Qualcomm's Love Affair with China Jeopardizes National Security and U.S. Technology Dominance

Nicholas Waddy
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Posted: Nov 21, 2017 10:50 AM
Qualcomm's Love Affair with China Jeopardizes National Security and U.S. Technology Dominance

Many historians believe that one of the main reasons why the U.S. won the Cold War was its decisive lead over the Soviet Union in computer and telecommunications technology, which, by the 1980s, made it virtually impossible for the Soviets to compete, either economically or militarily. The pathetic performance of the Soviet-supplied Iraqi Army on the battlefield during the Gulf War of 1990-91 confirmed that the largely technological “Revolution in Military Affairs” of the late 20th century had given the United States a massive supremacy over all other military powers. The Soviets accepted the inevitable and liquated their empire.

Today, the U.S. remains the world leader in computer and telecommunications technology, but that position of dominance is threatened on many levels, and sadly some American companies are helping to undermine it. While virtually every U.S. tech company is enthralled with the fabled “China market,” and is willing to cut questionable deals with the Chinese government in order to partake in it, Qualcomm stands out as a company uniquely compromised by its close association with Chinese officials and its subservience to Chinese interests.

Qualcomm is a supplier of semiconductors and related telecommunications equipment, and it licenses many critical patents used in the operation of smartphones. Indeed, such a large fraction of the smartphones sold worldwide incorporate Qualcomm's proprietary technology that the company has been sued in the U.S., Europe, and several Asian countries, including China, for monopoly practices. While Qualcomm's business model, its aggressive lobbying efforts, its layoffs of U.S. workers, and its advocacy of large-scale immigration of foreign tech workers are matters of legitimate concern, it is the company's complex web of entanglements with the Chinese government that are truly raising red flags with U.S. authorities.

Context is important: Qualcomm now derives a majority of its revenue from its operations in China. Thus, while Qualcomm remains a putatively U.S. company, its financial interests compel it to take Chinese national interests every bit as seriously as U.S. national interests – and, going forward, possibly more so.

This coziness with China has expressed itself in numerous ways. Qualcomm has settled an anti-monopoly lawsuit in China by paying almost $1 billion to the government. Meanwhile, over many years Qualcomm violated the Foreign Corrupt Practices Act by showering “gifts, travel, and entertainment” on executives at Chinese state-owned companies, and it gave jobs and other preferments to the relatives of these executives. Qualcomm ultimately paid a $7.5 million fine to settle the case. No doubt partly due to these underhanded practices, Qualcomm has enhanced its ability to enforce patents in China and to collect revenue from licensing fees. Qualcomm also works closely with Huawei, the Chinese telecom giant with ties to that country's People's Liberation Army and the Ministry of State Security. Huawei is just one of over 100 Chinese entities with which Qualcomm partners, including all 10 of the largest Chinese telecom companies. More troubling, however, is Qualcomm's involvement in China's master plan, called “Made in China 2025”, which, among other things, aims to make China a dominant force in computing and telecommunications technology, including supercomputers and artificial intelligence. To that end, Qualcomm is building new high-tech facilities in China, and transferring sensitive chip-making technology, that will allow the Chinese to compete, not just with American companies, but with America itself, on the cutting edge of technological innovation.

Not surprisingly, Congress is scrutinizing some of these technology transfers and sweetheart deals. Soon, a bill will be introduced that would address some of these concerns by strengthening the “Committee on Foreign Investment in the U.S.,” which has oversight over foreign companies attempting to purchase U.S. subsidiaries. Even that, however, may not be enough.

The stakes are high. Ours is increasingly a post-industrial, knowledge-based economy. This makes the more typical Chinese outrages, like endemic copyright infringement, deeply worrying, since they cut at the strength of our economy, and rob us of the opportunity to export to China and to protect American jobs. The activities of companies like Qualcomm are potentially much more damaging, however, because they provide China, irrespective of U.S. national interests, with the technological wherewithal to compete with our tech giants. Worse still, the Chinese are, in addition to economic competitors, potential strategic adversaries.

Already, Chinese computing and telecommunications technology provides the North Koreans with much of the critical hardware they need to run their nuclear and missile programs, as well as their cyber warfare activities. Will the day come when Chinese-supplied tech, originating with Qualcomm, is used against American soldiers, sailors, or airmen? We hope not, but the prospect is sobering, and it ought to send chills down the spines of Qualcomm executives.

Since they seem oblivious, however, the next best thing would be for the U.S. government to closely scrutinize U.S. tech companies doing business in China, to ensure that all such operations are in the American national interest. Chinese companies trying to acquire U.S. companies, and by extension the sensitive technology that they own, should also be closely watched, and thus legislation to strengthen the Committee on Foreign Investment in the U.S. should be expeditiously approved.

President Trump's recent rejection of the purchase of a U.S. semiconductor producer by a Chinese fund with state backing is also a welcome development.

We the people should be watchful too, since, after all, our nation's power and wealth are both based on our technological preeminence. The next time you purchase a smartphone, therefore, consider whether the company that made it, or helped to make it, has U.S. or Chinese interests at heart.