. 

47· Kun Jiang, Wolfgang Keller, Lany D. Qiu, William Ridley, "International joint Ventures and Internal 

vs. External Technology Transfer: Evidence from China" (working paper, the National Bureau of 

Economic Research, Cambridge, Massachusetts, 2018), http://www.nber.org/papers/W24455· 

48. The US-China Business Council (USCBC), USCBC 2014 China Business Environment Survey Results: 

Growth Continues Amidst Rising Competition, Policy Uncertainty, (USCBC, 2014), 

https://www.uschina.org/sites/default/files/USCBC%202014%2oChina%2oBusiness%2oEnvironment% 

2oSurvey%2oResults%2o%z8English%29_o.pdf. 

49· U.S. Congress, Office of Technology Assessment, Technology Transfer to China, (Washington, DC: U.S. 

Government Printing Office, july 1987), 6, 

https://www.princcton.edu/-ota/disb/1987/8729/87290LPDF. 

so. Kun Jiang, Wolfgang Keller, Lany Qiu, "International joint Ventures and Internal vs External 

Technology Transfer Evidence from China" (working paper, NBER, May 2018), 

https://www.nber.org/papers/w24455· 

51. AmCham China, "China Business Climate Survey Report, 2013," https://www.amchamchina.org/policyadvocacy/business-climate-survey/2o13·business-climate-survey. 

52. Thilo Hanemann, Daniel H. Rosen, and Cassie Gao, Two-Way Street: 25 Years ofUS-China Direct 

Investment, (report, US-China FDI Project, Rhodium Group and the National Committee on U.S.-

China Relations, in partnership with the American Chamber of Commerce in Shanghai and the China 

General Chamber of Commerce, 2016), w, http://rhg.com/wpcontent/uploads/2m6/n/TwoWayStreet_Fu11Report_En.pdf. 

53· Office of the U.S. Trade Representative Executive Office of the President, Findings of the Investigation 

into China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and 

Innovation Under Section 301 of the Trade Act of1974, (Washington DC: March 2018), 22, 

https://ustr.gov/sites/default/files/Section%2o301%20FINAL.PDF. 

54- Zhenhua Chen, Kingsley Haynes, "A Short History of Technology Transfer and Capture: High Speed 

Rail in China," (November 2016), 4, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872527. 

55· Ibid, 8. 

56. "China's High-Speed Train Marker to Get $3o Billion for Export Push," The Economic Times, October 3, 

2017, https://economictimes.indiatimes.com/news/international/business/chinas-high-speed-trainmaker-to-get · 30-billion-for-export ·push/ articleshow /60924 380 .ems. 

57· "China- Rail and Urban Rail," Export.gov, 2017, l1ttps://www.export.gov/article?id=China-Rail-andUrban-Rail. 

58. Daniel C.K. Chow, "Three Major Problems Threatening Multi-National Pharmaceutical Companies 

Doing Business in China," (working paper, Ohio State Public Law and Legal Theory, 2017), 

https://papers.ssrn.com/sol3/papcrs.cfm ?abstract_id=3029347. 

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59· Angus Liu, "Riding on Booming Drug Sales, Astra Zeneca Forms $133M China joint Venture," 

FierceBiotech, November 27, 2017, https://www.fiercebiotech.com/biotech/riding-booming-drug-salesastrazeneca-forms-133m-china-joint-venture. 

6o. Cate Cadell, "Amazon Sells Off China Cloud Assets as Tough New Rules Bite," Reuters, November 13, 

2017, https:/ /www.reuters.com/article/us-china-amazon-cloud/amazon-sells-off-china-cloud-assetsas-tough-new-rules-bite-idUSKBN1DEoCL. 

61. The World Bank provided the Chinese Export-Import Bank (Eximbank) funding in 2006 to "formulate 

a medium-and-long-term development strategy .. .including the strategic guiding ideology, the 

choosing of the medium-and-long-term development strategy together with feasibility analysis, the 

guidelines, policies and measures for the implementation of the strategic goals." The project funded 

experts to consult with the Bank as well as the travel of Chinese Eximbank officials overseas to study 

best practices, "such as export credit, trade financing, ship financing, ODA [overseas development 

assistance] loan and financing for small and medium-sized enterprises." World Bank, "Implementation 

Project of Chinese Economic Reforms: Fifth Technique Aid: Purchase Plan for Sub-project 

Consultation Service," November 27, 2007, 52-58, http://wwwwds.worldbank.org/cxternal/default/WDSContentServer/WDSP/lB/20o7/U/27/oooo20953-20071127145 

624/Rendered/PDF /41638.pdf. 

62. United States Trade Representative, 2017 Report to Congress On China:< WTO Compliance, 

(Washington DC: Executive Office of the President of the United States, January 2018), 12, 

https://ustr.gov/sites/default/files/files/Press/Reports/China%2o2o17%2oWT0%2oReport.pdf. 

63. Michael B. G. Froman, 2015 National Trade Estimate Report on Foreign Trade Barriers, (United States 

Trade Representative's Office, April2015), 72, 

https://ustr.gov/sites/default/files/2015%2oNTE%2oCombined.pdf. 

64. Stephen Ezell, "China-Induced Global Overcapacity an Increasing Threat to High-Tech Industries," 

Innovation File.s, February 27, 2018, https:/ /itif.org/publications/2m8/o2/27/china-induced-globalovercapacity-increasing-threat-high-tech-industries. 

65. Sherisse Pham and Matt Rivers, "China is Crushing the U.S. in Renewable Energy," CNN Tech, July 18, 

2017, http://money.cnn.com/2017/o7/18/technology/china-us-clean-energy-solar-farm/index.html. 

66, David M. Hart, "To Build a battery Industry, New York Needs Help from Washington" (Information 

Technology and Innovation Foundation, February 2018), 

https :/ /itif.org/pu blications/ 2018/ oz/ o6/build -battery-indus try-new-york-needs-help-washington. 

67. Pan Yue, "China's $798B Government Funds Redraw Investment Landscape, Here Are the Largest 

Funds You Must Know," China Money Network, October 31, 2017; Sophy Yang, "China's 2,041 

Government Guidance Funds Size Reaches $530B: Report," China Money Network, November 12, 2018. 

68. Robert Atkinson and Luke Stewart, "Just the Facts: The Benefits of Information and Communications 

Technology" (Information Technology and Innovation Foundation, May 2013), 

https:/ /itif.org/publications/2013/os/13/just-facts-benefits-information-and-communicationstechnology. 

69. Information Technology and Innovation Foundation, "Defense Innovation and the Future of American 

Competitiveness," new release, November 25, 2014, https://itif.org/publications/2014/n/zs/defenseinnovation-and-future-american-competitiveness. 

70. Article 40 of the TRIPS Agreement (as an effort to control abusive licensing practices) holds that 

Members agree that some licensing practices or conditions pertaining to intellectual property rights 

which restrain competition may have adverse effects on trade and may impede the transfer and 

dissemination of technology. 
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71. Darren E. Tromblay, "Protecting Partners or Preserving Fiefdoms? How to Reform Counterintelligence 

Outreach to Industry" (Information Technology and Innovation Foundation, October 2017), 

https://itif.org/publications/2D17/10/16/protecting-partners-or-preserving-fiefdoms-how-reformcounterintelligence. 

72. Robert Atkinson and Dennis Blair, "Overcoming the China Challenge," The American Interest, 

September 17, 2018, https://itif.org/publications/2m8/o9/17/overcoming-china-cha!lenge. 

73· Robert D. Atkinson, "The Competitive Edge: A Policymaker's Guide to Developing a National Strategy" 

(Information Technology and Innovation Foundation, December 2017), 

https://itif.org/publications/2017/l2/o6/competitive-edge-policymakers-guide-national-strategy 

74· Stephen Ezell, "America Needs a Fully Committed and Operational Export-Import Bank," Innovation 

Files, December 18, 2017, https://itif.org/publications/2017/12/18/america-needs-fully-committed-andoperational-export-import-bank. 

75· Robert D. Atkinson, Luke A. Stewart, and jacek Warda, "We're #27!: The United States Lags Far Behind 

in R&D Tax Incentive Generosity" (Information Technology and Innovation Foundation, july 2012); 

Robert Atkinson and Luke Stewart, "University Research Funding: The United States is Behind and 

Falling" (Information Technology and Innovation Foundation, May zon), http:/ /wwwz.itif.org/2012-

were-27-b-index-tax.pdf?_ga~1.1948s8z8s.18o464888.1488305556 and 

https:/ /itif.org/publications/2ou/os/19/university-research-funding-united-states-behind-and-falling. 

76. joe Kennedy and Robert D. Atkinson, "Why Expanding the R&D Tax Credit Is Key to Successful 

Corporate Tax Reform" (Information Technology and Innovation Foundation, july 2017), 

https://itif.org/publications/zoq/o7/os/why-expanding-rd-tax-credit-key-successful-corporate-taxreform. 

77· Stephen Ezell and Robert D. Atkinson, "Fifty Ways to Leave Your Competitiveness Woes Behind: A 

National Traded Sector Competitiveness Strategy" (Information Technology and Innovation 

Foundation, September 2012), https://itif.org/publications/2o12/09/2o/fifty-ways-leave-yourcompetitiveness-woes-behind-national-traded-sector. 

78. Ibid. 

79· john Wu and Robert D. Atkinson, "How Technology-Based Start-Ups Support U.S. Economic Growth 

(Information Technology and Innovation Foundation, November 29, 

2017, https://itif.org/publications/zoq/n/z8/how-technology-based-start-ups-support-us-economicgrowth. 

So. Ibid. 

81. Stephen Ezell and Scott M. Andes, "Localizing the Economic Impact of Research and Development: 

Policy Proposals for the Trump Administration and Congress" (Information Technology and 

Innovation Foundation and Brookings Institution, December 

2016), https :/ /itif.org/pu bl ications/2016 I 12/ 07/loca lizing-economic-impact -research-and-developmentpolicy-proposals-trump. 

82. Stephen Ezell and Robert D. Atkinson, "zs Recommendations for the 2013 America COMPETES Act 

Reauthorization" (Information Technology and Innovation Foundation, April 

2013), https://itif.org/publications/zo13/o4/22/25-recommendations-2013-america-competes-actreauthorization. 

83. Stephen Ezell and Scott M. Andes, "Localizing the Economic Impact of Research and Development." 

84- Stephen Ezell and Robert D. Atkinson, "Fifty Ways to Leave Your Competitiveness Woes Behind." 
41 

Chairman RUBIO. Thank you. 

Mr. Rush. 

STATEMENT OF ANDREW RUSH, PRESIDENT AND CEO, MADE 

IN SPACE, INC. 

Mr. RUSH. Chairman Rubio, Ranking Member Cardin, and members of the Committee, thank you for the opportunity to speak with 

you today. 

Innovation and technical advancements are really the most critical components of our national infrastructure. As the global landscape shifts, it is imperative that our Nation maintains its superiority in both the commercial markets and in defense. 

I believe that America’s leadership in space will be the key to fortifying our American industry and military strength. 

As the CEO of Made in Space, I am really honored to lead a company that is really pioneering a new space economy and supporting 

our Nation’s exploration and defense objectives. Made in Space is 

the industry leader in space manufacturing technology and products for both commercial and government customers. 

We are developing new capabilities to produce in-space 

manufacturable satellites, which leverage additive manufacturing 

and robotic assembly. This new technology will really redefine the 

future of our space infrastructure, enabling next-generation spacecraft and platforms to be built, reconfigured, and repaired on orbit. 

Key enablers of this incredible progress have been strong support 

from NASA, DARPA, other government agencies, and public-private partnerships. 

Specifically, this support has seen us transform our base technology and capabilities from programs—into programs focused on 

meeting ambitious exploration and defense objectives. 

Our In-Space Manufacturing program was initially demonstrated 

through a grant from NASA’s Flight Opportunities program, which 

allowed us to test a gravity-independent 3D printer on a parabolic 

flight. 

After this first successful demonstration, we were rewarded a series of NASA SBIR contracts to develop and operate the first 3D 

printers on the International Space Station. 

In 2014, we manufactured the very first functional objects that 

humanity ever made off the face of the planet. This flight tipping 

technology, which is supported by NASA, is now meeting the demands of both commercial and government customers on orbit. 

Further building on the success, Made in Space was selected to 

participate in the NASA STMD In-Space Robotic Manufacturing 

and Assembly program, or IRMA for short. The IRMA program is 

a two-phase program, which seeks to transform the way that we 

manufacture, assemble, and repair large structures and satellites 

in space, and IRMA is a really powerful example of how the government can spur technological innovation and advance American 

industry. 

IRMA operates with a public-private partnership, requiring at 

least 25 percent of the development cost of the program to be contributed by industry, with really the primary focus on this being 

to develop tipping point technologies that will be used both by commercial and government users. 

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Phase I of this was focused on ground demonstration, and in 

Phase II, there is focus on definitive flight demonstrations in space 

to push these technologies past those tipping points, enabling the 

use of this technology for operational defense, commercial, and civil 

space missions. 

This programmatic structure is enabling American industry to 

develop and implement technologies which improve satellite design 

and operation in the future and provide significant advantages over 

the U.S.’s competitors. 

Despite these triumphs, space is becoming an increasingly contested environment. Mere years after Made in Space first demonstrated the ability to 3D print in microgravity, Chinese researchers aboard parabolic aircraft demonstrated that same technological 

feat. 

And just as Made in Space and NASA have been progressing 

from parabolic flights to developing in-space manufacturing and assembly technologies for space missions, China is taking a similar 

approach. 

The China Academy of Space Technology Corporation, a major 

Chinese aerospace contractor, has recently announced plans to develop and deploy large-scale space-based solar power stations. By 

2025, using in-space manufacturing and assembly technologies, 

they plan to begin constructing power stations, which will beam 

power from space to the ground in China. The technologies used to 

construct such power stations can also be used for next-generation 

military and civil space assets and are potentially being developed 

at a pace that is faster than current U.S. investments in this kind 

of technology. 

We at Made in Space have benefited enormously from the virtuous cycle of technology development and operation enabled by 

NASA and other government agencies. We are grateful to those 

that have helped us along the way and are proud to continue this 

work. 

Over the next decade, the space economy will continue to grow 

due to this support, but competitors such as China have taken note 

of this. While the U.S. currently has an edge in high-impact areas, 

such as in-space manufacturing and assembly of satellites, this advantage is eroding. 

Additional investment is required and operational mission infusion should be accelerated in order to maintain America’s edge in 

these important areas, or else we risk losing the ultimate high 

ground of space. 

Thank you. 

[The prepared statement of Mr. Rush follows:] 

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MADE 

IN SPACE 

Testimony of 

Andrew Rush 

CEO 

Made In Space, Inc. 

Before the 

Andrew Rush 

President & CEO 

Made In Space, Inc. 

U.S. Senate Subcommittee on Small Business & Entrepreneurship 

Hearing on 

"Made In China 2025 and the Future of American Industry" 

February 27, 2019 

Russell Senate Office Building, Room 428A 

Washington, DC 

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MADE 

IN SPACE 

Introduction 

Andrew Rush 

President & CEO 

Made In Space, Inc. 

Continuous technological innovation has been foundational to maintaining America's 

commercial and military superiority on the ground and in space. Made In Space, Inc. 

