Adam Bry Testifies on Autonomous Drones and National Security

Watch Skydio CEO Adam Bry's testimony before the Select Committee on the importance of autonomous drones, challenges from Chinese manufacturers, and the need for robust U.S. policies to ensure national security and technological leadership.

Source: https://www.youtube.com/watch?v=598JDFGj-oA

5:12 the select committee will come to order during the second world war 5:20 America was called the arsenal of democracy while our brave Soldiers fought on the front lines millions of 5:26 men and women labored on the assembly lines to bury the axis under a storm of 5:32 Steel today the Chinese Communist party aspires to be an Arsenal autocracy 5:39 repressing a billion people at home and providing authoritarian regimes with the 5:44 means to wage aggression abroad to do so the CCP seeks to control 5:50 the key Technologies and sectors that will determine future conflicts we are looking in detail today at three of 5:57 these chips chips and drones chips or semiconductors power 6:04 everything from the guidance system on missiles to satellites mobile phones computers and cars ships transport cargo 6:13 around the world and form the Navies that can blockade Global supply lines or enable 6:19 invasions this includes the risk to Taiwan which would cut off the foundaries that produce virtually the 6:26 entire world's supply of advanced semiconductors unmanned aerial vehicles 6:32 uavs or drones will play a key role in the future of Civilian and Military air 6:39 power in all three America's industrial capacity has waned while China has 6:45 gained dominance or is in the process of be gaining dominance over each China 6:51 added more Legacy semiconductor manufacturing capacity in 2024 than the 6:57 rest of the world combined and that capacity is expected to grow by a 7:02 further 133% this year alone with 18 new Fabricators set to 7:08 begin operations the CCP announced a further 47.5 billion in subsidies in 7:16 May today the US accounts for onet of 1% of global ship building while Chinese 7:22 shipyards with nearly 20% of their operating costs subsidized by Beijing 7:28 accounts for 54 4% DGI a Chinese firm controls roughly 7:34 80% of the US commercial drone Market to be clear our concerns with DGI and PRC 7:41 control of the Drone ecosystem are not about the competitiveness of American 7:47 companies rather Congressional concern stems from the PRC having hundreds of 7:53 thousands of spy balloon equivalents operating daily across our nation not 7:58 only jeopardized our homeland but giving the PRC a dominant position in an 8:04 industry that is already playing a key role on the front line of Modern 8:09 Warfare across each of these sectors the CCP CCP Playbook is simple and 8:15 straightforward it's consistent using a combination of illegal subsidies 8:21 Hardball tactics IP theft and forced labor the party gains a strangle hold 8:27 over the world's most important important Supply chains from Huawei to 8:33 smic ymtc DGI and Beyond it's the same play every time in F in fact we call it 8:40 the Huawei Playbook pick a national champion in a strategic industry 8:46 subsidize employ predatory pricing to offer its products at a massive 8:51 anti-competitive price point expand globally drive out the 8:57 competition then leverage new new found dependencies to advance CCP interests 9:04 like a football team running the triple option it's an effective play and it can be hard to defend but once you see the 9:10 pattern you can understand how to defeat it we need to install Market access 9:16 barriers and strategic sectors to prevent malign PRC companies from taking over our domestic economy we need to 9:23 leverage and build upon crucial authorities to ensure the security of data and Communications across Ross our 9:29 country we need to cut off access to the US technology and capital that helps 9:35 fuel PRC national champions in critical sectors and we need to coordinate with 9:40 our allies to encourage them to mirror these steps fortunately there are those of us 9:46 who have been watching the tape of similar games that threaten similar outcomes semiconductors were an American 9:54 invention the Soviets copied us others underpriced us they were times when 10:00 observers counted America out but as Chris Miller who is here with us today 10:06 has observed and documented in his exceptional book Chip War no one has 10:11 ever been rewarded for betting against America we are joined today by Adam Brie 10:18 the founder and CEO of skyio an American drone manufacturer American-made 10:23 technology is safer higher quality and does not come with links to a total 10:29 militarian regime I look forward to hearing Adams perspective on competing with the ccp's economic 10:36 Warfare we are also joined by Scott Paul from the alliance for American manufacturing Scott has seen the CCP 10:44 decimate the American manufacturing sector and nowhere is this more costly 10:49 for our nation than in our shipyards the CCP is producing ships at a rate we 10:54 couldn't dream of here though they're made using cheap steel and shoty Market 10:59 practices the people's Liberation Army Navy represents a grave threat to the us 11:06 and our allies our national task is clear we need to revitalize our domestic 11:12 Industries and those of our allies so we can become an arsenal of democracy once 11:18 again we must ensure a reliable domestic supply of semiconductors outside the 11:23 reach of the CCP rebuilding our ship building and clear our sky of Chinese 11:30 made drones with that I turn the floor over to the ranking 11:36 member thank you Mr chair uh and thank you to the witnesses thank you to the audience for attending uh made in China 11:43 2025 was a plan to ensure China took the lead in key Industries including among 11:48 others ships chips and drones by the year 2025 that's next year by the way 11:54 the CCP set global market share Targets in each sector in ship building for 12:00 example they set a Target to control half the global market by next year 12:05 which they've already surpassed this wasn't by accident Xi Jinping has called for heightened 12:11 restrictions on foreign products sold in China while trying to quote tighten 12:18 International dependence on China how do they do this they heavily fund the 12:23 production of goods far in excess of what their internal demand requires and then export the Surplus to other 12:29 countries at prices designed to undercut the competition this Chinese practice 12:36 creates overcapacity and it makes it nearly impossible for the rest of the world to compete thus the Chinese 