For Alon Raphael, the three Chinese nationals he hired in 2018 were “model employees” with a great work ethic who were just right for Femtometrix, his Los Angeles-based company whose technology helps identify defects in advanced semiconductor chips during manufacturing He got them visas to stay in the country, and one of them even invested in the company. “These were people I trusted with my life at one point,” he said.
For Alon Raphael, the three Chinese nationals he hired in 2018 were “model employees” with a great work ethic who were just right for Femtometrix, his Los Angeles-based company whose technology helps identify defects in advanced semiconductor chips during manufacturing He got them visas to stay in the country, and one of them even invested in the company. “These were people I trusted with my life at one point,” he said.
Then, two years ago, they stole that technology and took it back to China to establish a rival company there that he says is now shopping for clients and investors. “I hired these three kids because they were good at what they do, they cared about their work and they cared about this business,” he said. “Apparently there were nefarious and ulterior motives that I did not suspect.”
Raphael filed a lawsuit against them in California and appeared before the House Foreign Affairs Committee this week to urge policymakers to ensure that companies like his are better protected against technology theft.
“I want the leadership of this country to protect its innovators,” he said in an interview the day before his congressional testimony.
Raphael’s case is emblematic of the fears that underpin much of Washington’s foreign policy of late, with a growing focus on closing off avenues for China to access advanced technology. The latest push aims to create a mechanism to control outbound US investment in China, with a long-awaited executive order potentially set to end the Biden administration’s plans shortly after this weekend’s G-7 meetings to sketch in Hiroshima, Japan.
The summit, where US President Joe Biden will spend the weekend before cutting his trip short to deal with debt ceiling talks in Washington, could provide some international air coverage. At least one ally – British Prime Minister Rishi Sunak – has indicated a willingness to to follow the leadership of the US on investment restrictions, and the threats posed by the economic and technological “coercion” of China, are expected to dominate the proceedings.
At the G-7“expect more than words and communications about economic coercion – expect action,” US Ambassador to Japan Rahm Emanuel tweeted this week. The “members develop the tools to prevent and defend China’s economic intimidation and retaliation.”
But such steps have been months in the making and illustrate the The difficulty of the Biden administration to thread the China decoupling needle. Last October, the administration imposed export controls on semiconductors and flirted with a ban on Chinese apps like TikTok. But lately that has given way to a more tempered approach. In speeches last month, Treasury Secretary Janet Yellen and National Security Advisor Jake Sullivan both stressed that US moves will remain narrowly focused on technology that affects national security and said Washington wants to “de-risk”, rather than “de-couple”, its relationship with Beijing.
Experts say screening outbound investment is an incredibly complex balance between protecting national security and continuing to promote innovation. More practical issues at play include a lack of data on which transactions will be covered under an investment regime, the resources needed to carry out controls and which technologies to target. The Biden administration has indicated it wants a scalpel instead of a sledgehammer, with Sullivan previously advocating a “small garden, tall fence” approach. But China has proven in the past that he is good at finding holes in that fence.
“I feel that outbound investment screening for Washington is the ‘Waiting for Godot’ moment,” said Reva Goujon, a director at policy research firm Rhodium Group that focuses on US-China relations. “Last year you could see a lot of urgency” to shape the regulatory regime, she said, but the challenges of implementing it meant that “the reality check hit, and that’s where you just see a lot from the beginning of this year. slower pace and methodical approach to rolling this out.”
The broader geopolitical climate is not favorable either. Washington has tried to resume dialogue with Beijing and lower the diplomatic temperature, so far with restricted results and largely derailed by the infamous spy balloon fiasco.
“You can’t release an (executive order) that establishes a whole new creative control regime and then say, ‘Oh, we’re not going to raise the temperature. We really want to meet with you,'” said Emily Benson, the director of the Project on Trade and Technology at the Center for Strategic and International Studies. “I think they’re kind of between a rock and a hard place until they actually get confirmation about a meeting with Beijing.”
That’s one reason more international support for the Biden administration’s approach to China would be welcome. The restrictions on semiconductors, Chinese tech platforms, and 5G mobile platforms in the past all benefited from getting partners on board.
“If you don’t have allied buy-in, other countries and companies will invest elsewhere and not here, and the ultimate goal will be diluted,” Benson said. “But the complicated thing is that allies don’t really have the authority to implement these types of tools.”
Despite Emanuel’s predictions, many experts are skeptical that the Hiroshima meetings will cut the Gordian knot. The biggest obstacles are the Biden administration’s own divisive attitude and differences between the White House and Congress.
“I don’t expect the G-7 to be much of a catalyst to move outbound investment,” said Riley Walters, the deputy director of the Hudson Institute Japan Chair. “I’m sure the Biden team can use the G-7 to get a feel for whether others, like Japan and the UK, are interested in implementing similar regulations or restrictions, but it won’t do much to change the debate to change at home.”
But, according to Benson, the bloc’s focus on technological cooperation with each other and competition with China is already a significant shift that is unlikely to be reversed anytime soon.
The G-7 and other partner countries, such as South Korea, are undergoing a major “philosophical consolidation of the way we view strategic competition with China,” she said. “And I think we can look back at spring 2023 and see it as an inflection point.”
FP staff writer Jack Detsch contributed reporting.
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