This week, House Foreign Affairs Committee Lead Republican Michael McCaul spoke at a virtual, bipartisan event hosted by the Center for Strategic and International Studies. An original co-sponsor of the CHIPS for America Act, Congressman McCaul discussed U.S. competitiveness with China, particularly as it relates to the semiconductor industry.

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Opening Remarks: “Thank you and CSIS for your great partnership and leadership on all these issues, and I hearken back to our glory days writing the cybersecurity report, [which is] very bipartisan, an American national security issue that I believe became the most downloaded report on the internet for a while.

“And, you know, CSIS is a great think tank and provides such great services for members of Congress, like myself, particularly in the national security space. You know, I chaired Homeland and now I’m the Lead Republican on the Foreign Affairs Committee.

“I was asked by Leader McCarthy to chair the China Task Force. It was supposed to be bipartisan, and then at the last minute, the Speaker opted out. But I do think it’s not a Republican, Democrat issue. It’s an American issue. We treat it very much as a policy exercise, not partisan.

“And I think that’s borne out by the report’s recommendations, 400 of them, 200 legislative. Two-thirds of those were bipartisan bills that I think we can accomplish regardless of who wins the election in November for the sake of our security.

“We looked at all things related to our foreign policy with the Chinese, with the PRC. This is not my first rodeo with China espionage, and we’ll probably talk about the Houston consulate in a minute. In 1996 I was a very young prosecutor in the Department of Justice and was assigned to the Johnny Chung case, which in 1997 led us to the Director of Chinese Intelligence and China Aerospace keenly focusing on military technologies and satellite technologies and how they could have tech transfers under the Export Control Act, which is under the Foreign Affairs jurisdiction.

“Really a fascinating case, we had to put him under federal protection, we’ve got these wire taps, and the Director of Chinese Intelligence putting money into his Hong Kong bank account to influence the ’96 presidential election.

“We think that they are back to their old tricks in this election cycle as well. But for me as a young guy, by the way, my FBI agent was indicted for espionage. He was sleeping with a Chinese spy.

“So it’s nothing new to me. We looked at Belt and Road, how can we be competitive with China globally, both economically, militarily. We looked at our military posture in the South China Sea and the Taiwan Straits.

“We looked at a more aggressive China when it comes to expansion into Hong Kong and with respect to Taiwan.

“We looked at their hypersonic capability which surpasses us. We looked very extensively at all things technology like AI, quantum, cyber, 5G, the race for 5G with Huawei, how can we get our allies working with us, and I think getting the Five Eyes to reject Huawei, particularly Great Britain when they were actually moving from 4 to 5G, I think was a very significant move.

“Human rights violations and control of powerful positions at the United Nations, but I do think the biggest takeaway that you and I were talking about is the supply chain. And I think most Americans did not recognize the threat until they held up our PPE equipment, you know, the protective equipment for medical.

“They nationalize 3M and GM in the PRC and controlled the exports to the United States and Europe. I would argue, price gouged Europe.

“So we took a real deep dive on supply chain. Now, I would argue that not every supply chain needs to be scrutinized. I think primarily national security related issues like medical, but also like technology, which is I know a focus of our discussion here today. We looked at all things technology, but particularly these advanced semiconductor chips that are really the brains, if you will, for everything that’s got an on/off switch from everything from your phone to fighter jets. And you know the PRC has initiated or launched a trillion dollar digital campaign, and we have to be competitive.

“We try not to say they’re an evil empire. They’re this malign influence, certainly. But we just have to be competitive with with them globally. And we also need to stop the theft of intellectual property, which you and I dealt with on the cybersecurity report, which has been going on for decades. But it’s gotten to an all time high. I think [General] Keith Alexander said it’s the biggest transfer of wealth in human history.

“That is why the Houston consulate was shut down, because the theft of biomedical research at the Texas Medical Center, particularly MD Anderson. And also the R&D for the vaccine itself – they would love to steal that to save the world from the virus that came out of their country.

“We also had enormous espionage operations coming out of there. We had a Texas A&M professor indicted for stealing NASA data and selling it to, you know, the mothership, you know, back in China. So it’s a real threat that I think the American people have woken up, and I call it the sleeping giant waking up to what is a real threat out there.