12:43 monopolize markets history shows us what happens if we do not respond forcefully 12:50 consider what happened to our glass and Steel Industries between 2004 and 2008 12:56 the CCP gave glass makers $30 billion in subsidies including discounted energy 13:03 and soda ash the key ingredients to making glass this led to a Sevenfold 13:10 surge in exports by 2007 as a result in seven years in those seven years America 13:17 lost 40,000 jobs in the glass industry and then there's steel China produces 13:23 almost 108% of its domestic demand for steel 13:29 that 8% Surplus may not sound like a lot but it's equivalent to what the US 13:35 produces in an entire year and China produces steel at prices 13:42 40% lower than what US steel makers charge it's no surprise why China's 13:47 largest steel maker known as bow wo is owned by the government and just like 13:52 those glass makers gets cheap financing and subsidies for coal China is now the 13:59 world's largest steel maker by far producing more than 12 times the amount 14:05 of Steel that America produces in a single year we can't let history repeat 14:11 itself but in some cases unfortunately we are take ships in 1975 we were the 14:18 world's number one ship Builder now we don't even produce one% of the world's 14:25 large oceangoing vessels for every 300 59 large container ships China builds we 14:32 are building one that is not a typo we are building 14:37 one container ship for every 359 the Chinese are building each year or take 14:45 drones as this chart shows China currently controls a 14:51 whopping 90% of the US drone market so what do we do about it here's 14:58 a brief analogy in a few weeks athletes from around the world will gather for the Olympics some athletes win by 15:05 breaking the rules but others win through investing in themselves and becoming the best at their sport it's 15:12 the difference between a rigged game and a Fair competition it turns out that out 15:18 competing the CCP isn't all that different because the CCP is not 15:23 currently playing Fair we need to do two things one we need to stop the CCP from 15:29 breaking the rules and two we have to invest in ourselves to win first we stop the CCP through trade 15:38 enforcement for example USR recently launched a section 301 investigation 15:43 into the ccp's unfair ship building practices including investigating the 15:49 overc capacity issue we discussed earlier but then it's on us to win the 15:55 gold we do this by making smart Investments for for example the chips act the chips act has led to a surge in 16:03 new chip factories being announced and unlike the CCP which favors its own 16:09 Chinese state owned Enterprises America is building these chip factories in 16:14 partnership with others just look at tsmc's investments in Arizona or 16:20 Samsung's investments in Texas Korean and Taiwanese companies are 16:27 creating American jobs but it's time to consider what else needs to be done in other Industries we 16:33 can win the gold but we need to do the work to win the gold thank you Mr chair 16:41 I look forward to hearing our Witnesses and I yield the balance of my time thank you ranking member and if any 16:49 other member wishes to submit a statement for the record without objection those statements will be added 16:54 to the record our first Witness is Mr Adam Brie 17:00 as founder and CEO of skyo an American drone manufacturer Mr Brie heads a 17:06 leading consumer and Commercial technology company of National Security important 17:12 welcome our second witness is Dr Chris Miller currently an associate professor 17:18 of international history at tus University Dr Miller's research focuses on the intersection of Technology 17:25 geopolitics and economics welcome and finally we are joined by Mr Scott Paul 17:31 Mr Paul serves as the president of the alliance of American manufacturing a partnership between major US 17:38 manufacturers and the United Steel Workers Union with that I want to welcome all three Witnesses and thank 17:44 them for being here Mr Brie you are now recognized for your opening 17:49 remarks thank you chairman molar ranking member chrisan Murthy and members of the 17:55 committee it's an honor to be here with you today we're having this discussion at a critical moment for the Drone 18:01 industry and an inflection point in artificial intelligence and as I'm sure we'll discuss both of these Technologies 18:08 are increasingly at the center of our national security and our competition with China I think autonomous drones are 18:15 critical for two reasons one they are becoming critical tools for many of our most critical Industries and two they 18:23 represent the competitive playing field for leadership in AI robots in general 18:28 and for leadership in The Next Century of Aviation now since it Bears on the discussion we might have I'd like to be 18:34 clear upfront that if I'm an expert in anything it's drones and AI uh not China and geopolitical 18:40 competition my passion for Aviation uh came from my grand grandfather who served as a crew chief in the US Army 18:46 Air Force during World War II keeping B7 bombers in the air over Europe and I grew up flying radio controlled 18:52 airplanes which were the predecessors to drones as a grad student in the computer science uh and artificial intelligence 18:58 at MIT I really became obsessed with trying to build AI software that could fly these systems better than the best 19:04 human pilots and when we founded skio we started with a big bet on AI we 19:09 essentially build the skills of an expert pilot into the Drone so that it can fly itself and we did this because 19:15 we felt like that was going to be the key to making these products more useful to more people in more places uh we're 19:22 now the the largest US drone manufacturer and world leader in autonomous flight our products are used 19:28 to inspect the energy grid they're used to ensure the Integrity of our bridges and our transportation infrastructure 19:33 they're used to deescalate the most dangerous situations in public safety with minimal use of force and they're 19:39 used to give our soldiers better situational Awareness on the battlefield now competition with China 19:46 plays out in every sector that we serve but I think the military use of drones 19:51 and the use of drones in Ukraine is instructive I actually had the chance to visit Ukraine meet with many of their 19:57 drone operators uh and they don't do anything without putting a drone in the air they use drones to deliver strikes they use 20:04 drones to surveil the battlefield uh they use drones to inspect