(Made In Space, MIS) is developing technologies and business models that will enable 

and drive people to one day sustainably live and work in space. In 2014, Made In Space 

hardware successfully produced the first functional objects manufactured off the face of 

the planet Today, Made In Space has several in-space manufacturing programs 

underway and is commercially manufacturing for customers aboard the International 

Space Station. This success would not be possible without the Small Business Innovation 

Research Program, public-private partnerships like the In-Space Robotic Manufacturing 

and Assembly Tipping Point program (IRMA), and access to the International Space 

Station (ISS). 

In the space domain in particular, new capabilities are needed in order to maintain and 

grow America's edge over others. Space is critical to both the American economy and to 

our defense apparatus. To this end, Made In Space is developing in-space 

manufacturable satellites. Using a combination of additive manufacturing and robotic 

assembly, this capability allows satellites to utilize mass and volume much more efficiently 

and eliminates design constraints that the harsh mechanical environment of launch 

places upon spacecraft. In-space manufacturing also enables satellites to be repairable 

and reconfigurable, making both civil and military spacecraft more resilient to changing 

threats in space. 

Technological innovation is the engine which will keep us ahead of China and other 

nations. Space is acknowledged as integral to the current national economy, an area of 

high economic growth over the next decade, and, increasingly, as formally recognized by 

the Department of Defense in 2017, a warfighting domain. Because of these factors, it is 

imperative that active measures be increased to develop new technologies and business 

models which utilize space for commerce, science, and defense. 

In order to maintain and grow America's space-based edge over China and others, Made 

In Space strongly encourages continued support of programs which enable the step-bystep development of new commercial space capabilities, including the SBIR program, 

NASA's IRMA program, DARPA's support of in-space manufacturing and assembly 

development, and the International Space Station. 

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MADE 

IN SPACE 

Made In Space is a 

small business with 

offices in California, 

Florida, Alabama, and 

Ohio. 

Made In Space was 

founded in 2010 with 

the goal of enabling 

people to sustainably 

live and work in space. 

This goal is shared by 

many in the space 

industry who believe in 

the economic promise 

the final frontier holds. Figure 1. ISS Commander Barry ~'Butch" Wilmore holding a 

Andrew Rush 

President & CEO 

Made In Space, Inc. 

Companies like in space. The ratchet was designed on the ground and manufactured in space one week later, 

Space X and Blue making it potentially the fastest delivery ta space ever. Image credit: NASA 

Origin are focused on building low cost launch vehicles, 21 51 century versions of the 

covered wagon. We at Made In Space are focused on developing the tools and 

manufacturing facilities that will fill those wagons to the stars, enabling growth portions of 

American industry in a regime where China and others are increasingly competitive with 

U.S. offerings. 

We focus on two types of space-based manufacturing: manufacturing technologies that 

enable new missions in space; and manufacturing technologies which leverage the space 

environment to create high value goods for use on Earth. We believe these areas will 

drive significant growth of American industry over the next decade. Furthermore, they 

represent technical advantages the U.S. possesses over China and others which should 

be developed and implemented in operational civil and defense space applications as 

quickly as possible before they are duplicated or surpassed. 

NASA and OGA Support Enables Manufacturing In Space For Use In Space and the 

Future of American Industry In Space 

In-space manufacturing and assembly dramatically reduces spacecraft cost, reduces the 

limitations rocket launch places on spacecraft design, and removes astronauts from 

harm's way. Traditionally, satellite design has been constrained by launch-shroud size 

and launch load/environment survivability requirements. Similarly, due to lift capacity 

limits and the high risk and low availability of astronaut EVA for assembly, creating large 

space-based structures such as space stations has been a once-in-a-generation 

endeavor. Archinaut minimizes or removes these and other design limitations. 

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MADE 

IN SPACE 

Andrew Rush 

President & CEO 

Made In Space, Inc. 

In-space manufacturing and assembly enables a wide variety of desirable missions. 

These include largescale telescopes for astrophysics missions, increased power 

production for small satellites, and future space station backbones. In-space 

manufacturing and assembly is also transformational for defense applications, enabling 

largescale reflectors, long baseline structures for civil and defense SAR applications, and 

space-based solar power stations. Additionally, these technologies enable satellites to be 

modified, repaired, or reconfigured on orbit, thereby enabling these assets to be more 

resilient and durable in a manner that does not exist in the current "fire and forget" 

approach to satellite design, manufacture, and deployment. 

Working closely with NASA, DARPA, and others and utilizing multiple pieces of the space 

infrastructure described above, Made In Space has made significant progress in 

developing and demonstrating in-space manufacturing technologies for both satellite 

applications and human spaceflight missions. MIS engineers initially internally developed 

a prototype gravity-independent 3D printer. Through a grant from the NASA Flight 

Opportunities Program, that prototype was tested and successfully operated on board a 

parabolic flight aircraft in 2011. 

Based on this success, Made In Space was awarded SBIR contracts to develop the 

technology for demonstration aboard the ISS. Via an SBIR Phase Ill contract with NASA 

run out of the In-Space Manufacturing group at NASA Marshall Space Flight Center, 

Made In Space built and operated the first 3D printer to operate in space. In late 2014, 

via the 3D Printing In Zero-G Technology Demonstration experiment, this space-capable 

3D printer was installed on the ISS and manufactured the first functional objects ever 

made off the planet Earth (see Figure 1 }. 

Thereafter, Made In Space built the Additive Manufacturing Facility (AMF, see Figure 2}, 

a second-generation more capable 3D printer. The AMF was launched to the ISS in March 

2016. Via agreements with NASA and the Center for the Advancement of Science In 

Figure 2. The Additive Manufacturing Facility (left) is the first ever commercial manufacturing facility deployed to space. The first 

commercially manufactured part in space was a space optimized hand toot (right). !mage credits: NASA/Made In Space. 

Space (CASIS}, the managers of the ISS National Lab, Made In Space owns and 

operates the AMF, routinely sending print jobs to the ISS and manufacturing them on a 

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IN SPACE 

Andrew Rush 

President & CEO 

Made In Space, Inc. 

weekly basis. The AMF print services business is profitable and has produced parts for 

NASA, the U.S. Navy, Lowe's, universities such as Texas A&M University, student 

groups, and even individuals. Parts manufactured include space optimized structures, 

hand tools for the ISS crew, prototype medical splints and ventilators, and adaptors for 

ISS equipment. This commercial service is one of several pioneering commercial uses of 

low Earth orbit. These uses represent pathfinders for future commercial space stationbased businesses, a future cornerstone of American industry's utilization of space. 

The capability to manufacture parts on demand during a space mission is paradigm 

shifting. 30 printing serves as a fast and inexpensive way to manufacture parts on-site 

and on-demand, reducing the need for costly spares on the ISS and other spacecraft. 

Long-term missions would benefit greatly from having onboard manufacturing 

capabilities. New parts may be manufactured to enable new scientific experiments or 

augment existing ones. 

Further building on this success and internal research and development into 

manufacturing very large, space-optimized structures in space, Made In Space was 

selected to participate in the two phase NASA Space Technology Mission Directorate InSpace Robotic Manufacturing and Assembly Tipping Point program (IRMA) program. The 

IRMA program seeks "to transform the way we manufacture, assemble and repair large 

structures in space, leading us closer to a robust space infrastructure freed from launch 

window scheduling, launch vehicle mass limitations and astronaut safety concerns. 

Ultimately, [IRMA) will enable more frequent science and discovery missions in Earth 

orbit, across the solar system and beyond." 1 Furthermore, IRMA operates via "publicprivate partnerships to deliver technologies and capabilities needed for future NASA, 

other government agency, and commercial missions."2 Tipping point technologies were 

sought. That is, technologies and capabilities which, if investment was made in a flight 

demonstration, there would be "significant advancement of the technology's maturation, 

a high likelihood for utilization of the technology in a commercially fielded space 

application, and a significant improvement in the offerors' ability to successfully bring the 

space technology to market" thereby enabling the capability to be available to NASA and 

OGA's but sustained by the commercial market, resulting in more cost effective and better 

technological outcomes for the government.3 

Phase I of the IRMA program focused on ground demonstrations of in-space 

manufacturing and assembly technologies, maturing these technologies for flight 

demonstrations in Phase II where properly planned definitive demonstrations in space will 

push these technologies past the tipping point and raise their technology readiness level 

to the point that civil, defense, and commercial customers will utilize the technologies for 

1 See: https://www.nasa.gov/mission_pages/tdm/lrma/index.html 2 See NASA Solicitation UTILIZING PUBLIC~ PRIVATE PARTNERSHIPS TO ADVANCE TIPPING POINT TECHNOLOGIES appendix number 

NNH15ZOA001N*15STM0-001 to NASA Research Announcement {NRA): Space Technology- Research, Development, Demonstration, and 

Infusion- 2015 {SpaceTech-REDD!-201St NNH15ZOA001N released May 21, 2015, 

3/d. 

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Made In Space, Inc. 

operational m1ss1ons. This programmatic structure and focus is enabling American 

industry to develop and implement technologies which will improve satellite design, 

operation in the future, providing significant advantages over the U.S.'s competitors. 

Under a Phase I contract 

begun in late 2016, Made In 

Space led a team including 

Northrop Grumman to 

develop its Archinaut inspace manufacturing and 

assembly technology (see 

Figure 3). During rocket 

launch, spacecraft are 

subjected to high g forces 

and large vibrational forces. 

Further, the entire spacecraft 

must fit within the limited 

volume of the launch fairing. 

Figure 3. This artist's rendering depicts the Archinaut payload during its deployment 

in space. Via additive manufacturing and assembly, a large reflector is 

manufactured and integrated over time. Image credit: Made In Space 

Surviving this launch environment requires wasting mass to over engineer components 

to survive launch and engineering deployables which unfurl once the satellite reaches 

orbit, creating points of failure. Archinaut technology will enable optimization of spacecraft 

structures for their operational environment, rather than launch. Additionally, repair and 

reconfiguration of assets once they are on orbit will be possible. Further, this technology 

enables providing large structures at lower cost and enabling robotic manufacture and 

assembly of large reflectors, space stations, and other applications for civil, defense, and 

commercial space customers. Before operating in space, this technology was 

demonstrated in NASA environmental testing facilities and aboard ISS via AMF, including 

manufacturing space-optimized structures in space. 

The Archinaut Development Program is a private-public partnership designed to develop 

a technological capability that is useful to both government and commercial customers. 

As part of its effort, the Made In Space-led team is contributing over 25% of the program 

cost. Made In Space believes that space technologies should be developed into products 

which are useful and sold to both government and commercial space customers. This 

expands their utilization and lowers costs for all customers. 

The Future of American Industry Depends on Unrestricted Access to Space, 

China's Investments in the Space Sector Are Part of a Larger Space Strategy that 

Threatens This Access 

The American space economy is expanding and innovating at a faster rate than any time 

since the Apollo program. Thanks to public-private partnerships such as the IRMA 

program and commercially oriented NASA programs like the Commercial Resupply 

Services program, the ISS Crew Transportation Services program, and their 

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Made In Space, Inc. 

predecessors, commercial activity in space has never been stronger. Investments in 

certain aspects of the space economy, such as orbital launch and remote sensing, have 

also reached record highs. 

However, it is critical to note that private sector investment is not driving expansion of the 

utilization of space across the board. Areas crucial to maintaining America's edge, such 

as defense, research and development, and technology demonstration, are often too 

niche or too early stage for significant private sector investment. An array of governmentdriven efforts help develop, test, and implement new technological innovations for civil 

and defense space applications. Many of these efforts also emphasize commercialization 

of technologies as they are developed, enabling the private sector to benefit from 

capabilities developed for civil or defense space needs. 

Despite these triumphs, space is becoming an increasingly contested environment. Mere 

years after Made In Space initially demonstrated the ability to 30 print in microgravity, 

Chinese researchers conducted a very similar experiment aboard a parabolic aircraft, 

duplicating the technological feats of 30 printing in microgravity. 4 Much like Made In 

Space and NASA first demonstrated microgravity-capable 30 printing and then 

progressed to developing in-space manufacturing and assembly technologies and 

missions, it appears that China is following up on its initial demonstrations in a similar 

fashion. The China Academy of Space Technology Corporation, a major Chinese 

aerospace contractor, has recently announced plans to develop and deploy a large scale 

space-based solar power station. By 2025, using in-space manufacturing and assembly, 

they plan to construct a megawatt space solar power station which will be utilized to beam 

power to ground stations in China. 5 The technologies used to construct such power 

stations could also be used to create next generation military and civil space assets as 

described herein at a pace which is potentially faster than current space technology 

development investments permit. 

Conclusion 

Made In Space has benefited enormously from a virtuous cycle of technology 

development and operation enabled by the Small Business Administration, NASA, and 

OGA's. Made In Space is grateful to all those that have helped along the way and proud 

to continue working with NASA and other government agencies. Over the next decade, 

the space economy will grow due to this support. Competitors such as China have taken 

note of the progress on made in space technology development. While the U.S. currently 

has an edge in high impact areas such as in-space manufacturing and assembly of 

satellites, this capability advantage is eroding. Additional investment is required and 

operational mission infusion should be accelerated in order to maintain America's edge 

4 See http:/ /eng!ish.cctv.com/2016/04/20/VIDE7CXvslir229CKOYHJkni160420shtm! detailing Chinese demonstration of 30 printing aboard 

parabolic flight test aircraft in Apri12016. In the US, this was first successfully demonstrated by Made In Space via NASA's flight opportunities 

program in 2011. 5 See https:/ /3dprint.com/23 6795/ chinese·scientists-bui!d ing-sola r -space-station-projecting-that-3d-printing-robotics-will-assist-tutu re/ 

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Andrew Rush 

President & CEO 

Made In Space, Inc. 

in these important areas or else risk losing the ultimate high ground of space. This 

represents an existential threat to the U.S., both militarily and economically, in a wide 

array of known, and more worryingly, unknown arenas. If ceded this advantage may never 

be won back. 

Page 8 of8 Made In Space, Inc. 
51 

Chairman RUBIO. Ms. Glaser. 

STATEMENT OF BONNIE S. GLASER, DIRECTOR, CHINA POWER 

PROJECT, CENTER FOR STRATEGIC AND INTERNATIONAL 

STUDIES 

Ms. GLASER. Thank you, Chairman Rubio, Ranking Member 

Cardin, and members of the Committee for inviting me to testify 

today. 

We are here talking about Made in China 2025. As you have said 

in your opening remarks, this is a 10-year industrial policy designed to transform China into an advanced global manufacturing 

leader. 

But let us be clear. This is one of many industrial policies in 

China. This is not the only one. There is a thirteenth 5-year plan, 

very outstanding, which runs 2016 to 2020. China is moving away 

from market-led economic decision-making, to the extent that they 

ever were relying on the market. 

Xi Jinping has spoken out very clearly about what China’s goals 

are, and it is important to put the Made in China 2025 plan within 

the context of China’s larger geostrategic goals. 

Xi Jinping talked in the 19th Party Congress, October of 2017. 

He laid out a plan to achieve the great rejuvenation of the Chinese 

nation, 2049. That is the centennial of the founding of the Chinese 

Communist Party. And then he set out an interim goal of 2035 of 

making China into a top-ranked innovative nation. So there are 

many industrial policies that are aimed at achieving this goal. 

So drilling down on Made in China 2025, what are some of the 

challenges and problems that it poses? First of all, this program 

will advance China’s goal of military-civil fusion, another goal that 

Xi Jinping has set out, which aims at strengthening the country’s 

innovation capability for dual-use technologies in key strategic industries. Obviously, this includes aviation, robotics, information 

technologies. It is going to help the People’s Liberation Army become a more effective fighting force. 