“And it’s a generational struggle. My father bombed the Nazis in World War Two. And I grew up in the Cold War as you did as well. Then we had 9/11; we focused a lot on radical Islamic terror. Today I think the greatest generational struggle and competition is going to be with the Chinese Communist Party.

“And then lastly, Jim, we got into the origins of COVID-19 and investigated what happened, and it is a bit disturbing the extent to which they tried to silence the doctors who were aware of this. And remember a SARS-like virus had to be reported within 24 hours under the new WHO guidelines.

“And they wholly failed to do that. In fact they silenced doctors from reporting this. They also went into the labs to control the case, the investigation, and I think most egregiously, would not admit it was human-to-human transmission, which unfortunately Director General Tedros sided with President Xi and did not alert the world to the threat, which is his number one primary mission.

“Meanwhile, you’ve got the the Lunar New Year’s festival going on in China, 5 million people leave Wuhan throughout mainland China, travel internationally. That’s the point where it went from an epidemic to a global pandemic that is obviously causing a lot of both loss of life and economic destruction, you know.

“I’ll end on this one. We did translate the report into Mandarin, and we were able to penetrate the firewall into China.

“It got the report into mainland China, and it went viral, so much so that President Xi’s spokesperson denounced it, and they they dedicated an hour-long television appearance on CGTN denouncing or debunking the ‘McCaul report.’

“So, needless to say, I kind of watch my back a little more closely these days.

“But it was a great education for the people of China who are really the victims here of a very oppressive government.”

Q&A Highlights

On US Supply Chains: “I think Covid woke up the American people. I think they didn’t realize we could be held hostage with our medical supply coming out of China – a big, big takeaway. And then the education piece I have is on the technology side, why that’s so important.

“I don’t know, but for COVID, if we would be talking about legislation quite like this.

“I think for too long, whether it be the talent pool or the tax regulatory policy and cheap labor, quite frankly, has pushed a lot of our technology offshore because of talent pool issues, because of labor, because of taxation policies. And what we try to do in a bipartisan way is what the semiconductor industry told us. [They said] we need a grant program to have a capital investment from the federal government, which I don’t think anything quite like this could be done pre-covid, but also an innovative tax policy. They particularly like the refundable investment tax credit because their infrastructure costs are so enormous up front, as they build these fabrication plants.

“And so we kind of put their ideas in a bill. I hope in a lame duck, Jim, that we can get this thing done.”

On Research and Development Competition and Austin, TX: “All of this is great for Austin.

“I’m doing it, you know, as a representative of a district that has probably more tech companies than any other, pretty much matched by Silicon.

“I look at it also, though, as an American issue that’s vitally important that we maintain a cutting edge in technology. And to your point, the ecosystem is not just the fabrication of advanced semiconductor chips. It goes beyond that; there are so many Artificial Intelligence companies here in Austin, and I talked about the Army Futures Command here in Austin. So it’s a military ecosystem with the private sector and the University.

“The quantum computing is so vitally important. There’s a race. That’s the digital space race, and whoever gets there first is going to control the digital space.

“The Chinese made an enormous investment in quantum physics and quantum computing, which are these supercomputers that will unravel a lot of mysteries and can de-encrypt everything that has been encrypted.

“They stole the 23 million security clearances from OPM. They’ve stolen a lot of big data thefts that we’ve seen throughout the time we’ve known each other. And some of this is encrypted, but they know that at point certain they’re going to be able to unravel this stuff and de-encrypt when they master quantum computing. So we need to get there first.

“Cybersecurity firms all throughout the country, and particularly here in Austin, is also part of the ecosystem.

“And finally, the telecom, the 5G, we got the Department of Defense to open up that DOD spectrum so that we could be more competitive, and now they’re going to auction off the spectrum with a situation where, in a time of emergency, they can get the spectrum back.

“But in the meantime let’s use it to manage so that we can compete with China and 5G. I would submit that we are in a close competition that some would argue we are not winning, and that’s one that we really need to prevail on as well.

“So you’re right. All those different facets of technology are all part of the ecosystem that play into this, and I think you know the capital investment from the federal level, but I think getting back to the tax code, the R&D tax credit, and the refundable investment tax credit is really the way to set a spark plug to it.”

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