buildings that have been damaged to document 20:10 Russian war crimes um scoto has delivered over a thousand drones to Ukraine but our Chinese competitors have 20:18 delivered over 100,000 systems now the the Ukrainian dependence on Chinese 20:23 drones is extremely fragile these are fundamentally a hostile platform form 20:29 they have to hack them to stop them from giving away their position to the Russian adversaries and the Chinese are 20:35 increasingly using export controls to restrict the flow of drones into Ukraine 20:40 um now our latest generation drone the sky X10 which we have here today uh has some real breakthroughs in AI that make 20:46 it much more resistant to Russian electronic warfare uh and the ukrainians have requested thousands of these 20:51 systems for use on the front lines and elsewhere before we move on to questions 20:57 I'd like to leave you with two uh two big Ideas two key thoughts one is that 21:03 as important as drones are today the technology is really still in its infancy and it's become going to become 21:09 far more important over time it's really going to become I think Bedrock infrastructure for many of our critical 21:15 Industries responding to 911 calls in automatically in seconds well ahead of of how quickly responding officers on 21:21 the ground can get there persistently inspecting the energy energy Grid in an automated fashion to keep the lights on 21:27 uh and I think it would be really insane to accept a future where we're dependent on our adversaries for technology this 21:34 critical but I think the second really important idea is that us companies can compete and win I think skyio is proof 21:41 of this uh the shift to Ai and the increasing importance of software on these devices plays to our strengths and 21:48 we're also fortunate now to have an increasingly strong group of us Pier companies doing everything from tactical 21:54 SWAT drones to drone delivery uh and I'm 100% confident that as an industry as a 21:59 US industry we can meet the need and the opportunity and I think you all have an 22:04 opportunity to help support this and ensure that the future of this industry is built based on us-made drones and the 22:11 path to do that comes through supporting end users in public safety and critical critical infrastructure operators I 22:18 think also scaling our own military's use of drones to reflect the reality of the modern Battlefield what we're seeing 22:23 in Ukraine uh and then I think the the most pressing opportunity and the most pressing need is to supply us made 22:30 drones where they're needed most on the battlefield in Ukraine thank you thank you very much uh Dr Miller uh 22:38 you may proceed Mr chairman Mr ranking member uh members of the committee thank you for 22:43 the opportunity to testify uh for you today over the past uh several years United States as well as allies have 22:49 taken a series of steps in the sphere of advanced semi conductors to ensure us technological leadership and to 22:56 guarantee that Advanced Technologies are not falling into the hands of adversaries and in particular the People's Republic of China what I'd like 23:03 to do today is focus our attention not on the most advanced ships important as that issue is but rather on the 23:09 foundational semiconductors that enable almost every other segment of modern economy now as the phase foundational 23:16 semiconductors suggests modern economies are the technological Foundation of 23:21 contemporary Industries almost every sector of the US economy today only functions because it has access to not 23:27 just does but often hundreds of thousands of foundational semiconductors per system whether it's toys or tractors 23:35 whether it's ships or drones uh whether it's military systems or automobiles we rely on more and more foundational chips 23:41 to undertake absolutely critical functions if you think about a modern car for example it could have a thousand 23:47 semiconductors inside and almost all of those are foundational chips chips that don't use the most advanced 23:53 Manufacturing Technologies but nevertheless provide critical functions moving your window up and down 23:59 that's a function provided by a foundational semiconductor moving windshield wipers back and forth that 24:04 too is a foundational chip deploying the airbag in case of an accident you need a chip for that managing the automated 24:10 braking system requires multiple foundational semiconductors and so just in the automobile industry alone we've 24:16 got an extraordinary Reliance on foundational chips and Autos aren't unique in fact we put more and more 24:21 chips in more and more types of products almost every single year today most of 24:27 the world's adved chips as well as most of the world's foundational chips are produced in either the United States or 24:33 in Allied or partner countries when it comes to the foundational segment the United States is a major producer of 24:38 foundational chips with very efficient and profitable firms producing in an economic manner our allies like Japan 24:45 European countries Korea Taiwan Singapore and others are major produ producers of foundational chips as well 24:51 and they've been reliable suppliers to us industry uh for some time but if you look at investment Trends now in the 24:58 industry focusing in particular on the foundational segment of the chip industry the biggest investor by far is 25:04 the People's Republic of China and the investment is coming partly from uh ostensibly private sector firms but 25:10 largely from the Chinese government which has poured billions and billions of dollars far more than the United 25:15 States has invested far more than any other country is investing into its chip industry with a focus in part on 25:21 Advanced chips but actually if you trace the dollars invested even more are going into foundational chipm facil ities if 25:29 you project current trends forward China is poised to see its share of the foundational chip Market increase 25:35 dramatically and some of these ships will be sold into Chinese markets but many will be sold into Western markets 25:40 unless policy changes and this I think presents two main risks for the United States for our Economic Security as well 25:47 as for the manufacturing base the first risk which we're already seeing today is that Western firms including us firms 25:54 will invest less because they're fearful of their ability to produce profitably in the market if Chinese firms are 26:00 investing in non-economic manners and the reality is we already see evidence that investors in US firms are 26:07 advocating