Secondly, China’s ambition to control entire supply chains poses 

a risk that entire industries could come under Chinese control. 

Thirdly, Chinese government subsidies distort markets, undercut 

U.S. and other foreign manufacturers, and results in overcapacity 

and the dumping of cheap products in the global market. We have 

seen this happen in the electric vehicle industry with batteries. 

Fourth, made in China 2025 lays out a three-stage plan. So it 

starts with localizing and controlling segments of global supply 

chains, then to proceed with substitution, and finally to capture 

global market share. This is a three-step process that could enable 

China to displace foreign companies in some of these industries, 

both domestically and internationally. 

Fifth, establishing quotas violates WTO rules against technology 

substitution, and you can find very specific quotas in all of these 

10 areas. 

Sixth, MIC 2025 puts a premium on the acquisition of advanced 

technology, and, Senator Cardin, you talked about some of the 

ways in which China is procuring technology illegally. There is 

also, of course, an emphasis on buyouts of foreign companies. 

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Finally, number seven, Made in China 20205 will help China to 

spread Chinese standards abroad and undermine Western standards. So among these target countries are going to be those that 

are linked to China’s ‘‘One Belt, One Road,’’ which seeks to tie Eurasian economies more closely to China through trade and investment. 

I have laid out in my testimony some of the recommendations of 

what needs to be done. First on the list is certainly to protect intellectual property. We are doing a lot better, I think, and the Department of Justice having stood up the China Initiative, prosecuting 

and enforcement of cases going forward of suspected Chinese economic espionage is going to be very important. I think the Treasury 

Department should be sanctioning Chinese companies that benefit 

from cyber espionage. And counter-intelligence outreach should be 

expanded to U.S. startups and small businesses in sectors central 

to Chinese technology strategies that are vulnerable. 

Secondly, we should be using the World Trade Organization. This 

is a dispute settlement mechanism that WTO provides a means to 

hold China accountable for its trade practices, including persistent 

theft of intellectual property, cyber-enabled espionage, and widespread use of subsidies. The U.S. has been successful in the past 

in winning WTO cases. We have won more than any other country, 

and it is a good means to try to protect the interests of American 

workers. 

Where possible, we should be collaborating with international 

partners to bring trade cases against China at the WTO, and one 

such case could be targeting the forcing of our foreign firms to 

transfer technology and intellectual property. 

Thirdly, I agree very much with this Committee’s report and 

commend everybody on the hard work that you have put in it. The 

United States, I agree, cannot—and I quote the report—‘‘escape or 

avoid decisions about industrial policy.’’ As the U.S. strategizes 

about how to compete more effectively with China, we should consider the pros and cons of industrial policy making, rather than imposing tariffs that effectively tax U.S. companies they are supposed 

to defend. The U.S. should support innovation at home by providing more funding for basic research and development. 

And, finally, I have suggested that we find, when the politics are 

right, a way to rejoin the TPP, now called the ‘‘CPTPP,’’ because 

I think it provides one of the best options for the United States to 

compete more effectively with China and counter Made in China 

2025. 

Apologies for going over my time. 

[The prepared statement of Ms. Glaser follows:] 

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CSIS I CE!!TER FOR SIRATEGIC & 

INTERNATIONAL STUOI!:S 

Statement before the 

Senate Small Business and Entrepreneurship Committee 

"Made in Future of American 

A Testimony by: 

Bonnie S. Glaser 

Director, China Power Project 

Center for Strategic and International Studies (CSIS) 

February 27,2019 

428A Russell Senate Office Building 

WWW.CSIS.ORG 1616 RHOO£ ISLAND AVENUE NW TEL (202) 307.0200 

WASHINGTON, DC 20036 FAX (202) 775.3199 
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Glaser: Written Testimony, Senate Small Business 02/27/2019 

Thank you, Chairman Rubio, Ranking Member Cardin, and members of the committee for 

inviting me to testify today on the important topic "Made in China 2025 and the Future of 

American Industry." 

The Made in China 2025 Plan (MlC 2025) is a ten-year, comprehensive industrial policy 

designed to transform China into an advanced global manufacturing leader. Like the concurrent 

13'h Five-Year Plan (2016-2020) and related state-led programs, MIC 2025 seeks to leverage the 

power of the Chinese state to promote indigenous innovation, advance technological selfsufficiency, and create comparative advantage in key strategic sectors on a global scale. 1 

The Chinese State Council document launching M!C 2025 issued in May 2015 clearly revealed 

Beijing's aim of comprehensively upgrading Chinese industry. The plan set the target of raising 

domestic content of core components and materials to 40 percent by 2020 and 70 percent by 

2025. A substantial role for the state was highlighted, including through the utilization of 

financial and fiscal tools, support tor the creation of manufacturing innovation centers (15 by 

2020 and 40 by 2025), as well as assistance to Chinese firms to participate in international 

standards setting. 

Although the goal of MIC 2025 is to upgrade industry writ large, the plan targets ten strategic 

industries in which China intends to foster the development of not only national champions but 

global champions. These ten priority sectors are: I) advanced information technology; 

2) automated machine tools and robotics; 3) aircraft and aeronautical equipment; 4) maritime 

vessels and marine engineering equipment; 5) advanced rail equipment; 6) new energy vehicles; 

7) electrical generation and transmission equipment; 8) agricultural machinery and equipment; 9) 

new materials; and l 0) pharmaceuticals and advanced medical devices. 

China's Strategic Goals 

MIC 2025 is part of Chinese President Xi Jinping's ambitious plan to achieve the "great 

rejuvenation of the Chinese nation" and restore China to what Xi believes is the country's 

rightful place as a great power by 2049 -the centennial of the PRC' s founding. At the 19'h 

Party Congress in October 2017, Xi laid out a multi-stage plan with specific goals for 2020, 

2035, and 2050. By 2035, he said China would be a top ranked innovative nation and by the 

middle of the century would be transformed into a leading global power. 

Xi called for mobilizing the Communist Party to lead the development of high-tech industries 

and make China a "country of innovators." He set out goals to strengthen basic research in 

applied sciences, accelerate implementation of major national science and technology projects, 

1 "Made in China 2025: Global Ambitions Built on Local Protections," U.S. Chamber of Commerce, 2017, 

https://www.uschm.nber.com/sites/default/tiles/final made in china 2025 report full.pdf. 
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and prioritize innovation in key technologies, while promoting cooperation among universities, 

government research institutes, state companies and small enterprises2 

2 

In subsequent speeches, Xi Jinping has underscored the urgency to develop strategic emerging 

industries and make China into a leading high-end manufacturing superpower as well as a center 

for science and innovation. For example, in an address to top Chinese engineers and academics 

in May 2018, Xi called for the "fundamental transformation of business models oftbe 

manufacturing sector" and the "integration of the internet, big data and artificial intelligence with 

the real economy" so as to "move China's industries up to the middle and high-end in the global 

value chain."3 

China's Ministry oflndustry and Information Technology (MilT) has laid out a three-step 

strategy for China to become a world leader in advanced manufacturing. The first step, which is 

to be achieved by 2025, requires China to "approach the level of manufacturing powers Germany 

and Japan during the period when they realized industrialization." The second step envisions 

China "entering the front ranks of second tier manufacturing powers" by 2035. In the third step, 

China will have become a member of the "first tier of global manufacturing powers" by 2045, 

and will have acquired "innovation-driving capabilities," "clear competitive advantages," and 

"world-leading technology systems and industrial systems."4 

It is undeniable that Chinese leaders view economic policy as a means to achieve the goal of 

national rejuvenation, which is deemed essential to keep the Chinese Communist Party in power. 

Recognizing that the development strategy of reliance on low-cost labor to produce low-end 

manufactured exports for the world has run its course, MIC 2025 is part of Beijing's strategy to 

preserve its position as a manufacturing and export superpower, even in the face of rising wages 

and a declining workforce due to demographic challenges. To succeed, China must effectively 

compete with advanced industrialized economies. 

What's the Problem with MIC 2025? 

As the U.S. Chamber of Commerce noted in a report on MIC 2025 published in 2017, "As the 

Chinese economy matures ... it is natural for China to pursue a more innovative economy 

2 Xi Jinping, "Secure a Decisive Victory in Building a Moderately Prosperous Society in All Respects and Strive for 

the Great Success of Socialism with Chinese Characteristics for a New Era,'' delivered at the 191

" National Congress 

of the Communist Party of China, October !8, 2017, http:llwww.xinhuanet.com/english/special/2017- ~ 

11103/c 136725942.htm. 3 Speech by Xi Jinping to the opening of the 19'h meeting of the Academicians of the Chinese Academy of Sciences 

and the 141

h meeting of the Academicians of the Chinese Academy of Engineering, May 28,2018. Hu Yongqi, "Xi 

calls for breakthrough in technology," China Daily, May 29, 2018, 

http://www.chinadaily.com.cn/a/70 1805/291WS5b0c5ddca31 00 I b82571 cbfe.html. 4 Made in China 2025 Explanation 6: The Manufacturing Power 'Three-Step' Strategy, Ministry oflndustry and 

Information Technology, May 19, 2015, 

http://www.miit.gov.cnln 1146295/n 1146562/n 1146655/c3780688/content.html. 
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through significant investments in research and development as well as policies aimed at 

improving innovation capacity and economic efficiency," 5 

3 

Moreover, the pursuit of an industrial plan by another country does not necessarily pose a threat 

to American industry, Germany's "Industry 4.0" plan, from which MIC 2025 drew inspiration, 

similarly aims to establish Germany as a lead market and provider of advanced manufacturing 

solutions.6 The differences between MIC 2025 and Industry 4.0 are substantial, however, A few 

notable differences are that China's state subsidies are much larger and are used for many 

purposes, not just basic research as in Germany's plan. China also has specific targets for 

replacing imports with indigenous production, which is not a feature of Industry 4.0. In addition, 

Germany's economy is far more open to foreign participation and competition than China's 

economy_7 Finally, in contrast to Germany's plan, the amount of support that the Chinese state 

will provide forMIC 2025 industries through state funding, low interest loans, tax breaks and 

other subsidies is not public. Some estimates put the likely number in the hundreds of billions of 

dollars8 

There are numerous reasons that MIC 2025 has rightly raised concerns in the United States and 

other countries with advanced economies. Below are a few of the most widely cited concerns: 

1. MIC 2025 will advance China's goal of integrating its defense and commercial 

economies, which is aimed at strengthening the country's i1movation capability for dualuse technologies in key strategic industries, including aviation, robotics, and information 

technology. Military-civil fusion was established as a national strategy by Xi Jinping in 

2014 and is a pillar of China's military modernization drive that is aimed at making the 

People's Liberation Army a 21" century fighting force. 9 The Pentagon warned in 2017 

that state-led Chinese investment in U.S. firms working on facial-recognition software, 3-

D printing, virtual reality systems, and autonomous vehicles is a threat because such 

products have "blurred the lines" between civilian and military technologies. 10 

2. China's ambition to control entire supply chains, some of which have potential 

application to military manufacturing, poses a risk that entire industries could come under 

Chinese control. For example, only four companies today are comprehensive providers of 

5 "Made in China 2025: Global Ambitions Built on Local Protections," US Chamber of Commerce, 2017, p.4. 

https:l/www.uschamber.com/si.~~default/t!j_es/tlnal made in china_~025 report full..llilf. 6 Industry 4.0, https:llwww.gtai.de/GTAI!NavigationiENilnvestllndustriesllndustrie-4-0ilndustrie-4-0/industrie-4-0-

what-is-it.html. 

7 James McBride, "Is 'Made in china 2025" a Threat to Global Trade?" Backgrounder, Council on Foreign 

Relations, August 2, 2018, https://www.cfr.orglbackgrounderlmade-china-2025-threal-global-trade. 8 Sec, for example, "China Manufacturing 2025." European Union Chamber of Commerce in China, 20 !7, 

http://docs.dpag.del12007-european chamber cm2025-en.pdf. 9 Lorand Laskai, "Civil-Military Fusion and the PLA's Pursuit of Dominance in Emerging Technologies," China 

Brief, volume 18, issue 6, April 9, 2018, https:lliamestown.org/progremicivil-mi!itarv-fusion-and-the-ples-pursuitof-dominance-in-emerging-technologiesl. 

10 Paul Mozur and Jane Per!ez, "China Tech Investment 

Times, April 7, 2017, !lllm'i.::!!..~Ul)ill!J~£Q]]l!;?.QJ]JJM.!lllill.\.121!:!1'~illi!'!l!::!.M~!f.:lJ.ill:\:.WR>::~~W:: 

technologv.html. 
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telecommunications equipment infrastructure: Huawei, ZTE, Ericsson, and Nokia. Two 

ofthose four are Chinese companies. Many other U.S. and European companies that were 

producing telecom equipment folded in the last few decades, including the American 

company Motorola. As the report Made in China 2025 and the Future of American 

Industry by this committee states: "If MIC2025 is successful ... what the 'China shock' 

did to domestic U.S. production of electronics, furniture, plastics, metals, and vehicle 

parts could threaten to repeat itself in capital goods like machinery, automobiles, highend computers, raiL and aerospace products." 11 

3. Chinese government subsidies distort markets, undercut U.S. and other foreign 

manufacturers, and result in overcapacity and the dumping of cheap products in the 

global market. Other Chinese state-led technology related plans have produced these 

negative outcomes. One example is the case of solar panels, where government support in 

the form of fiscal subsidies and tax incentives to the production of Chinese solar cells and 

panels combined with government-backed theft of intellectual property drove nearly 30 

U.S. manufacturing firms out of the business. 12 

4. The plan suggests that China's intention is not just limited to joining the ranks of hightech economics, but rather envisages displacing them. The plan foresees the targeted 

industries developing in three phases. First, localize and indigenize R&D and control 

segments of global supply chains. Second, after dependence on foreign technology has 

been reduced, proceed with substitution. Third, after Chinese technology and brands are 

developed, capture global market share. This three-step process could enable China to 

capture both domestic and international market share in many, if not all, MIC 2025 

industries and technologies. 

5. Establishing quotas violates WTO rules against technology substitution. In addition to the 

targets set by MIC 2025 for achieving 70 percent self-sufficiency in core components and 

critical materials by 2025 in a wide range of strategic industries, semi-official documents 

suggest that there are more specific local content quotas for Chinese enterprises, but these 

are not being highlighted publicly to avoid charges of violations of WTO rulesY 

11 Made in China 2025 and the Future of American Industl)', Project for Strong Labor Markets and National 

Development, U.S. Senate Committee on Small Business & Entrepreneurship, p. 20, 

https:llwww.rubio.senate.gov/public/ cache/filesld lc6db46-1 a68-481a-b96e356c8l OOfl b7/3EDECA 923 DB439A8E884C6229A4C6003.02.l2. l9-final-sbc-project-mic2025-report.pdf. 12 Office of the United States Trade Representative, Findings of the Investigation into China's Acts. Policies, and 

Practices Related to Technology Transfer, Intellectual Proper/)', and Innovation Under Section 301 of the Trade Act 

of 1974, March 22, 2018, p. 14, https://ustr.govlsites/default/files/Section%20301%20F!NAL.PDF. 13 Mercator Institute for China Studies, Made in China 2025: The making of a high-tech superpower and 

consequences for industrial countries, December 2016, p. 20. https://www.merics.org/sites/default/files/2018-

07/MPOCNo.2_ MadeinChina2025 _ web.pdf 
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6. MIC 2025 puts a premium on the acquisition of advanced technology. Since China still 

lags behind in critical high-tech sectors, it is likely that there will be a strong push for 

foreign acquisitions through various means, including buy-outs of foreign companies as 

well as forced technology transfer agreements and use of cyber espionage to procure 

cutting-edge technologies. 

