This month the U.S. Commerce Department added Huawei Technologies, along with 70 affiliates, to the so-called “Entity List,” which will make it harder for the Chinese telecom giant to buy parts and components from U.S. companies. This move will also make it all the more difficult for Huawei to sell some products – but that is part of the goal.
Last August President Donald J. Trump signed into the law the Defense Authorization Act, which banned the U.S. government and contractors from using products made by Huawei and ZTE. Those two tech firms are now among several other high-profile Chinese companies – including Hytera Communications Corp., Hangzhou Hikvision Digital Technology Co. and Dahua Technology Co. – on a vendor blacklist with products from those companies banned for use by government agencies.
Along with the ongoing trade negotiations, this move shows a shift in the relationship with China.
“Mr. Trump just gave Communist China a new designation,” said Frank Gaffney, vice-chairman of the Committee on the Present Danger: China, via an email to ClearanceJobs.
“After decades in which the PRC was portrayed as a Cold War ally against the Soviet Union, then as a business partner, and most recently, as a ‘peer competitor,’ the President gave it a far more accurate brand: ‘foreign adversary,'” added Gaffney. “In a new executive order clearly aimed at the Chinese Communist Party’s conglomerates Huawei and ZTE, Mr. Trump barred our telecommunications networks from using such adversaries’ equipment. Those overseas who want access to our intelligence and security assistance had better follow his lead.”
Trusted Capital Marketplace
Earlier this month Department of Defense (DoD) announced that it will publish a backlist of software companies as part of its efforts to block Chinese investment in such firms. The move is also geared at denying the Chinese access to technology that could give the U.S. an edge.
The result is the Trusted Capital Marketplace, or TCM, a program that will launch by July. It was officially announced by Ellen Lord, defense undersecretary for acquisition and sustainment, at a press event last week.
“A lot of these companies are small, innovative companies, that frankly don’t either have the resources or the sophistication, in terms of the contacts, to reach sources of capital,” Lord said at a Pentagon press briefing. “What we’re trying to do is enable that so that they don’t have to frankly go through a lot of time and expense with legal firms to try to ferret out who is out there.”
While the amount of money that will be invested in the program hasn’t been announced, it has been reported that at least 50 companies could be on the shortlist. The National Defense Authorization Act had already directed the Pentagon to create a pilot program – one that supports those small and medium-sized companies that could manufacture emerging defense and commercial technologies.
Critics have suggested that this may not be the soundest course of action, however.
“The ideas of ‘trust’ and ‘venture capital’ do not go together,” Jonathan Rogers, COO of cybersecurity firm Centripetal told ClearanceJobs. “The Pentagon should instead more rapidly execute contracts with the technology vendors it sees as promising.”
Stopping Chinese Investment
It isn’t just about stopping the Chinese from buying parts and components, but also investment in those U.S. firms that make the critical parts. Undersecretary Lord noted how in 2016 a Chinese-backed private equity firm sought to buy out a major U.S. maker of field-programmable gate array chips, which is a critical technology for the U.S. military.
The Committee on Foreign Investment in the United States was able to block the sale. While such sales can be blocked, this kind of government intervention can affect profitability by narrowing a company’s client base.
TCM could help U.S. firms find a way to invest in other U.S. firms, and last October the Pentagon signaled that it would be more “patriotic” with its dollars, announcing that it would seek to invest in domestic manufacturing and reduce its over-reliance on Chinese and all other foreign-made parts used in American weapons systems.
Proponents of TCM agree it is necessary to ensure long term national security.
“As the new Committee on the Present Danger: China has been documenting, Beijing has long pursued ‘unrestricted warfare’ against our country involving economic and financial techniques, influence operations, the space and cyber domains and a massive military build-up,” Gaffney explained. “The Trump presidency may be our last chance to recognize these threats – and defeat them.”