that CEOs spend less on capital investment in the United States because they're fearful that investment 26:12 will not be profitable because Chinese firms are producing in non-economic manners it's already happening today and 26:19 I think that makes the case for acting today to address this challenge the second risk is that if we don't act then 26:25 we become more reliant on foundational semiconductors are sourced from China this puts our Economic Security and our 26:31 national security at risk I haven't yet mentioned the role of foundational chips in military systems but military systems 26:37 are just as dependent on foundational semiconductors as the rest of the economy and moreover we've seen China 26:43 already use export controls as a means of developing coercive tools against the 26:48 United States and its adversaries China and our allies excuse me uh China is 26:53 already deploying export controls in semiconductor materials like gallium and geranium trying to harm the ability of 26:59 us firms and Allied firms to produce the volumes that we need and it's not at all difficult to imagine in the sphere of 27:04 foundational semiconductors Chinese uh firms doing the same restricting access to us manufacturers ability to Source 27:10 the chips that they need if we become more reliant on Chinese made chips this risk only increases and I'll just as a 27:18 final Point highlight the supply chain shortages of the pandemic to illustrate the cost of losing access to 27:24 foundational chips during the pandemic supply chain issues caused relatively small shortages of foundational chips 27:31 that created hundreds of billions of dollars of economic damage because cars 27:36 and tractors and hearing aids and medical devices couldn't be produced at sufficient quantities this is a severe 27:42 risk I think it's already present now in the decisions of investment uh of us firms investment in the United States 27:48 and in Allied countries and it's going to get more severe if we become more more Alliant on foundational semiconductors produced in China thank 27:54 you for the opportunity to testify and I look forward to your questions thank you uh Mr Paul uh the flooor is 28:01 yours thank you chairman mullar ranking member chrishan morthy and members of the select committee I appreciate the 28:07 opportunity to testify at today's hearing as I stated at the select committee's inaugural hearing on 28:13 February 28th 2023 the economic policies of the CCP represent a clear and present danger to 28:21 the American worker our Innovation base and our national security to help illustrate these dangers our June 2024 28:29 report entitled shock waves reminds us of Great American Industries like gra 28:34 glass paper and tires that have been decimated because of China's massive industrial 28:40 overcapacity relevant to today's hearing we are now clearly seeing other critical sectors ranging from ship building to 28:47 semiconductors and drones that are at risk of a China shock 2.0 a deluge of 28:53 lowcost import competition that could again close tens of thousands thousands of us factories and lay off millions of 29:01 us manufacturing workers existing policy measures are not enough to address the 29:06 ccp's predatory market distortions so we urge your attention to the report's rec 29:12 comprehensive set of policy recommendations to ensure American industry can compete and win in the 21st 29:19 century today I am here to focus primarily on China's Maritime Logistics 29:25 and ship building policies our nation has fallen frighteningly behind China as 29:30 a result of Decades of CC CCP policies aimed at dominating sectors like ship 29:37 building with clear economic and Military applications from our earliest days as a 29:43 nation the United States has sought to develop and maintain a robust ship building capability to keep our nation 29:50 safe to project our strength and to grow our trade the maritime strength of the 29:56 United States helped to boost Prosperity across the globe and support well-paying 30:01 jobs here at home but in the 21st century the People's Republic of China's 30:07 approach to bolstering its own domestic ship building capabilities threatens this Prosperity as well as the remaining 30:14 ship building jobs in the United States today China controls over half the world 30:20 ship building and began construction on nearly 1,800 large oceangoing vessels in 30:26 2022 during the same year the US began construction on just five such vessels a 30:33 briefing Slide by the US Navy reveals that China's ship building cap capacity is 232 times greater than our own this 30:43 has significant implications for our national security the US Merchant Marine currently consists of about 175 vessels 30:51 that are 30 years old on average this aging Fleet coupled with our dependence 30:57 on foreign ship Builders puts our broader supply chain at risk investing 31:03 in our domestic commercial Fleet and in manufacturing more broadly would help to shore up our Economic Security and 31:10 bolster our Naval and National Security capabilities but to do this we must first respond to China's policies the 31:18 largest obstacles to ship building in the United States are the unfair Trade Practices of China while no Nation 31:26 should be faulted for seeking to develop Maritime capabilities beijing's Ambitions go well beyond that China's 31:33 ship building capacity has been turbocharged through a series of efforts aligned with five-year plans dating back 31:40 more than two decades some of the support for Chinese industry identified 31:45 in the section 301 petition include policy loans from state-owned Banks 31:51 Equity infusions of debt for Equity swap swaps the provision of steel plate from 31:57 state owned own steel producers at below market prices tax preferences grants and 32:02 financing from China's state-owned export Credit Agencies ship building was identified as a pillar industry in the 32:09 made in China 2025 scheme Beijing sought nothing short of dominating Global 32:16 Commerce there are also valid concerns about foreign capital and Technology 32:22 flowing into Chinese dual use shipyards China sought this transfer of Technology 32:28 sometimes through means that are unfair or illegal such as intellectual property theft to help bolster its Naval buildup 32:35 a goal laid out in the 13th National 5-year plan of 32:40 2016 things are so bad today in our country that our own Navy must rely on 32:46 Chinese made dry docks in certain circumstances the practices I referenced 32:51 have allowed China to capture a massive portion of global ship building