7. Together with the Plan to Enhance Standardization and Quality of Equipment 

Manufacturing, MIC 2025 will help China to spread Chinese standards abroad and 

undermine Western standards. Among the targets will be countries linked to the "One 

Belt, One Road" project which seeks to tie Eurasian economies more closely to China 

through infrastructure, trade, and investment. 

MIC 2025 Under Review? 

After the United States imposed tariffs on China, which are in part aimed at punishing China's 

unfair practices and neutralizing the advantages enjoyed by Chinese companies, Beijing dropped 

references to MIC 2025 in official documents and authoritative media. Chinese officials have 

apparently said they are drafting a replacement forMIC 2025 that would play down the goal of 

making China the dominant global manufacturer and attempt to assuage U.S. concerns by 

opening up the Chinese plan to participation by foreign companies. Last December, media 

reports suggested that the new policy would be rolled out in early 2019, but so far, no new policy 

has been announced. 14 

Given the close linkages between MIC 2025 and Xi Jinping's staged plan for national 

rejuvenation, it is unlikely that substantial changes will be made, however. Rather, explicit parts 

ofMIC 2025, such as the numerical targets for market share by Chinese companies, are likely to 

be removed from the public version of the program. Chinese advocates of upgrading the 

manufacturing sector through competition with world-class foreign companies are unlikely to 

prevail. 

Recommendations 

1. Protect Intellectual Property: China steals more intellectual property than any other 

country. According to the Department of Justice, China was involved in 90 percent of all 

economic espionage cases the Department handled from 2011 to 2018. 15 In addition, 

14 Lingling Wei and Bob Davis, "China Prepares Policy to Increase Access for foreign Companies," The Wall Street 

Journal, December 12, 2018, https://www. wsj.com/articles/china~is-preparing-to-increase-access-for-foreigncompanies-1154462233 f. 15 Statement by John c. Demers, Assistant Attorney General, National Security Division, U.S. Department of .Justice. 

Before the Committee on the Judiciary, U.S. Senate, for a hearing on China's Non-Traditional Espionage Against 

the United States: The Threat and Potential Policy Responses," December 12, 2018, 

https:/ /www.judiciary.senat.Q,_gQ_v/imo/media/doc/ 12-12-18%20Dcmers%20Testimony.pdf. 
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more than two-thirds of the Department's theft of trade secrets cases have been linked to 

China. A report by the Foundation for Defense of Democracies found that Chinese 

cyberespionage costs U.S. companies an estimated $300 billion annually and poses the 

"single greatest threat to U.S. technology." 16 lncreased focus on enforcement actions in 

cases of suspected Chinese economic espionage is essential. The U.S. government should 

also seek to sanction Chinese companies that benefit from cyber espionage. In addition, 

counter-intelligence outreach should be expanded to U.S. startups and small companies in 

artificial intelligence, semiconductors, telecommunications, quantum, and other sectors 

central to Chinese technology strategies. 

Legislation recently introduced by U.S. Senator Kamala Harris (D-CA) to combat 

economic espionage would increase damages available for companies that are victims of 

trade theft, extend the statute of limitations for such crimes, and expand the scope of the 

Economic Espionage Act to cover cybercrime and hacking taking place outside the 

United States so that civil suits could be brought against perpetrators working abroad. 

Measures such as these will help American companies that are victims of Chinese 

espionage to fight back. By increasing the reputational costs to China and the real costs to 

Chinese companies, such actions may deter some Chinese hacking. 

2. Use the World Trade Organization: U.S.-China trade negotiations are ongoing, but so 

far U.S. tariffs on more than $250 billion of imports from China in response to its trade 

policy abuses have not compelled the Chinese to alter their policies and practices related 

to technology transfer, intellectual property and innovation. In the meantime, U.S. tariffs 

have imposed high costs on American families and businesses. I am skeptical that tariffs 

will force China to fundamentally change aspects of its economic structure that arc tied to 

Xi Jinping's plan to make the country into first-tier technological power by 2035. 

The United States should consider using the WTO's dispute settlement mechanism to 

hold China accountable for its trade practices, including its persistent theft of intellectual 

property, cyber-enabled economic espionage, and widespread use of subsidies. A 

recommendation made by the United States-China Economic and Security Review 

Commission is worth noting in this regard. In its 2018 report, the USCC proposed that 

the USTR investigate whether to bring a ''non-violation nullification or impairment" case 

against China at the WTO under Article 23(b) of the General Agreement on Tariffs and 

Trade. 17 A non-violation claim allows WTO members to challenge measures that "nullify 

or impair" expected benefits, even if they do not explicitly violate WTO agreements. 

There are also WTO provisions that have not yet been explored that could provide the 

basis upon which to challenge China's trade policy practices. The United States has won 

16 Zack Cooper, "Understanding the Chinese Communist Party's Approach Jo Cyber-Enabled Economic Warfare," 

Foundation for Defense of Democracies," September 2018, https://s3,us-cast2.amazonaws.com/defenddemocracy/uploads/documents/REPORT China CEEW,pdf. 17 2018 Report to Congress of the U.S.-China Economic and Security Review Commission, November 2018, p. 76, 

https://www.uscc.gov/sites/defaultifiles/annual reports/20 18%20Annuai%20Report%20to%20Congress.pdf. 
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more WTO cases than any other country and such cases provide a means to protect the 

interests of American workers and intellectual property owners. Since joining the WTO, 

China has complied partly or fully in all but one of the 22 completed WTO cases that 

have been brought against it. 

7 

Working with allies and partners should be at the core of a U.S. strategy to effectively 

compete with a rising China. Where possible, the U.S. should collaborate with 

international partners to bring trade cases against China at the WTO. One potential WTO 

case could target China's continuing practice of forcing foreign fi1ms to transfer 

technology and intellectual property. When China joined the WTO in 2001, it agreed that 

foreign companies could not be pressured by government entities to transfer critical 

technology to a Chinese partner as the price for approvals of joint venture licenses or 

other permits to do business in China. Despite Chinese government claims to the 

contrary, the disclosure of technology and IP as a condition of market access undeniably 

continues with Chinese government knowledge, if not encouragement. 

3. Consider Rejoining the Trans-Pacific Partnership (TPP): The TPP (now the 

Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP) 

provides one of the best options for the United States to counter China's MIC 2025 plan 

and to compete more effectively with China. Membership in CPTPP, which is a highstandard trade and investment regime, will provide U.S. and other foreign companies 

with incentives to diversify their supply chains away from China, thereby reducing their 

reliance on and vulnerability to China. Joining such a multilateral trade agreement with 

eleven other partners would also be an important step in restoring confidence in the 

United States and countering Beijing's narrative that the U.S. is an unreliable partner. 

Staying outside the CPTPP will prove harmful to American businesses. Beyond lowering 

trade barriers between the member countries, the deal includes greater protection of 

intellectual property rights and provisions to increase minimum labor slanders for 

workers. The Peterson International Institute for Economics estimates that the U.S. 

income would have increased by $131 billion dollars annually, or 0.5 percent ofGDP, if 

it had joined and is now set to lose about $2 billion dollars in income because U.S. 

exports will be less competitive in CPTPP nations. 18 Strengthening commercial ties with 

countries in Asia, Europe and the Americas can further pressure China to give up its 

unfair trade practices. 

4. Consider Adopting a U.S. Industrial Policy: I agree with the findings of this 

Committee's report that the U.S. "cannot escape or avoid decisions about industrial 

policy." 19 As the U.S. strategizes about how to compete more effectively with China, we 

should consider the pros and cons of industrial policy making. The state has long been an 

18 Jeffrey J. Schott, "TPP Redux: why the United States is the Biggest Loser," January 23, 20 !8, 

filln.s://piie.com/blogs/trade-invcstmcnt-policy-watch/tpp-redux-why-united-statcs-biggest-loser. 

19 Made in China 2025 and the Future ofAmerican Industry, Project for Strong Labor Markets and National 

Development, U.S. Senate Committee on Small Business & Entrepreneurship. 
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important engine of innovation, providing early-stage federal funding to companies such 

as Apple and Tesla, and investment in technology and research that helped U.S. 

companies pioneer the shale gas revolution. Rather than imposing tariffs that effectively 

tax the U.S. companies they are supposed to defend, the U.S. should support innovation 

at home by providing more funding for basic research and development, higher 

investment in talent development, trade assistance, and federal support for a series of 

·'moonshot" programs in areas like biodefense systems, threat detection networks, and a 

distributed electric grid.20 

8 

20 Laura Tyson, "U.S. needs to fight China with its own industrial policy," Market Watch, June 26,2018, 
62 

Chairman RUBIO. Thank you. 

I just have one question, and I am going to turn it over to the 

Ranking Member, so all the members can get in. 

Let me just start with Mr. Setser. What areas has China already 

overtaken in the United States on the global production value 

chain? 

Mr. SETSER. I think, in general, China still lags. I think the most 

important area where China is approaching, if not exceeding U.S. 

capabilities, is when it comes to telecommunications networking infrastructure. 

I think there is a consensus that infrastructure, which to be clear 

still relies on imported U.S. components, but their networking 

equipment is at the top end of the market. 

I think in other sectors, China still lags, but China has clearly 

thrown tremendous resources at trying to catch up in semiconductor manufacturing. There is an over $50-billion national fund, 

and then there are multiple provincial funds that have over $100 

billion collectively. That is an enormous war chest to try to catch 

up. 

I do not think China is close to matching our capacities in aerospace, but aircraft is our leading export industry, and aircraft is 

our leading industrial export to China. So even though China has 

not yet caught up, their ambitions and efforts to do so should be 

a concern. 

Thank you. 

Chairman RUBIO. Ranking Member. 

Senator CARDIN. Thank you, Mr. Chairman, and let me thank all 

of our witnesses. 

All of you agree we should work in alliance with our friends on 

China. That is a little bit more challenging today because the 

President led on trade policies of aluminum and steel, which divided our traditional trading partners. So that when he went after 

China, we did not have the same degree of cohesion as we should 

have had in going after a country where we have legitimate concerns. 

You all expressed that we should use the WTO, which is certainly a multilateral agreement. The challenge is that international 

property in governance issues are not terribly strong within the 

WTO, and how do we use that in the areas where China has exploited the fact that the WTO does not cover those particular 

issues. 

Ms. Glaser, you mentioned TPP. TPP was negotiated in light of 

the fact that we were dealing with countries that are not market 

economies, and we had good governance sections negotiated within 

that agreement, which helped us deal with some of those issues. 

Now, we are not a member of TPP, but we are looking at trying 

to advance trading relations with nonmarket economies with certain levels of requirements on governance, so that we can compete 

on a level playing field. 

So I guess my question to you, how do we use the WTO more effectively in order to be able to reign in China’s practices, particularly as it relates to intellectual property, as it relates to these tiein agreements, as it relates to so many other areas that we had not 

been successful in blocking? 

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63 

Yes. 

Mr. ATKINSON. I, 100 percent, agree we need to use the WTO 

more effectively. 

The Europeans just brought a very good case against China on 

tech transfer, which I believe we are not part of yet, which we 

should be. 

I think we can put too much faith in the WTO. There is a very 

good article, a Harvard Law Review article by Mark Wu, looking 

at the inherent limitations of how the WTO is structured when it 

comes to China. The WTO is structured where it is a lot easier to 

bring a case when your counterparty has written something down 

on a piece of paper, and China knows not to write things down on 

paper. So they do forced tech transfer, but you cannot find the law. 

But everybody knows they do it. They steal our intellectual property, but you cannot find the law. 

So I, 100 percent, agree we need to work more with the WTO. 

I think the more important thing, though, is to embrace a very 

aggressive WTO reform agenda, which is what the Europeans want 

to do right now, and I think we need to be part of that, to reform 

the WTO to make it easier. 

Even if we do that, though, I think we are going to have to think 

about this the way President Reagan thought about Japan in the 

1980s, which was really about results-oriented trade. 

We just cannot get China to stop using process because they can 

figure out ways to get around it. We have to focus on results-oriented, and that is going to require us to put together a very strong 

coalition of our allies and bring to bear force, not military force, but 

commercial force to press them to comply. 

So I agree we have to do more with the WTO, but I think we 

have to go beyond that as well. 

Senator CARDIN. But we have not seen from this Administration 

a reaching-out to our traditional trading partners in order to try 

to bring that type of pressure. It has been more America on its 

own. 

So I agree with you. We have to use our collective power. The 

United States has a lot of power, but we would be stronger if we 

had our traditional trading partners in line with our trading policy. 

Yes, Ms. Glaser. 

Ms. GLASER. There may not be laws on the books in China, but 

the practice is clear. 

I travel around the world and talk to other countries and CEOs 

of companies, and all that we need to do is some research and 

interviews. 

I was recently in Canada, talked to a woman who had talked to 

the CEO of every leading Chinese—any—every leading Canadian 

company invested in China, and yes, they have all had to transfer 

some kind of IP. 

So we can put together this database, and we have to work with 

other countries. 

Senator CARDIN. Would that be actionable under WTO? 

Ms. GLASER. I am not a trade lawyer, so maybe somebody else 

on the panel can answer that question. 

Senator CARDIN. I mean, we know they do it. 

Ms. GLASER. But I think the data is—— 

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64 

Senator CARDIN. We know they do it, but we have not been, as 

I understand, successful in stopping it under the WTO. And we 

have been told that the intellectual property protections under 

WTO are rather weak. So I think that is one of our challenges. I 

think to reform the WTO is critically important. 

I just want to put one other issue on the table, and you can probably get back to us on it. 

Mr. Atkinson, I think you mentioned specifically reforming the 

7(a) program to try to make it more effective in dealing with international issues. I would welcome your suggestions on any of the 

SBA tools on how we can make them more effective to deal with 

the international challenges we have for small businesses, whether 

it is the traditional loan programs or the SBIR program and STTR 

program. It would be good if you could give us some help in how 

we could better tailor those programs to deal with these international challenges. 

Thank you, Mr. Chairman. 

Chairman RUBIO. Senator Romney. 

Senator ROMNEY. Thank you, Mr. Chairman and Ranking Member. I very much appreciate the fact that you are holding these 

hearings and focusing on this very critical issue. 

During my career, I had the occasion to work extensively in the 

textile industry, when there was one, and the automotive industry 

as well and, to a certain degree, the metals industry. I have long 

been an advocate of free markets and laissez faire, but I watched 

mercantilist policies not wipe out all those industries, although in 

the textiles almost completely wiped out the textile industry, and 

so recognize that we need to take a different course now as we look 

at many, many other industries that are facing a mercantilist 

strategy. 

I would note that in my State of Utah, Micron, a U.S. chip 

maker, has some 2,000 employees. It is the only manufacturer in 

the United States of dynamic random-access memory, or DRAM. 

China paid employees in Taiwan to steal technology apparently 

from that company, and then a Chinese court banned Micron from 

being able to sell chips in that country, in China. 

And so when there are practices of this nature going on, we can 

go to the WTO, perhaps if they have the provisions that will deal 

with something of this nature, but it can take a long, long, long 

time. And by that period of time, we are out of business, and someone else is in business. 

I am looking to you all to offer suggestions as to action we can 

take beyond the WTO, action perhaps that we can take in this 

Committee or in Congress to actually push back against the kinds 

of policies that China and other nations have employed against us 

in the past, so that we do not just simply watch as industries that 

are critical to millions of Americans and critical to our economic vitality and our military capacity as those technologies are stolen 

from us and as those industries are stolen from us. 

What is interesting is, in reading the report, we document all the 

terrible things going on but have very little to suggest as to what 

we should do about it. So I turn to you for any thoughts that you 

might suggest. If we could just go down the line here. 

Yeah, Mr. Setser. 

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Mr. SETSER. So I think you outlined very lucidly the challenges 

that China poses, particularly in the DRAM sector and semiconductors. 

We know China is subsidizing its own semiconductor industry. 

We know they are targeting U.S. companies, and we know there 

will eventually be a legal case for action. 

The problem is that we have to wait for the impact of the action 

before we have the WTO case to file. 

I do think, though, there are things we can do now. We are not 

terribly constrained by the WTO in limiting Chinese inward investment. We can, and we have, blocked Chinese attempts to acquire 

U.S. semiconductor technology. 

We could expand that as a sanction to say, ‘‘As long as we know 

you are subsidizing semiconductors, we are going to take a more 

onerous approach to reviewing other investments.’’ 

I also think we should be documenting now all the various ways 

China is subsidizing its semiconductor industry and be prepared to 

initiate trade actions, but in the U.S. and at the WTO, to limit our 

imports of Chinese semiconductors, once those emerge, but also to 

pursue cases about the adverse effect. So if China is displacing our 

exports, we have some rights to take additional offsetting action. 

I think we can be pretty aggressive. 

Senator ROMNEY. Thank you. 

Mr. Atkinson. 

Mr. ATKINSON. I could not agree with you more, Senator. 

One of the challenges under U.S. antidumping laws, you have to 

wait for damage. By the time the damage is done, you are oftentimes dead, and it is meaningless at that point. We saw that, for 

example, in the U.S. solar industry, where we were the leader in 

the year 2000, and now we have got about 5 percent of the global 

market. 

The Chinese actually—by dumping, they eliminated most of our 

solar companies, and then they used State government funds to go 

up and buy the assets, the intellectual property assets of these 

companies at 10 cents on the dollar. 

We wrote a report on that—I will be happy to share with your 

staff—about a year and a half ago listing a very detailed set of specific policies that an administration could take or that Congress 

needed to pass. There are many, many things we can do that are 

not just tariffs. 

Let me suggest one. You mentioned this case of Micron. This was 

a Chinese company, Fujian Jinhua. I am pronouncing it slightly 

wrong. Not only did they get stolen DRAM technology, but they 

were subsidized by the Chinese semiconductor fund by about $3 

billion to build a giant DRAM factory, which no commercial company would ever have built on their own without a subsidy. 

The Administration did a really smart thing, and they were able 

to ban the U.S. company selling them the equipment they needed 

to make the semiconductors. That company announced about 3 

weeks ago that it was going bankrupt. 

Now, we need to be applying that. The only reason they could do 

that is because somehow there was some connection to North 

Korea or Iran or something like that. 

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I would argue we need to expand that, and we should be able to 

block the sales of U.S. company equipment to these kinds of companies. We should be able to block their access to all of our banking 

and security systems. If a company has a very high likelihood of 

being based on big subsidies or stolen intellectual property, we 

should not let them use our banking and securities system. 

And we should be able to block their imports and then work with 

our partners to be able to do the same. 

Fundamentally, I think the only thing the Chinese government 

responds to is pain. We have negotiated and negotiated and negotiated for years, and they have shown that that does not really 

matter much, though I think there are specific things we could do. 

Senator ROMNEY. Thank you. 

Mr. Rush and Ms. Glaser, I think my time is up, so I am going 

to go back to the Chairman. Thank you. 

Chairman RUBIO. Thank you. 

Senator Shaheen. 

Senator SHAHEEN. Well, thank you, and thank you, Mr. Chairman for a very thoughtful report. I look forward to reading it, but 

part of it recognizes the need for a coherent foreign policy, industrial policy, and trade policy and how we respond to China’s actions. 

It is not at all clear to me that we have that kind of a comprehensive policy, and I wonder—I guess I should start with Mr. 

Setser and Ms. Glaser, whether you think we have the kind of comprehensive policy that we need if we are going to respond to the 

competitive threat that China poses and what else we might do to 

better coordinate those tools of foreign policy. 

Mr. Setser, do you want to go first, or Ms. Glaser? 

Ms. GLASER. Thank you. 

So my area of expertise is primarily China. It is not the United 

States. There are a whole lot of things China is doing. Some of 

them, we should not be doing. We are not an authoritarian country, 

but there are things that we can learn. 

And I think it has been since the 1980s that we have really had 

a serious discussion, a discussion in this country about industrial 

policies, and I think that is something we should take a look at. 

What are the pros and cons of having some kinds of industrial policies providing trade assistance where necessary, for example, providing more funding for R&D, higher investment in talent development? 

This is going to be difficult to see, but I will put it up. If you just 

look at where R&D in our country comes from, right? It is primarily increasingly from businesses. It is not coming from Federal 

spending. 

Now, total R&D is increasing in our country. That is a good 

thing, but if we could get more Federal support for R&D spending, 

I think that would be one of the ways that we could compete more 

effectively with China. 

And then I want to reiterate what Senator Cardin said. We really need to be working with our allies. When I talked to the Germans 5 years ago, they were not terribly concerned about the stealing of intellectual property. You talk to German companies now. 

We all are on the same page. We see the same problems. We disLAP51NQ082 with DISTILLER

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agree about the solutions about what to do. So I think we really 

need to be talking more with our partners. 

As we are more divided, which is what the Chinese want, it 

makes it more difficult to effectively compete with them. 

Senator SHAHEEN. Well, I would certainly agree with that, and 

I would argue that we do not have an industrial policy in this country, and we have not had one for a very long time, and that that 

is part of the problem. 

In fact, right now, we are not having any discussions with our 

allies in these areas—or in many areas, and that that is equally 

unhelpful. 

Like some of my colleagues here, I was at the Munich Security 

Conference, and I think for the first time since I had been there 

over the last 10 years, there was real and deep concern about the 

threat that China poses economically and militarily. 

So I think it is a huge challenge, and again, appreciate the 

Chairman’s report for recognizing that. 

I want to ask you—this may be—I think this is for you, Mr. Atkinson, but there has been a lot of—Huawei has been in the news 

a lot recently because of changes in China that have allowed—or 

that have raised questions about anyone who uses Huawei components and what that may mean with access to information. 

Can you speak to how concerned you think we should be about 

that and whether small businesses should think about using other 

technology, other than what Huawei produces? 

Mr. ATKINSON. Yeah. By the way, just quickly, one thing we forget, we had massive bipartisan support for competitiveness policy 

in the 1980s, which people forget. It was Republicans and Democrats putting in place a slew of laws, like SBIR/STTR, a whole lot 

of things. So we could go back to doing that again. 

With regard to Huawei, I cannot say I am enough of a technical 

expert to say that. I think those are the kinds of decisions that 

folks in the intelligence community need to make. 

Now, our U.S. intelligence and national security folks have raised 

significant concerns about Huawei equipment, and part of that is 

about, as we move into a 5G world, the attack vectors offer security, are harder in part because a lot of these networks now are 

what is called ‘‘software-defined networks,’’ and so you do not just 

buy hardware. You buy hardware, but then the software gets always redefined. And that can introduce vulnerability. 

So I cannot say yes or no, but I think it is important to have our 

government look at it carefully. 

Senator SHAHEEN. But if we are talking about the theft of technology and of our competitive technology that is being produced by 

our companies, whether they are small or large, should not we be 

careful about anything that might create a problem in terms of the 

ability to keep that information confidential? 

Mr. ATKINSON. Yes. I, 100 percent, agree with that. 

Also, we testified in this Committee recently on how to help 

small businesses with cybersecurity, and I have to tell you, what 

SBA is doing in this is very, very limited. SBA really needs to step 

up their game in helping small companies get better cybersecurity. 

Some of the advice they are actually giving is actually wrong advice, if you are a cybersecurity expert. 

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So that is something we could do tomorrow. We could get SBA 

to work more carefully with small businesses. So we need both a 

defensive and an offensive response. 

Senator SHAHEEN. Well, thank you. I would hope that as you are 

thinking about the information you can provide to Senator Cardin 

that you would also think about those kinds of areas where SBA 

could be more helpful to small business. That would be helpful. 

Thank you. 

Chairman RUBIO. And just to note, on March 13th, we will have 

a hearing on cyber and small business. 

Just looking at Mr. Rush for a moment, I imagine if you had 

been the subject of an intellectual property theft early in your formation by a large state enterprise, you would not be sitting there 

today in your business, so you think about just that threat. 

Senator Ernst. 

Senator ERNST. Thank you, Mr. Chair, and thank you to our witnesses today. 

It is good that we are taking time to discuss the threats and the 

challenges in the Made in China 2025 plan. 

There are a lot of threats that are posed to the future of American industry, especially when it comes to our small businesses. So, 

again, this is a really important topic. I am glad we are discussing 

it today. 

We do know Iowa produces a lot of ag equipment. That is really 

important to us, and ag machinery is one of the 10 targeted sectors 

in the Made in China 2025 plan. And it is a critical component of 

our U.S. industrial base, again, very important to my home State 

of Iowa. 

Mr. Setser, in your view, what are the most important steps we 

can take to protect the agricultural machinery industries and other 

industries that are essential to the U.S. manufacturing base from 

the challenges China poses? 

Mr. SETSER. Well, thank you for that question. I guess I am not 

entirely surprised that a Senator from Iowa might take a particular interest in agricultural machinery. 

Senator ERNST. A very special interest, yeah. Thank you. 

Mr. SETSER. I think, in general, we should recognize that China 

through its industrial policies has become an important competitor 

in a lot of the mechanical engineering sectors. Agricultural equipment has some similarities with construction equipment. 

Senator ERNST. Absolutely. 

Mr. SETSER. They draw on similar mechanical engineering expertise. 

We often focus on the electronics and the high tech, but the agricultural equipment, the construction equipment, they are an important part of our manufacturing base, and they are threatened, as 

you noted, by Chinese subsidies. 

I have noticed over time that our exports of construction equipment to China have gone down. Our exports of agricultural equipment have gone down, and I think China’s global exports have gone 

up. 

What can we do? Well, I think we have to use our trade tools— 

dumping, countervailing duties—where we have a case to go after 

Chinese subsidies, to offset the impacts of their unfair subsidies. 

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Senator ERNST. Right. 

Mr. SETSER. And then I know it is a controversial topic, but I 

think in general—it may not be relevant for tractor exports, but it 

may be relevant for exports of construction equipment. Think about 

how we can use our export finance capacities. 

Senator ERNST. Absolutely. 

Mr. SETSER. Compete more with China in third-party markets. 

Senator ERNST. I do think there is a role that can be played in 

balancing some of that to make sure that our small businesses can 

compete in that export market, especially against countries like 

China. So thank you for that. I appreciate that. 

Ms. Glaser, one of the key components of our national power is, 

of course, the innovation in our small businesses that bring fresh 

ideas into our defense industrial base as well, and what we see is 

Chinese state-owned enterprises will benefit from government subsidies, just as we are stating with other types of equipment as well, 

and they unfairly compete with American businesses. And it does 

pose significant risk to us and to our future of our industrial base, 

supply base, the defense industrial supply base, as we move forward. 

So, in your view, how can we combat this practice and take steps 

to ensure that there is fair competition for America’s small businesses, particularly the ones in the defense industry? 

Ms. GLASER. Well, again, my focus is primarily on China, and 

that is what I can bring to the table here and explain to you the 

threat that ultimately China poses. If you dig into the amount of 

subsidies that China is putting into every one of these 10 industries, the very specific goals that they have set in these areas, it 

is really mind-boggling. 

You mentioned the agricultural machinery, so I will just go back 

to that for a second. One of their goals for 2025 is to have domestically made equipment to meet 95 percent of their domestic demand. So that goes back to the issue of localizing, subsidizing, and 

then capturing global markets. 

In the defense area, the real challenge is that there is really no 

distinction in China between the civilian and defense, and it is increasingly deliberately integrated and fused. So if you are dealing 

with a civilian company in China, that is going to easily, very 

quickly spill over into the defense markets. 

And you can see this in the aircraft space—— 

Senator ERNST. Right. 

Ms. GLASER [continuing]. Where the Chinese stole basically the 

F–35 blueprints, and they have built their own military aircraft. In 

civilian aircraft technology, they lag way behind, and that is an 

area we have to really protect because Boeing is first going to face 

the challenges potentially losing the domestic market in China. 

Over time, if China can produce first Narrow-Body, which they 

now have already the C919, I think it is, and then they are going 

to be building potentially a jumbo-body jet. And it will move from 

domestic into global markets. So we have to protect our intellectual 

property in these areas. 

Senator ERNST. Thank you. I appreciate you making that point 

too, and thank you for your time here today. I think this is a really 

great issue, not just for small business, commerce, other areas, but 

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also for our Armed Services Committee. It is something we need to 

pay attention to. So thank you very much. 

Thank you, Mr. Chair. 

Chairman RUBIO. Thank you. 

Senator Coons. 

Senator COONS. Thank you, Chairman Rubio and Ranking Member Cardin. Thank you, Chairman, to you and the Committee staff 

for this valuable and insightful report. 

I, like many of my colleagues, hear concerns regularly from companies from innovators, from manufacturers across my State of 

Delaware, in particular, with relation to IP theft, with some of the 

unfair subsidies, and with some of the ways in which we are not 

playing on a level field with China. 

Rob, I particularly like your phrase ‘‘innovation mercantilism’’ to 

characterize that unique combination of inappropriate subsidies 

and IP theft and forced technology transfer. 

Let me start, if I could, with you, Rob. Just in terms of our trade 

deficit, some are speculating that the U.S.-China trade dispute 

could conclude soon with an unfortunately small-bore deal that 

would simply be a commitment to purchase more agricultural products, which while very pleasing to the soybean farmers of my State 

and many others might miss an opportunity. 

What is the relative importance of commitments by China to purchase more U.S. goods versus actually ending cyber espionage or 

government subsidies or other unfair practices you have characterized as being ‘‘innovation mercantilism’’? 

Mr. ATKINSON. I think it would be a vast mistake if we look over 

a deal that is based on reducing the trade deficit. The Chinese are 

more than happy to give us that deal. They would love to turn us 

into Canada or Australia that basically supplies raw materials to 

China. They take all the value-added, and they dominate the globe. 

That is what they would love to have, and if we accept a deal that 

is just about reducing the trade deficit with selling more commodity goods, I would argue we risk coming to be a country like 

Alexander Hamilton warned of drawers of water and hewers of 

wood. 

Senator COONS. Bonnie, if I could, in terms of industrial policy, 

I think one of the things the United States has done that is successful is Manufacturing USA. 

We have a national network of institutes, and in Delaware, one 

of them is headquartered at the University of Delaware, the National Institute for Innovation in Biopharmaceutical Manufacturing. 