orders with April with reports indicating that 32:57 China secured 76% of such orders globally in April 2024 alone this 33:04 dominant in the market continues to have detrimental effect on ship builders in other countries including in the United 33:13 States any hope of rebuilding these strategically significant sectors required decisive action for all these 33:20 reasons aam strongly supports the ongoing Us section 301 investigation 33:26 into China's Maritime leg istics and ship building sector this effort merits your support because there are direct 33:33 and indirect con connections to ship building in every state we must not allow our ship building capabilities to 33:39 continue to be victimized by the ccp's predatory domination of a sector 33:44 critical to US economic and National Security thank you thank you and thanks again to all 33:51 our Witnesses uh in the interest of getting through a number of questions I'm going to ask each of you to be as 33:57 brief as possible in your responses but I want to start with Mr Brie in your testimony 34:02 you write that the Chinese Communist Party the Chinese government has poured resources into national champions in the 34:10 Drone sector uh to clarify by this you mean state sponsored subsidies that have 34:15 artificially reduced the cost of drone production is that correct yes chairman 34:20 that's my understanding based on publicly available information and if these State interventions led to Market 34:26 distortions and overc capacity that has affected the US and partner company 34:31 market share in the Drone industry uh yes chairman I mean I think the the Chinese government recognized 34:37 the Strategic importance of drones and and pretty clearly invested to to support their industry there and if 34:44 these distortions continue without action by the US uh will there be 34:50 alternatives to PRC drones in the decades ahead well sir I'm an engineer and and we come at this from a product 34:56 perspective I mean our goal is to build the best products in the world right here in the US I will say that competing head-to-head with Chinese companies uh 35:03 that are supported directly by their government is extremely difficult and the National Security Stakes I think are 35:08 enormous I mean these are the ultimate data capturing tool for all kinds of critical Industries so what I hear you saying is 35:15 this would pose a significant National Security risk is that correct yes sir I believe that's the case okay thank you 35:21 and Mr Miller Dr Miller the same questions about the chip industry has the PRC directed subsidies to the chip 35:28 industry particularly when it comes to Legacy chips that have artificially reduced the cost of production yes it 35:35 has and how have these State interventions led to Market distortions and overcapacity affecting the US and 35:42 partner company market share yes there are widespread Market distortions if these distortions 35:48 continue without actions by the US government will there be alternatives to PRC products in the dec decades ahead 35:56 there is a risk of becoming except Ely dependent on PRC suppliers and how would this uh affect our national security 36:02 would it pose a security risk this would have direct implications for US economic and National Security thank you and 36:09 finally Mr Paul has the CCP directed heavy State subsidies to its ship building industry to artificially reduce 36:16 the cost of ship building yes Mr chairman it has consistently done so for at least 20 years and have these State 36:22 interventions led to Market distortions and overc capacity they have led to massive of global distortions in the 36:29 ship building sector and if these distortions continue without action by the US government will there be 36:35 alternatives to the PRC products in the decades ahead there will be diminishing Alternatives and this represents a 36:41 concern not only to the United States but also to many of our allies as well and how does this affect our national 36:48 security the ship building is a clear case where there's dual uses there's crossover in terms of the supply chain 36:56 uh in terms of the Sur capacity uh and also in in terms of the 37:01 the workforce and our strategy the maritime sector of the United States the commercial and the military aspects have 37:07 have been intertwined since the the since our founding so yes indeed there would be okay what our Witnesses have 37:14 just attested to is the ccp's go-to strategy uh building government 37:19 subsidized monopolies that sell into a protected domestic Market produce 37:25 products at below market prices exponentially scale their production 37:31 capacity then dump that over capacity on global markets to tank prices and drive 37:36 competitors out of the market all in the service of the ccp's interests from 37:42 chips ships drones and Beyond it's the same play every time and that Playbook 37:47 has now been exposed and it's up to us and Congress to counter it I'll now recognize the ranking member for five 37:54 minutes of questions ranking member Krishna morthy thank you Mr chair um I'm 37:59 going to start with the topic of ships the number of major US shipyards has gone from 27 to8 and today we currently 38:07 don't sell any American ships to China but China's ship building industry is 38:12 skyrocketed in 2002 as this chart shows China controlled 38:18 8% of the global ship building market today they control 51% more than the 38:25 rest of the world combined the grow both came from the CCP strategy to dominate 38:31 Global ship building by excluding foreign ships from its Market while giving its own State controlled ship 38:38 Builders massive grants and guaranteed funding in fact Mr Paul its largest ship 38:45 Builder is guess what the China State ship building Corporation and which it 38:51 it gets billions in equity infusions from the CCP but regularly operates at a 38:57 loss correct that is indeed correct state-owned ship Builders are also 39:02 building ships for China's military as you can see here over two decades 39:09 China's Navy almost doubled in size from roughly 180 ships to roughly 360 ships 39:16 today while America's Navy is flatlined the gap between our number of 39:22 ships and theirs is widening dramatically this committee has repeatedly talked about the importance 39:30 of deterrence for preventing conflict but gaps like this between the Chinese 39:36 Navy and the American Navy don't exactly deter Xi Jinping from starting a conflict potentially over Taiwan or the 39:43 South China Sea so Mr Paul if we don't reinvigorate our ship building industry 39:48 