Made in China 2025 blatantly copies our successful Manufacturing USA model, and yet Congress has not authorized an extension or an expansion of funding or engagement in what has been— 

it was a very successful model for advanced manufacturing in Germany, which we proudly copied. We have not come close to their 

scale. The Chinese see it as a successful strategy for advanced 

manufacturing. 

What is your view about whether we should be trying to extend 

and expand that program and whether or not Federal innovation 

support generally is critical to competing with China? 

Ms. GLASER. Senator, I am not very familiar with the program. 

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Senator COONS. Rob, my hunch is you are deeply familiar with 

the program. 

Ms. GLASER. My guess is that he is deeply familiar with it, so 

maybe he would be better suited to answer that question. 

But I think there are industrial policies that have worked for 

some countries. We certainly have seen Germany’s Industry 4.0 

program that is working for them. The Japanese in the past have 

pursued industrial policies. So, again, I think this is something we 

should be looking into the pros and cons. 

Senator COONS. It is a successful and intentional alignment of 

basic research—— 

Ms. GLASER. Yeah. 

Senator COONS [continuing]. Applied research, workforce training, small startups, and spinoffs around university hubs in 25 cities 

around the United States. 

Ms. GLASER. It makes a lot of sense. It sounds like the Chinese 

have copied the right thing. 

Senator COONS. It is actually working. 

Rob, I will ask you a last question, if I could. As you know, I 

have been an advocate for the Manufacturing Extension Partnership, a now decades-long program that helps with quality control, 

with manufacturing streamlining. About three-quarters of U.S. 

manufacturing firms are really quite small or fewer than 15 employees, and many of them are in the defense industrial supply 

chain. And there are very few Federal programs to actually help 

them get access to world-class skills to compete globally. 

The President has actually tried to eliminate the MEP in the last 

two budgets. Why? And does it actually bring value, and what is 

its impact on the supply chain? 

Mr. ATKINSON. Yeah, absolutely. 

By the way, on the Manufacturing USA, the Chinese are on target to invest about 50 times more—five-zero times more—than we 

will be investing in that program. 

On the MEP program, that is a program that has been around. 

Actually, when we talked about industrial policy in the 1980s, that 

is where that came from. There was bipartisan support to commit 

to that in the 1980s that President Bush supported. 

That is a very effective program. All the studies show that it 

pays more for itself, more and many times over. 

If you look at what our competitors are doing, the Canadians are 

investing 10 times more in their program for small manufacturers 

and share of GDP; the Germans, 20 times more; the Japanese, 40 

times more. 

I think the reason why the Administration has zeroed it out has 

absolutely nothing to do with its—the high quality of the program 

and its effectiveness. It is just they are looking for things to cut for 

other priorities. That is not a top priority. 

I think it needs to be a top priority if we want to help our SME 

manufacturing base. 

Senator COONS. If I could, in closing, Senator Cardin asked a 

question earlier about the SBA 7(a) loan program. I do have a bill 

with Senator Gardner that would specifically strengthen their 

small manufacturer loan programs, reduce the fees, expand the 

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scope of it, and something I would love to work with you on that 

I think would meet some of that identified need. 

Thank you very much, Mr. Chair. 

Chairman RUBIO. Senator Hawley. 

Senator HAWLEY. Thank you, Mr. Chairman, and thank you also 

for this excellent, outstanding, and timely report from which I 

learned a lot, and I think it is hugely significant. 

One of the most important conclusions, I think, which you have 

all touched on today, is that trade with a system that is based on 

what you have been calling, Mr. Atkinson, this ‘‘innovation mercantilism,’’ can and will reduce our overall economic welfare, unless 

there are—in fact, it is happening right now, unless we make significant reforms. I think this is a very, very important thing to understand and needs to become a cornerstone of policy changes going 

forward. 

In that vein, let me just return to a discussion you were having 

earlier with Senator Romney regarding various actions that could 

be taken to stop the forced technology transfers, the theft of intellectual property, and I will pose this to the whole panel, but I will 

start with you, Mr. Atkinson. 

Might we consider a regime of IP sanctions, broad-based IP sanctions on China or at least affecting China where it might prohibit, 

just flatly prohibit American firms from entering into technology 

transfer agreements and prohibit our market, bar from our market, 

goods sold by industries that we have reason to believe have engaged in either theft or have demanded a forced technology transfer? 

Mr. ATKINSON. Thank you. 

Absolutely, we could do more to block Chinese sales of products 

where we know we have a pretty good estimate that it has been 

based on stolen IP, and I think we should do that. 

There is also some other specific rules that we have laid out 

around how the Chinese force American companies doing business 

in China, to force them to share their technology around patents. 

We should—you know, tit for tat. Any Chinese company doing business in the U.S. should comply with the Chinese rules on that and 

see how they like that. 

With regard to your point about forced joint ventures, that was 

litigated last Congress with the FIRRMA bill, and there was a big 

debate, I think as you may know, should you include JVs as part 

of the CFIUS regime, and the choice was to not do that, but to put 

that in BIS, the Bureau of Industry Security. And they have come 

up with their emerging and foundational technologies. If you are a 

technology on that list, you could not do a JV. It is not clear to me 

how many technologies will be on that list. It is a little bit of a 

crude measure because we do not want to cut off our nose to spite 

our face. We want to sell the Chinese our products, so we gain market share, but we do not want to give them our technology or underlying knowhow. 

Senator HAWLEY. I would invite anybody else on the panel who 

wants to comment on this, on other measures we might take. 

Yes, go ahead, Ms. Glaser. 

Ms. GLASER. I would consider passing a law that mandates that 

companies provide information about what they are doing. It might 

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have to be provided privately, not necessarily publicly, but if they 

make a decision as part of a joint venture with a Chinese company, 

that there is some central place where we know what is going on, 

what are they transferring, and whether they have done so voluntarily, what kind of coercive measures were used. 

There is also a set of things that are, I believe, included in legislation, recently introduced by Senator Kamala Harris, that would 

combat economic espionage, that would increase damages available 

for companies that are victims of trade theft, which would be very 

useful, I think, for SMEs; extending the statute of limitations for 

crimes, which apparently is fairly short; and expanding the scope 

of the Economic Espionage Act to cover cybercrime and hacking 

that take place outside of the United States so that civil suits could 

be brought against perpetrators that are working abroad. 

So those are some of the things in that legislation that I think 

I support. 

Senator HAWLEY. That is very helpful. Thank you. 

Mr. Setser. 

Mr. SETSER. Just a couple of ideas because I think we are all 

looking for creative responses. In aircraft, I think we might explore 

with our European partners something which has a little bit of the 

character of what you recommended. 

Part of the reason why we enter into JVs is because China might 

give its business to a European company if we do not. If we worked 

with our European allies and sectors like aerospace where we are 

strong, maybe we could informally reach an agreement not to compete with each other in ways that end up helping China. 

The structural solutions to the tech-transfer problem are, in part, 

getting rid of China’s review on inward investment. So we can have 

wholly owned subsidiaries, but also getting rid of the Buy China 

preferences, which make it hard to export into China. If we are 

building products here and selling them to China, there is no tech 

transfer. 

Senator HAWLEY. That is very helpful. 

Go ahead. Mr. Atkinson and then Mr.—— 

Mr. RUSH. Yeah. What I would submit is that there are two sides 

to this coin. There are sort of defensive measures and offensive 

measures, and we are having a lot of discussion of how to sort of 

staunch the flow of IP theft. 

I would submit that you could probably look at every single industry in China and say there is something going on there. 

So perhaps what we should do is look at the Made in China 2025 

plan that has targeted industries and spur innovation in those industries, especially on small businesses in the United States. Let 

us put more gas on the fire for those industries and maintain our 

edge, maintain the gap in between the United States, China, and 

others because, at the end of the day, that is actually the core of 

American industry is our ability to innovate and have world-class 

technology, not prevent others from ultimately using that technology. 

Senator HAWLEY. Thank you very much. 

I see my time has expired. Thank you, Mr. Chairman. 

Chairman RUBIO. Senator Hirono. 

Senator HIRONO. Thank you, Mr. Chairman. 

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So, Mr. Rush, you were talking about that we need to put more 

emphasis on supporting those kinds of innovations that can directly 

compete with China’s efforts to take over the world economically. 

So maybe one of the ways is for us to really put a lot more emphasis in programs like SBIR and STTR, which we have supported. 

There is not that much money that goes into these programs in the 

scheme of things, not in the kind of scale that you are talking 

about. 

You also mentioned, Mr. Atkinson, that we need to help these entities that have these grants or loans to commercialize. So how do 

we do that? 

Either one of you. 

Mr. RUSH. I think that one of the really powerful things about 

SBIR is that it helps us go from idea to working prototype to something that can be picked up, and one of the ways I think that we 

can help sort of get over that commercialization hump is simply the 

government recognizing its power as a good customer and maintaining focus on the commercial aspect of these SBIR/STTR and 

other programs and looking not just at the sort of program office 

that might be running any given SBIR contract, but almost a 

whole-of-government approach and saying who might use this really interesting thing and incentivizing folks within the government 

to pick those things up as well as looking at things like ICOR, the 

ICOR model to help companies that are new in this regime to do 

better customer discovery along the way with the SBIR, with the 

SBIR program. 

The other thing that maybe we would recommend is going faster 

with SBIR, that it is allowing companies to go faster, because for 

certain industries, the time frame of SBIR Phase I and Phase II 

and Phase III is simply way outside the decision-making process 

and the innovation cycles of these industries. Even within aerospace, an industry that has relatively long design cycles, we are 

finding that the SBIR is longer, and that is something that it is 

an opportunity for us to modernize. 

Senator HIRONO. Is that time frame by regulation, or how do we 

fast-track? 

Mr. RUSH. There are two aspects—or maybe two or three aspects, 

the delta between proposal submission and getting on contract. 

Senator HIRONO. So is that by regulation? It is not by law, is it, 

that—— 

Mr. RUSH. I believe it varies according to agency. 

Senator HIRONO. Okay. So we probably should talk with you a 

little bit more. 

Did you want to add something, Mr. Atkinson? 

Mr. ATKINSON. Yes, a couple things. One is our understanding is 

SBIR awardees are not allowed to use that money for commercialization activities. 

Senator HIRONO. Okay. 

Mr. ATKINSON. There has been legislation in the Senate to allow 

them to use a small portion of that for commercialization, and that 

is one thing we could do. 

Senator HIRONO. Okay. 

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Mr. ATKINSON. Another idea that we have proposed over the last 

few years is an additional add-on. So we have SBIR, which is a portion of Federal extramural R&D. We have STTR. 

We propose something called SCNR, spurring the commercialization of our Nation’s research, and it would be about .5 percent. And 

that money would be used to fund universities and State governments who are engaged in technology commercialization activity. 

Hawaii is doing that. Most all states have these programs to help 

their universities and their Federal labs do a better job of getting 

that technology out in the marketplace in the hands of small companies. 

But it is hit and miss. There is not enough resources. That is 

something the Federal Government could do that I think would 

help with that. 

Senator HIRONO. So is there a bill that creates another program? 

Mr. ATKINSON. There is not a bill, but I would be happy to work 

with your office. 

Senator HIRONO. Oh, certainly. There you go. I like that. 

Mr. Rush, you said something that was really interesting to me. 

You said that China is developing technology to beam power from 

space. I mean, this is power to electricity and all of that, and at 

the same time, so many are still looking at wind and solar and 

those things. 

How far away is China from developing this kind of ability, and 

what does it mean for our country that they are doing this and we 

are still Earth-based? 

Mr. RUSH. Yeah. So, broadly, this is a real thing, the ability to 

basically collect solar energy and then convert that into either 

microwaves or lasers and send that down to ground stations on the 

ground. 

China has been pretty public in saying that by 2025, they want 

to have demonstrations of this, and then they want to have facilities that are gigawatt-class facilities on orbit in the next couple of 

decades, which could represent a complete break from traditional 

terrestrial sources of energy. And it is something that honestly 

would be worthwhile to look at from an alternative energy perspective in the United States as well. 

Senator HIRONO. Could I just, Mr. Chairman, one last question 

to Ms.—is it Glaser? Glaser. 

So you said that U.S. companies who are in China basically have 

to transfer some kind of IT for that privilege, and I like your idea 

that there should be some disclosure. But Chinese company entities 

are buying U.S. companies, and that is under the radar screen. 

They buy up our stocks and all that. Pretty soon, they will own 

much of our U.S. companies. 

So should we require—there may already be some limitations on 

how much stock a foreign company can own of U.S. companies, but 

is there something that we can require of Chinese companies that 

buy up our companies? 

Ms. GLASER. Well, I certainly think we need a better system for 

review of what the Chinese are trying to buy, and again, this is 

something to be working on with our allies. 

The Chinese are buying companies all over the world, and this 

will enable them to dominate supply chains potentially. 

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And we have, of course, seen this, as they have surged ahead in 

innovation, in Huawei and CTE. Now we have Nokia and Ericsson 

are the only two companies that are left that are doing this comprehensive telecommunications infrastructure, and Motorola is no 

longer in the game. 

This is an area where we have to prevent China from dominating 

these supply chains, and we should be coordinating so that we 

know what kind of activity the Chinese are looking, what companies they are buying. 

Senator HIRONO. Are we coordinating that kind of an effort? 

Ms. GLASER. Not as far as I know. 

Senator HIRONO. Thank you. 

Ms. GLASER. Perhaps Brad or Rob know something more about 

this. 

Mr. SETSER. We do have the CFIUS review process for foreign investment in the U.S., and that was modernized. 

I think there is certainly more we could do to coordinate with our 

allies. I think the Germans are moving toward a similar system, 

a national security review. So there is room to do better there. 

Ms. GLASER. One thing that I would add is that the German government is either considering or has already decided to set up a 

fund to help companies that are struggling in Germany so that 

they can succeed rather than be bought out by the Chinese. 

Senator HIRONO. Thank you. 

Chairman RUBIO. Senator Risch. 

Senator RISCH. Thank you, Mr. Chairman. 

Chairman RUBIO. Our Chairman Emeritus. 

Senator RISCH. Yes, Chairman Emeritus. 

[Laughter.] 

I apologize for being late to this. There were some things I really 

wanted to hear on this, but we had the Idaho Potato Commission 

in town. And when you are from Idaho, you set all things aside and 

meet with the Idaho Potato Commission. 

Mr. Setser, they tell me you talked a bit about Micron Technology and made some observations on that. 

Let me tell you. Micron Technology—this is the Small Business 

Committee. I remember when Micron Technology had three people 

working for it, the three guys that started the company. It was in 

a garage and eventually moved to the basement of a dentist’s office 

and then moved on, and the rest is history. 

And now they are caught in an international matter that I guess 

you talked about, and that is really the question I have got for you. 

I have been pressing this as hard as I could. I met with a Chinese ambassador, amongst others, and he attempted to defend the 

undefendable, but what they are doing is just not acceptable. If 

China is going to become a world player, if they are going to become something on the world stage that they want to be to make 

life better for their people and want to compete, look, we compete. 

But you got to do it under rule of law, and they are not even close 

right now. 

What I have been telling people is, look, this Micron case is one 

we need to draw a line in the sand on. This is one that if they can 

do this, look out. If everybody has read 2025, everybody knows that 

the microchips are one of their short commodities. Well, so bet it, 

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and we expect that they would learn to make it and do it either 

through licensing or according to the rule of law. 