this Gap is very hard to narrow and potentially invites aggression correct 39:54 it certainly does uh we we have four operating uh military Naval shipyards 40:00 right now in just in addition to the commercial uh Shipyard so our capacity has been extraordinarily diminished and 40:07 it presents us with a clear and present risk to and the Chinese know that and so this is inviting aggression we've got to 40:14 change this for if any other reason national security purposes let me turn to the topic of chips if ships are the 40:21 backbone of global sea power chips are the backbone of modern modern life chips are so important to our competition and 40:28 the competition is so intense that Mr Miller wrote this book called Chip War 40:34 now to win this war among other things China wants to a become the world's dominant producer of foundational 40:41 foundational or Legacy chips and B Drive American chip makers out of its market 40:47 for those same Legacy chips now I have another chart here as you can see the 40:53 CCP is poised to double its capacity by 20 30 between now and 2030 to produce 41:00 these Legacy chips Mr Miller if the PRC succeeds these chips will absolutely 41:05 flood our market right these ships will certainly arrive in large scale in American markets it's the exact same as 41:13 uh the chairman alluded to Playbook that we saw decimate our ship and Steel 41:18 Industries one tool to stop this surge of Legacy chips is something called section 421 it's a trade tool that 41:26 allows us to impose targeted quicker countermeasures against CCP Market disruptions but unfortunately it expired 41:32 in 2013 now Mr Paul I believe it's time to revive and modernize section 421 what 41:39 do you think I couldn't agree more it's one of our recommendations it would be a smart move by the Congress well Mr chair 41:45 I think we should Usher this particular Safeguard through Congress in in in this 41:50 and uh future congresses as well finally I want to shift to the the topic of 41:56 drones American companies don't really sell drones to China on the other hand Chinese companies dominate our Market 42:04 one Chinese company DJI accounts for 90% of the US consumer market for drones DJI 42:11 dominates our Market because they're cheap thanks to massive backing from the CCP including Equity investments from 42:18 government control funds just to be clear the government invests in Chinese 42:23 drone companies here's one we found on a popular website today for 300 bucks okay 42:31 Mr Brie um I actually brought one of your drones today this is the skyio 2 42:38 plus I'm sure that you recognize this um unfortunately this sells for over 42:43 $1,000 uh for consumers now Mr Brie it this $1,000 is quite a bit more 42:51 than the 300 bucks that you can buy a DJI drone for right that's correct sir yes now today I I guess it's no surprise 42:59 that skyio pulled out of the US consumer market last year but across all three sectors Mr chair the CCP CCP plan is 43:08 very much the same they deny access to our markets and then they flood our 43:13 markets I'm sorry they deny their their Market uh to our companies and then they 43:19 flood our Market with their products cheaply produced cheaply made and 43:25 heavily subsidized by the CC c p we got to take action on this I yield 43:31 back thank you ranking member and uh with that we'll go to representative 43:37 Whitman well thank you chairman Mullen ARL thank our Witnesses for joining us today this is uh incredibly important 43:42 for our nation especially for our future Mr Paul let me go to you first I think it's it's very telling where we are 43:48 today with American ship building uh we led the world at one time we know 43:53 historically that the nation that rules the Seas through ship building is the nation that has the economic Advantage I 44:00 would argue that we are at a precipice of where we have to be uh on the path to 44:05 reestablish our Maritime Nation status we are not on that path right now uh we know that the Chinese have about 235 44:13 times more ship building capacity than we have uh that to me is disturbing not just on the military side but on the 44:20 domestic side you know we have a we have a requirement here in the code that says we're going to build a 355 ships you 44:27 know we've struggled to get above 295 in the past five years we're not on path to get there the Chinese are and it used to 44:34 be we could make the argument that w we they may have more ships than we have our ships are better uh you look at a 44:40 luang destroyer today it's every bit as capable as a ddg-51 and Arley Burke 44:46 class that being said the big thing is how do we get there I think there are a 44:51 lot of impediments I think uh things like environmental requirements I mean if you look today what you'd have to do to to establish a new Shipyard it would 44:58 be incredibly difficult I was at Newport News ship building yesterday talking about the issues most important to them 45:05 Workforce number one for them Workforce I want to get your perspective what do we do in the regulatory realm to be able 45:12 to bring down barriers to be able to build more capacity and we need that what do we do to really encourage and 45:18 prioritize uh Shipyard workers uh and you've heard here recently where hanwa a 45:23 South Korean company wants to buy Philly Shipyard so the question is is what are we doing looking at foreign partners 45:29 that are our friends to build capacity quickly here and this is on existing footprint so we don't have to worry 45:34 necessarily there about the environmental issues Mr Whitman thank you so much for your question and uh I 45:40 have deep appreciation for the work at Newport dos and uh and hi and the workforce there it actually stands out 45:46 to me as one of the models for an apprenticeship program and the ability to scale that up is going to be very important as we look ahead to try to 45:52 replicate this if we if we truly do want to lift up our capacity I I think this involves two steps one is to identify 45:59 the unfair Trade Practices of China and to respond to those the section 301 46:05 petition is one of those mechanisms uh and I think that's very important so that there's a 46:10 disincentive uh for uh for for for the commercial sector to utilize those 46:15 heavily subsidized chips it's it's a very novel approach because it's not a traditional kind of trade case but I 46:22 think it's very important I think the second aspect of that is to use some of the revenue that could be generated to 46:28 lift up Workforce training uh to provide a stable Market uh for the United States 