What is your vision? What happens if the Chinese win this one? 

How do you view they go forward with their 2025 initiative? 

Mr. SETSER. Well, that is obviously an important question. 

Right now, as I understand it, there are three major producers 

of DRAMs. Micron is one. There are two South Korean firms. 

Senator RISCH. They are second. Micron is second. 

Mr. SETSER. Second. 

China, I think, intends to enter this industry with massive subsidies, drive down prices, and at a minimum make sure that the 

bulk of the memory chips used in Chinese products are made in 

China. 

I think China would obviously love to be able to buy, after depressing global prices, one of the three incumbents. They clearly 

have already tried, as you know, to buy Micron. They clearly have 

already tried, as you know, to effectively steal Micron’s technology 

through their partners in Taiwan. It is clearly an egregious case, 

and I agree with you. The question we now face is how do we respond, and I think we have to be very proactive in identifying how 

China is currently subsidizing the semiconductor industry and 

thinking creatively around the set of sanctions. 

The legal case that the Department of Justice has brought 

against the Chinese company directly involved in the theft has 

been very effective, but China has multiple companies trying to 

enter the DRAM market. We have to think creatively about how 

we respond as those subsidized competitors undermine our position 

in global markets. 

Senator RISCH. I really appreciate that, and I think this is going 

to be a whole-of-government approach to this thing, whether it is 

Justice, Treasury, or Commerce or what have you. But that pressure has got to stay on, and they cannot get away with this. If they 

do, this thing is heading for a very bad place. 

Mr. SETSER. Can I just add one other point, which is another 

company we have discussed? We have certainly discussed Huawei 

and the information security threats that it poses, but Huawei has 

become very central to China’s domestic industrial ambitions in the 

semiconductor business. 

It is designing more and more of its own chips. It seeks to displace imported technology from its network equipment and from its 

cell phones. I think that is something we need to watch very carefully. 

Senator RISCH. Thank you. 

Thank you, Mr. Chairman. 

Chairman RUBIO. And I will use the few more minutes, before we 

can wrap up here, but since I did not use the first part, let me just 

start with this. 

There is a sense that—and this has been the way it has been for 

a long time—is that the private sector should be stepping forward 

and doing these things on its own, and that when it comes to China’s attempts to dominate high-end industries, that market engagement should be outside the scope of government’s role. 

I would ask you, Mr. Atkinson, what are the drawbacks to such 

an approach, in light of what we have discussed here today, and 

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particularly for small businesses who are in a—they are caught in 

a nation-against-nation economic competition. This is not a small 

U.S. business competing with a small Chinese business to see who 

has a better idea. This is a small or midsized U.S. business trying 

to innovate and compete against a potentially small firm, backed 

up by a nation state with the second largest economy, soon to be 

largest per capita—not per capita—largest gross economy in the 

world. 

That is not a fair fight. So what are the drawbacks of not having 

some level of government engagement? Not industrial policy where 

we are doing the same things they are doing, but the sort of things 

we have discussed today, allowing them access to the U.S. Government, being their customer, that sort of thing. 

Mr. ATKINSON. Senator, I think you hit the nail right on the 

head. There are two big challenges that a small and even a large 

firm would have. 

The first is that you really have very little access. You cannot go 

to a Chinese court because they are just not going to decide in your 

favor. We have seen that in case after case where the Chinese 

court always decides in favor of the Chinese company and against 

the U.S. company. 

The second big issue is that you are dealing with cases where, 

for a small company, who do they talk to. Where is the place in 

the government where they go? We really have to have better systems in the U.S. so that any small company can get the right access in government and then get action taken on their behalf, and 

that right now is very haphazard. You are lucky if you can find the 

right person. You are lucky if that person then will take your case 

and sort of wind its way through the government. 

We do not have an all-of-government or whole-of-government approach to help small companies be able to deal with this. 

Chairman RUBIO. Mr. Rush, just talking about that, Made in 

Space, which you got seed funding from the Small Business Innovation Research program with NASA and the Department of Defense, correct? What role did that—I mean, I guess my question to 

you, could you have done what you did without it, and what role 

did it generally play in taking you to where you are today? 

Mr. RUSH. Yeah. I would say that from a broad perspective, 

Made in Space would not be the company it is today without SBIR 

and without the support from NASA and other government agencies in various ways. 

We took to heart that sort of seed funding mantra, however. Like 

we want to be commercial and government. In the aerospace industry, there are lots of folks that are just exclusively government, and 

we see the value of being both. 

But in so many ways, the infrastructure that exists in aerospace 

and in space specifically is enabling of this innovation. Without the 

International Space Station, we would not have been able to for 

single millions of dollars demonstrate and productize the technologies we have. It would have cost two orders of magnitude more 

money to do it. 

SBIR is a really important part, but it is not the end of it. Having those on ramps into commercial utilization, encouraging small 

businesses to look elsewhere besides just the government, as well 

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as saying—as well as encouraging and introducing small businesses to other parts of the government that might benefit from the 

technologies under development in SBIR, I think would be prudent. 

Chairman RUBIO. And to me, the whole notion about providing 

opportunities for new entrants into the field is critical, obviously 

because of the nation state competition, but also because of a concerning trend line we have seen in terms of business investment 

in innovation, where you have seen a significant percentage of profits increasingly returned to shareholders, which is not inherently 

evil, but it is happening in many cases at the expense of being reinvested into research and development to pursue new lines of work. 

So part of it is creating demand, so that there is attractiveness 

for that investment to happen, but the other is when you have a 

small innovative idea somewhere, giving them the opportunity to 

be successful, especially if a larger marketplace presence is not 

doing that. These programs seem pretty critical, especially if we 

can prioritize how we use these programs to key industries that are 

critical to our future. 

And I would say this Made in China 2025 and the 10 industries 

there are a good starting point for the kinds of places that we need 

to be supporting at least for these opportunities. 

There has been talk about—Mr. Setser, I wanted to ask what— 

on the WTO, it is an imperfect tool, not that it is a useless tool, 

but there are some imperfections in using it when it comes to 

China. What does their unique state-driven economic structure— 

what challenge does that pose to the ability to use the WTO to address all of its behaviors? 

Again, not implying that it is useless, but there are some impediments to using it because of how they are structured; is that correct? And if you could talk about that a little bit. 

Mr. SETSER. Yes, I would be happy to do so. 

One of the aspects of China 2025 that is sort of right out there 

in the open and in your face are these market share targets. They 

look like quotas on imports, but they are not structured as quotas 

on imports. They are in formal documents out of China’s state 

planning process that somehow gain force in the Chinese system 

without being legally binding because China owns such a large 

share—I mean China’s government owns such a large share of the 

economy. 

Take aircraft, sort of the obvious one. The three major airlines 

are all state-owned. Hainan Airlines is not state-owned, but its parent company relies on the state for financial backing. 

China does not need to have a formal quota on how many aircraft it imports. It just needs to send instructions through various 

channels to the companies, the commanding heights of the Chinese 

economy, and you can effectively be shut out of the Chinese market 

without necessarily having a clear-cut WTO violation. 

With subsidies, we have discussed some of the difficulties. You 

have to wait a long time in order to show that there has been a 

material damage to you before you can formally bring the case. 

Chairman RUBIO. If you are still in business by that time. 

Mr. SETSER. If you are still in business, but there is also a problem identifying a subsidy. It needs to be a specific subsidy, and in 

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the Chinese system, it is hard to identify the specific subsidy when 

everything in a sense is subsidized. 

If there is a state-supported investment fund, we would all think 

that is a subsidy, but unless you can prove that the investments 

were made on noncommercial terms, you do not necessarily have 

a case. So it is that difficulty in applying the WTO’s rules to the 

Chinese system, which have created this plethora of problems for 

us as we try to sell into the Chinese market. 

Chairman RUBIO. Mr. Atkinson. 

Mr. ATKINSON. Let me just say quickly a story a couple of years 

ago when I was talking to the chief counsel of a Fortune 100 company. He was explaining to me that the Chinese were systematically stealing their technology. He went and had a face-to-face with 

the minister who was relevant to that area, and he was told by the 

minister—the chief counsel said, ‘‘If you do not stop this, we are 

going to bring a WTO case,’’ and the minister said to him, looking 

him right in the face, ‘‘If you bring a WTO case, you will never sell 

another product of yours in China again.’’ And needless to say, they 

did not bring a WTO case. 

Chairman RUBIO. Just on that point, a lot of talk about Huawei, 

and we are hearing now the concerns about telecommunication infrastructure around the world. What we are seeing now is, despite 

these concerns, numerous places where there are dominant telecom 

presence, are pushing back on locking them out, and one of the 

things we have learned, one of the rationales behind it is that their 

existing equipment in the network relies upon annual or biannual 

software updates and upgrades that belong to Huawei. 

So if, in fact, they take this public position, they are going to go 

through an incredibly disruptive moment in which they are going 

to have to rip out all of that stuff. They are going to have to go 

through a period of time where they do not have that latest update 

as they transition to a non-Chinese company. 

It is incredibly disruptive for a Western company who has to answer to shareholders and the general public. So the leverage—we 

should not underestimate the amount of leverage that they hold, 

not just about bringing actions, but about the fact that despite 

something being damaging to the national interest or even the 

long-term future of a company, the leverage in the short term is 

enough, either denying the market access or denying them access 

to software upgrades. 

That is critical. It is almost, in some ways, like arms sales. When 

you buy a nation’s weapons systems, you are tied at the hip for a 

significant period of time because of spare parts and training and 

the upgrades to it. 

My last question—and I know—I think that while we are focused 

on the small business community in this Committee—that is our 

jurisdiction—and all of the trade talk really focuses on the big picture of trade and the big numbers, small businesses are the ones 

that would pay the biggest price, especially down the chain on it 

of trade, and they do not get nearly as much attention or coverage 

in the financial stations on television and the like. Most of them 

are not publicly traded, and so they are also not being speculated 

upon constantly in the Wall Street Journal or CNBC or the like. 

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I guess my biggest concern is that in these trade negotiations 

that are largely focused on the overall trade imbalance, having a 

deal that basically deals solely with that, with concessions where 

China promises to purchase more American agricultural, more soybeans, which that would be great. I want our soybean farmers to 

be successful, but it does not really deal with the overwhelming 

majority of other aspects of our trade relationship, especially for 

the long term. 

So to what extent would trade balance-focused concessions such 

as that address our economic imbalance, especially for small businesses within the scope of what we have discussed here today, if 

that is all the deal did is just find more balance in the big-picture 

number but did not really deal with the intricacies of individual industries, particularly those like yours, Mr. Rush, and others who 

are outside the scope of such a concession? 

It is a jump ball. All right, Ms. Glaser. 

Ms. GLASER. I will just make a few comments, Chairman Rubio. 

I think it is important to look at the full scope of the problems 

that businesses have in China, and they really begin not with 

forced technology transfer, to be honest with you. 

If you look at the AmCham Survey that just came out of U.S. 

companies that are in China and if you look at surveys of U.S. companies that export to China, you will actually find it is pretty low 

on the list. They are really concerned about market access, and 

there are a lot of things there that we can do instantly that we 

could put pressure on China that need to be part of this deal. 

So in this recent AmCham Survey, 53 percent of the companies 

that were surveyed said we need to increase the transparency predictability and fairness of the regulatory environment. This is really all about nontariff barriers for them, and then IP protection is 

number two. 

So we have to look at various ways, I think, that we can deal 

with these set of things. 

From what I heard about USTR Lighthizer’s testimony this 

morning, it sounds like we are going back to where we were in 

2015–2016, where we were negotiating in the strategic and economic dialogue, a series of things that China could do to protect intellectual property, to open up market access. If they actually did 

all of these things, it would be a step in the right direction. 

If all we do is get promises on paper and then the Chinese buy 

LNG and agricultural goods, then we will have squandered what 

I think is an enormous amount of leverage that actually President 

Trump has tried to build. 

Chairman RUBIO. I would just say the concessions you are talking about go at the heart of their industrial strategy. 

Ms. GLASER. Yes. 

Chairman RUBIO. In essence, we were asking them to walk away 

from key components of what they intend to do. 

Ms. GLASER. Maybe the Chinese are in my phone. 

Chairman RUBIO. That is what happens when you bring a 

Huawei phone in here. 

[Laughter.] 

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Mr. ATKINSON. I would actually argue that forced tech transfer 

is more important than that. There is a reason companies do not 

always put it on a survey. 

For example, there is a recent academic study that showed that 

there were 6,000 new international joint ventures in China. There 

is another study that showed that Chinese companies have gotten 

significant intellectual property from joint ventures, not just the 

company that was the joint venture tech transfer partner, but 

there are other companies in that same industry. So there is a lot 

of good evidence that forced tech transfer has made a big improvement. 

Senator, to your point, under international economics, there is a 

notion of division of labor. We are a rich country. We have a lot 

of intellectual property assets. We should be specializing in high 

value-added technology-based products. Other countries specialize 

in more commodity-based products. 

The idea that we would somehow balance our trade by only selling oil and gas and some commodity products, I think would—it 

violates what international trade theory says. We should be the 

ones that are leading the world in high technology, high valueadded products. So I think any trade deal that would settle for just 

a trade deficit reduction, it would be a mistake. 

Mr. SETSER. Let me add a very concrete issue, which could be at 

the center of the negotiations. 

China maintains procurement lists for medical equipment, procurement lists that favor products made in China. If U.S. firms 

were free to transfer technology, they could potentially qualify for 

those procurement lists by producing in China. That is better than 

not selling at all to China, but it would be even better if products 

made in the U.S. could be freely purchased by Chinese hospitals. 

That would support more small business here at home. 

Top-end medical devices have historically been an important U.S. 

export strength, and I personally think addressing those barriers 

to U.S. exports needs to be at the center of our trade agenda. 

The other point to make is that China’s own economy is a point 

of weakness. There is a risk, at least in my judgment, that if China 

does not put its own community on a sounder basis, China could 

be tempted to go back to an export-based model. 

While our current trading relationship with China is far from 

perfect, we would be much worse off if China reversed the rebalancing that has taken place after the global financial crisis, went 

back to looking to exports to support its growth, and then many 

small businesses would face even larger challenges. 

Thank you. 

Chairman RUBIO. Well, just at the core—and we will wrap it 

up—the basic core of this is it is nearly impossible to make something somewhere else and then sell it inside China, and it is very 

difficult to invest and produce in China for the Chinese market unless you joint venture with someone in China, where you run the 

risk of having your intellectual property stolen. 

So the first point is it is nearly—very difficult to impossible in 

most key industries to make it somewhere else and send it in. So 

if you are not even in there, they cannot steal your IP. They could, 

obviously, from here, but they cannot force the transfer. 

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But if you do get in and they allow you in, you run the risk that 

within a number of years, once they figure out how to do it, they 

put you out of business, and that is at the crux. And that is what 

we are going to ask them to change, and I think that is a heavy 

lift but most concerning of all for small businesses. 

Do you have anything else? 

Senator CARDIN. I want to thank the witnesses. I thought this 

was extremely helpful. It is clear the challenges here are multiple. 

We clearly need to take action against China’s unfair practices, 

whether we try to do that under an existing WTO, improve the 

WTO, or take action here or take action in conjunction with our 

trading partners. We cannot sit still as they are stealing intellectual property or they are doing things that are clearly in violation 

of international norms. 