46:33 uh and and to shift some of those shipyards that are currently doing repairs uh into building ships again 46:39 into creating that demand and there are demand mechanisms that that are identified in that petition um that I 46:45 think would be important as well it worries me that in in tonnage terms that China could soon surpass the United 46:52 States from a naval perspective because that's always been the determinant and able to uh command the Seas so this is 47:00 this is a incredibly legitimate concern Mr Paul thank you Dr Miller want to go to you listen your your Chip Chip War 47:06 book is spoton uh and we focused here on saying let's build the manufacturing plants let's build those Legacy chips 47:13 let's do that I think we've gotten the cart before the horse because what's happening today as you talk about is the 47:20 base components in chip manufacturing gallium China controls 100% of the world 47:27 sourcer gallium 96% of the world sourcer geranium you know what even if we want to do that and China's now not only 47:33 going to overprice that uh but they're also going to restrict how we are able to access those materials we have done 47:39 nothing in the realm of extraction and refinement of rare Earth elements we are whistling past the graveyard on this 47:46 there's one company in the United States that extracts and refines rare earth and they are struggling to compete against 47:52 China tell us how do we get to the very base element and that is making sure that we are in the United States 47:58 producing critical minerals and Rare Earth elements because without that we can build all the semiconductor plants 48:03 in the world but with no Source materials this is a Fool's Folly representative I completely agree that 48:09 production of gallium geranium as well as rare Earths has been a extraordinary Challenge and the challenge has been driven by the exact same Playbook uh 48:16 that China's deployed in this segment has been deployed materials as well uh State subsidized production no 48:22 environmental rules in China and a large State role in the setting of prices and 48:27 also supply of minerals that makes it impossible to profitably produce outside of China this is an area where I think 48:32 policy ought to focus because as you say it is relevant not just for minerals production but also for the chip and 48:37 electronics Industries thank M sh are you back thank you uh representative 48:46 Stevens well thank you Mr chair and um I would just say 48:52 that what we are honing in on here particularly with regard to ship 49:00 building manufacturing capabilities our merchant marines and our Naval uh 49:06 resources is an absolute outrage and it's not acceptable and I I want to 49:12 grill you right I want to ask how did we get in this place why are we so riant on 49:20 foreign countries particularly China for merchant marines when's the last time we 49:26 built a ship here I have in the last year been to Japan I went to the Osa 49:34 base I saw our amazing Naval operation over there it's an over 50 50y Old Ship 49:42 as somebody who's very tied to manufacturing spends a lot of time with manufacturers and manufacturing plants I 49:48 love seeing the decades decades decades old equipment because it was built by 49:53 incredible craftsmanship and it still works and so that's what we saw in Osa you 49:59 know this is a ship that's been reconfigured that's been brought into the digital age but it was made a long 50:06 time ago and we also know that if it needs to get repaired it has to go all 50:11 the way over to the other side of the world back to the United States to get repaired this past weekend uh past week 50:18 I was doing meetings uh NATO meetings in Portugal and the same thing a nearly 50:24 50-year-old ship built in Newport News American made so this is really 50:31 incumbent on us and this committee to double down on the catching up 50:37 activities that we took with the chips and science act and you know I I I 50:42 played a key role in that loved being a part of it happy we got it done completely agree with my uh colleague 50:48 from Virginia we're not going to be able to have a vibrant manufacturing sector 50:54 if we don't have access to the critical materials and critical minerals we need to replicate what is working through 51:01 public private partnership and the like for 21st century American industrial 51:08 competitiveness but the alarm Bell is ringing and it's really ringing in this ship industry and I frankly Mr chair I'd 51:15 love to just do another one on ships and what's going on with our Merchant 51:21 Marines now Mr Paul after I've said all this can you 51:27 just go back and you a beautiful testimony we always appreciate your words here how and how did we get in 51:35 this spot and how how weak are we really particularly with Merchant 51:40 Marines thank you for the question uh Miss Stevens and appreciate your support 51:45 for for manufacturing um in a nutshell uh it was a two or three step process uh 51:52 step number one we did stop investing in our own ship building in the 19 1980s as as as part of a part of a philosophical 52:00 chain it's important to put out by the way that Adam Smith um is like free trade is important but you got to invest 52:06 in your own ships because they're they're essential and they're expensive so so we did that others took advantage 52:13 and this is the thing China came in and and again through a series of five-year plans identified ship building as a 52:19 pillar industry poured hundreds of billions of dollars into it and you 52:24 think of all the materials that go into the the ships too and how they are subsidized so it's subsidy on top of 52:30 subsidy on top on top of subsidy and they would stop at nothing to do that 52:35 and so uh we need to respond to that through the Section 301 petition and we need to we need to restore some ship 52:42 building uh investment in technology in Workforce and in the and in getting 52:48 those shipyards from repair Aus Arrangement give us any opportunities I know that's nuclear submarines pillar 52:55 one pillar two is you know on Innovation and Technology but part of it you know as I was looking at your testimony we 53:01 talk about and you you said this here to us verbally good P the well-paying jobs 53:08 and and obviously you know we're proud of that we've got this going in Michigan Detroit you know thank you President 53:13 Biden Detroit's at its lowest levels of unemployment in 50 years my district is at 2 and a half% unemployment we know 53:20 you know you're a part of the skills Gap conversation and the and the workforce