But we also have to be better prepared, and I think this Committee particularly, with the tools we have under the SBA, we need 

to see whether we can fine-tune them. 

I was impressed by how important the SBIR program was for 

you. We have the STEP program to help exports. We can certainly 

look at that program and see if we can improve it. 

Looking at traditional programs such as 7(a) or 504 as to how 

they can be more effective, looking at the SBIC as to a source to 

help small businesses, I think all of that, this Committee can play 

an important role. 

But the bottom line, as the Chairman has pointed out, is that the 

strategy of a controlled economy such as China with their ability 

to control all the knobs, they have a strategy that has certain results, and those results are very clear. They are going to achieve 

certain levels without imposing legal conditions that could be 

raised as objections under WTO. They will do it by their government reactions to their businesses. 

So it requires us to be more sophisticated. It does require us to 

work with our trading partners, our allies. It is critically important 

that we join in alliances, but we have to really recognize if we do 

not do this, we are in danger of really jeopardizing the economic 

strength of this country. 

Chairman RUBIO. Thank you for that. 

As we wrap up this Committee, we are facing, as we have talked 

about, a whole-of-government challenge. Ours has to be a whole-ofgovernment response, and that includes the programs of the Small 

Business Administration. So that is what we are going to be focused on very much is ensuring that the programs and the policies 

under the jurisdiction of this Committee support the ability of 

small businesses in America to compete in the 21st century, which 

increasingly means compete in a nation state-level competition. 

I want to thank all of you because I think a lot of ideas came 

from the testimony today. You saw a couple members take away 

some ideas that I hope will be part of our ongoing work over the 

next 2 years. 

The hearing record for this is going to remain open for 2 weeks, 

and if there are any statements or questions for the record, they 

should be submitted by Wednesday, March 13th, at 5:00 p.m. 

Again, I thank you all for being here, and with that, this hearing 

is adjourned. 

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[Whereupon, at 4:11 p.m., the Committee was adjourned.] 

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APPENDIX MATERIAL SUBMITTED 

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Senate Committee on Small Business and Entrepreneurship Hearing 

February 27, 2019 

Follow-Up Questions for the Record 

Questions for Mr. Robert Atkinson 

Questions from: 

Chairman Rubio 

QUESTION 1: 

How would you define the optimal role of the federal government in national economic 

development? 

This is clearly a broad question which I tried to answer in detail in the recent ITIF repm1 "The 

Competitive Edge: A Policymaker's Guide to Developing a National Strategy." In addition, ITIF 

has developed a framework for thinking about this, what we term the national economic growth 

policy pyramid. At the base level are key framework conditions: factors such as the rule oflaw, 

ease of doing business, competitive markets, f1exible labor markets, effective protection of 

property, including intellectual property, and a culture of trust. Without these key framework 

conditions, even the most sophisticated innovation and competitiveness policies will not succeed. 

The next level above these basic framework conditions includes an effective tax, trade, and 

investment environment. Key considerations here are establishing a globally competitive tax 

environment and implementing policies that enable trade and foreign investment, including 

policies to push back against foreign unfair trade practices. As these factors are in place, nations 

need to then focus on the next level above which comprises key factor inputs: the kinds of 

external factors firms need in order to succeed. These include robust physical and digital 

infrastructures (e.g., transportation systems, broadband, etc.); a skilled workforce with broadbased general capabilities but also the specialized skills matching the needs of key industries 

(e.g., increasingly computer science and machine learning skills); and robust knowledge creation 

(e.g., government investment in scientific and technological research). But even these are not 

enough for success. Indeed, with more nations realizing that mastery of these three levels is what 

is needed just to "be in the game," success requires going beyond this, to a fourth level, that 

includes effectively crafted innovation and productivity policies specifically tailored with regard 

to a country's competitive strengths and weaknesses. Policies in this category include provisions 

such as R&D tax credits, export financing, support for regional innovation clusters and sectoral 

industry research alliances (like the Manufacturing USA program), and support for innovative 

small businesses (like SBIR and STTR). These do not and should not imply a heavy hand of 

government picking particular firms as champions or particular narrow technologies to target. 

But that also does not imply doing little or nothing. 

QUESTION2: 

What role can programs administered by the SBA, like the Small Business Investment 

Company (SBIC) program and Small Business Innovation Research (SBIR) and Small 
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Business Technology Transfer (STTR) programs play in driving investment in early-stage 

innovations? 

In my view all three programs play key roles in helping spur innovation and tech-based 

competitiveness. As proposed in Senate legislation, I believe that more should be done to help 

ensure that these programs do a better job of spurring innovation in places other than the leading 

tech hubs of the nation (e.g. Boston, Seattle, Silicon Valley, etc.). Perhaps one way to do that, at 

least for SBIR and STTR, would be to give additional prioritization and points in scoring to 

small firms located outside of the top 10 or so more innovative regions. 

QUESTION 3: 

In your testimony, you discussed introducing an Open Commercialization Infrastructure 

Act that permits private use of bonded facilities for certain activities related to 

entrepreneurial education and training, as well as for economic development and job 

creation. In your estimation, were such an Act to be introduced and provided for small 

businesses under the definitions defined by the Small Business Act, what kind of impact 

would this change have on entrepreneurs and small businesses in terms of growing their 

businesses? 

It is not clear what the impact would be, but one can make a compelling argument that such a 

change would help small business more than bigger businesses because the former have fewer 

in-house resources for innovation and therefore would benefit more from the ability to access 

these facilities. 

QUESTION 4: 

In the FY 2019 National Defense Authorization Act, changes were made to the SBIR and 

STTR programs to provide for greater commercialization of SBIR and STTR technologies, 

including allowing a larger portion of awards to go to commercialization and technical 

assistance related to commercialization. In your estimation, how much of the overall SBIR 

and STTR program funding should go to commercialization efforts? 

In addition to permitting SBIR awardees to increase the share of funds they can allocate to 

commercialization-oriented activities, the federal agencies making SBIR awards should do the same. 

Though some participating agencies offer SBlRI STTR award "supplements" to awardees to select their 

own vendors (or offer commercialization programs organized by outside vendors), these are capped at 

$5,000 per year per awardee for commercialization activities and cannot be used to fund company 

employees specifically devoted to these activities. Ideally, all agencies would allow this and 

commercialization award supplements of at least $10,000 and ideally up to $20,000. 

QUESTIONS: 
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Your testimony also discusses focusing SBA's lending programs on traded sectors, noting 

that the current percentage of loans going to businesses that are traded is approximately 

7.5 percent. What would you deem as a necessary percentage of loans in traded sectors for 

the 7(a) program to make a real impact? 

While there is no exact ideal number- more is better- I would challenge SBA to have at least 

one third of their loans to traded sectors within the next several years, ideally increasing that 

share to half. 
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Answers to Questions for the Record Following a Hearing 

Conducted by the Senate Committee on Small Business and Entrepreneurship 

on February 27,2019 

On February 27, 2019, the Senate Committee on Small Business and Entrepreneurship convened 

a hearing at which Andrew Rush, CEO of Made In Space, Inc. (Made In Space, AfiS), testified 

about MIS 's work and itsfiiture plans. After the hearing, Senator Rubio submitted questions for 

the record This document provides MIS 's answers. 

Questions for Mr. Andrew Rush 

Questions from: 

Chairman Rubio 

QUESTION 1: 

How critical was SBIR and the various other federal programs to the growth and success of 

Made in Space? 

MIS Response: 

Made In Space, Inc. (Made In Space, MIS) has benefitted enormously from a virtuous cycle of 

technology development and operation enabled by the Small Business Administration, NASA, 

and other government agencies. Continuous technological innovation has been foundational to 

maintaining America's commercial and military superiority on the ground and in space. Made In 

Space is developing technologies and business models that will enable and drive people to one 

day sustainably live and work in space. In 2014, Made In Space hardware successfully produced 

the first functional objects manufactured off the face of the planet. Today, Made In Space has 

several in-space manufacturing programs underway and is commercially manufacturing for 

customers aboard the International Space Station. 

This success would not be possible without the Small Business Innovation Research Program, 

public-private partnerships like the In-Space Robotic Manufacturing and Assembly Tipping 

Point Program (IRMA) and access to the International Space Station. Made In Space strongly 

encourages continued support of programs which enable the step-by-step development of new 

commercial space capabilities, including the SBIR program, NASA's IRMA program, DARPA's 

support of in-space manufacturing and assembly development and the International Space 

Station. 
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QUESTION2: 

Having moved through the SBIR application and award and contract process, what could be 

done to improve the program; in particular, what would you consider appropriate time lines for 

the award and contract process versus your experience with the program? 

MIS Response: 

The single best thing the government can do to promote the growth and success of 

groundbreaking companies like ours is to be a good customer. That meansBuying commercial to begin with; 

Having a purchasing process that is as clear, easy and fast as possible; and 

Stating a need, and letting commercial companies figure out how to meet it, instead of 

having government trying to design the product or solution for itself. 

Timelines for the award and contract process would be improved if they more closely resembled 

commercial contracting time lines. Specifically, contracting processes for SBIR Phase III awards 

that currently require months could be completed in days or weeks in a commercial setting. 

QUESTION 3: 

In your estimation, how much would a firm's commercialization objectives become more 

attainable with more efficient and timely award and contract times? 

MIS Response: 

More efficient and timely award and contract times would materially contribute to attaining 

Made In Space's commercialization objectives. Improved contract process would accelerate 

advancement of Made In Space teclmology maturation and improve Made In Space's ability to 

bring its space technologies to market, thereby enabling the capability to be available to NASA 

and other government agencies, but sustained by the commercial market, resulting in more cost 

effective and better technological outcomes for the government. 

QUESTION4: 

What other suggestions, if any. would you have for improving the SBIR program? 

MIS response: 

Based on the successful demonstration of gravity-independent 3D printing on board a parabolic 

aircraft in 201 L Made In space was awarded SBIR contracts to develop the technology for 

demonstration aboard the ISS. Via an SBlR Phase III contract with NASA, Made In Space built 

and operated the first 3D printer to operate in Space. Thereafter Made In Space built the 

Additive Manufacturing Facility (AMF), a second-generation, more-capable 3D printer that was 
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launched to the ISS in 2016. Via Agreements with NASA and the Center for the Advancement of 

Science in Space (CASTS), the managers of the ISS National Lab, Made In Space owns and 

operates the AMF, routinely sending print jobs to the ISS and manufacturing them on a weekly 

basis. The AMF print services business is profitable and has produced parts for NASA, the U.S. 

Navy, Lowe's, universities such as Texas A&M University, student groups and even individuals. 

These uses represent pathfinders for future commercial space station-based businesses, a future 

cornerstone of American industry's utilization of space. 

Expanded utilization of SBIR Phase Ill contract vehicles to support flight demonstration 

missions and infusion into operational missions will ensure maturation in technology areas that 

are crucial to maintaining America's competitive edge in space such as defense, research and 

development and technology demonstration that are often too niche or too early stage for 

significant private sector investment. 

QUESTION 5: 

In your experience, what does it take to be an innovative American producer in the 21st century? 

MIS Response: 

First, innovation. Second, it takes a relentless commitment to excellence: world-class talent, 

state-of-the-art manufacturing processes, and dedication to anticipating and meeting the 

customer's needs. 

Made In Space innovations have triggered industry and government leaders to rethink the 

designs objects that will be sent to space. This innovation has been enabled by the support of the 

Small Business Administration, NASA and other government agencies. Made In Space is 

grateful for that support and proud to continue innovating with the support of NASA and other 

agencies. 

Additional investment in innovation and accelerated operational mission infusion are necessary 

to in space to enable the innovations and maintain the relentless commitment to excellence that 

will maintain America's innovative edge in space. 
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Senate Committee on Small Business and Entrepreneurship Hearing 

February 27,2019 

QUESTION 1: 

Follow-Up Questions for the Record 

Bonnie S. Glaser 

Director, China Power Project 

Center for Strategic and International Studies (CSIS) 

What would pursuing actions at the WTO accomplish that Section 301 actions do not? Namely, what 

could the WTO do to increase the costs of China pursuing Made in China 2025 more than Section 301, 

which has put tariff.~ on its largest marketfor exports? 

Using section 301 exposes the US to retaliation via the WTO dispute settlement process- and the 

Chinese have alrearly embarked on that path. If the US took a case directly to the WTO and won, tl1e 

Chinese would be in a much more ditlicult position. They could not legally retaliate. There have been 22 

cases brought against China in the WTO and China has in most cases complied with the rulings. Using 

Section 301 is unilateral and using the WTO is consistent with our multilateral obligations. 

There are pros and cons to each approach. Using the WTO has the advantage of giving us the moral high 

ground and the opportunity to take action without retaliation (or making China the outlier if they retaliate 

anyway). It would also create an opportunity for us to build a coalition, since other countries could join in 

our complaint or bring similar complaints of their own. Collective action would put more pressure on 

China than our unilateral action. The disadvantages of using the WTO are that the process takes some 

time, probably a year or two at best, and the outcome is uncertain. In addition, ironically, if the US 

persists in its strategy of trying to render the WTO's Appellate Body non-functional, we could win the 

case at the WTO and get no relief because the Chinese would appeal, and there would be no way of 

adjudicating their appeal. 

Using section 301 makes the US an outlier in the global trading system, particularly since we said at the 

time of the Uruguay Round that we would only use it in ways consistent with our multilateral obligations, 

the effect of which is to encourage other nations to take similar actions against us, as is seen in the 

Chinese retaliation. That, in turn, contributes to the general deterioration of the rules-based trading 

system, which has served the US well since 194 7. The advantages of section 30 I are that the US makes 

the decision by itself- and therefore it is faster and that it can be calibrated to address any Chinese 

responses. To the extent that US actions address issues that are not covered by WTO rules, we would also 

be on more solid legal ground. 

To assess the relative merits of using the WTO, one has to break out each of the US complaints against 

China; some of them are more susceptible to effective WTO action than others. For example, the 

subsidies the Chinese intend to use to pay for Made in China 2025 arc most likely violations of WTO 

rules, and if we act against them pursuant to US countervailing duty law, our actions would most likely be 

sustained in the WTO if the Chinese took us there. That is essentially what the US did on steel. The US 

industry brought so many dumping and subsidy cases- and won them-- that China dropped from our first 
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or second largest source of steel impot1s to tenth or eleventh. That suggests that a combination of 

remedies might be the best approach because of the complexity of the problems that China poses. 

QUESTION2: 

What other actions could be taken with our allies to further confi·ont China? 

I believe that it is more effective to deal with China through forging a coalition of countries. The Chinese 

don't like to be criticized by a coalition of countries, and it is more difficult to dismiss the concerns of 

many than it is to dismiss the concerns of one. Creating a coalition should consist of two elements: 

1. Like-minded nations conveying the same message to China at the highest level at the same 

time. This is the pressure part. 

2. Building a network of Western rule-of-law based institutions that set the rules for trade and 

competition to which the Chinese would have to conform if they wanted to access the markets of 

the coalition members. That was what TPP and TTIP were about- creating large networks with 

good rules on intellectual property, state-owned enterprises, and so on that the Chinese would 

ultimately have to adhere to if they want unfettered access to these markets. 

The US should also recognize that the real competitive battleground on Made in China 2025 issues is in 

third countries. We are not likely to ever receive fair treatment inside China, and we can reciprocate with 

respect to their access to our market. We will end up competing everywhere else, and we should be 

focusing our efforts on building support in those other countries.