needs and and yet I start to look at 53:26 this and I'm thinking well where's the talent going to come from where's the where's the workforce going to come from 53:31 and something that Aus is showing us is that we might be able to work with 53:36 allies more strategically to build these puppies I don't know if there's opportunity with that I'm not trying to 53:42 say we don't want to have it built here but we got to I mean we got to be strategic and we got to move 2025 is 53:49 around the corner you know we're sailing into a whole new period of time and if we don't have a Merchant Marine if we we 53:56 don't have nabl ships we're just seating way too much ground and the American people we appreciate the audience here 54:03 but the American people think we're the best they assume we're the best it's 54:08 pride and joy you know as we enter summer season kicked off by Memorial Day and seeing all you know saluting you our 54:16 troops recognizing the fallen and this and that but we have got to get serious 54:21 so I'm over my time Mr chair but thank you for the phenomenal hearing I'll yield back thank you uh representative 54:27 Luke Luke deer thank you Mr chairman in the U one 54:33 of the Washington papers today the Washington Times headline is get China China out of America's military supply 54:39 chain that's in today's paper pretty timely as you go through here it talks about uh all of the different components 54:46 for different airplanes that are produced in China including our own Air Force planes that are produced um one of 54:55 the comments in here is that w Street also remains complicit in propping up China prod uh producers because there 55:00 are Lally thousands of Chinese entities present in US capital markets including a wide array of Chinese companies that 55:05 continue to hide their books from American investors with wall Street's help Beijing is using Americans 55:11 America's financial markets to raise funds for its own state-owned companies and advantage that many US producers 55:17 don't have it's time to delist these companies from us exchanges um Mr Paul you mentioned a 55:23 minute ago the amount of money that we need to be investing in uh ships are we 55:28 financing China's ship building right now with our own money going over there I I would say that is a 55:36 possibility indirectly because of the nature of the supply chains involved with ship building if you think of all 55:42 the materials and technologies that that go into it and once you once you get down to those tiers it's entirely 55:48 possible I I mentioned in my testimony we depend on Chinese made dry docks uh 55:54 for Ship Repair for our uh for for some of our Naval vessels that seems to be to 56:00 to be a vivid example uh Mr Miller from stpoint of Chip manufacturing we passed 56:05 the bill you know the chips act to try and incentivize people to come back and put the money here um are we continuing 56:13 to invest in China to be able to allow them to invest in their chip industry uh as opposed to our own representative I 56:20 think investment flows into China's ship industry have declined substantially the new outbound investment restrictions 56:25 will uh put further limitations on any investment into the Chinese shipping so there's ways to do this so we can keep 56:31 the money from flowing from us investors to the Chinese markets to be able to 56:37 have them compete against our own companies and own products here that's correct we need to be looking at that I 56:43 would think don't you think I agree um you know the article here said we should 56:48 delist some of these companies from us exchanges that's one way to to strangle the money from going to these uh 56:53 different entities over there I would you agree I think that is one approach I think there are multiple approaches 56:59 being okay what are some of the other multiple approaches how do you incentivize how do you incentivize people to stay here versus go to China I 57:06 think the restrictions coming into force on venture capital investment in China is another example of an approach that 57:11 will reduce investment into the Chinese chip ecosystem I know that you know Mr bride you deal in in drones and I know 57:18 I've got a I've got a constituent who has one of the Chinese drones and he 57:23 uses it to to to for crop Des uh it's a kind of a new way of going about things instead of a plane he uses 57:30 a drone and I think the Administration has outli those outli those drones from 57:36 the standpoint of the um military since I think 20 2017 I believe it is but they 57:43 came out recently to try and Outlaw that for American citizens to begin no longer being able to purchase those and one of 57:49 the things they're going to do is probably tariff those things and then take there's a bill right now that sets says that they want to tariff these kind 57:56 activities and then use that to incentivize buying americanmade drones 58:02 um how effective do you think that it be I appreciate the the question representative I mean I think measures 58:08 like what you just described make a huge amount of sense you know we win as a company I think by leveraging Innovation 58:13 and free markets and so placing tariffs on subsidized products coming from our geopolitical competitors and using the 58:20 funds from that to let end users pick the best secure products in technology I think makes a huge amount of sense so 58:26 the point is if we would sub if if you're going to tariff drones why don't we why don't we tariff 58:31 chips would that be a way to incentivize the uh the industries and 58:37 the markets to be developed here well I think there is substantial discussion underway right now on this exact topic 58:42 whether there should be higher tariffs on semiconductors would it would appear to me if it works for drones it would 58:47 work for chips and we need to be taking a look at that as a way to incentivize investment being here so we can do 58:53 something very quickly I've got about 30 seconds left Mr Bryan artificial intelligence is a really big deal I know 58:59 it's really Incorporated a lot into the into drones would you want to elaborate just a bit on on that uh as a 59:04 competitive advantage of disadvantage with regards to Chinese uh production yeah it's a great question sir I think the most important thing for people to 59:11 understand is that as important as these products are now they're becoming way more powerful and way more important and it's a combination of two things it's 59:18 one the drones becoming Aid driven themselves so that they can they can fly themselves and then two Cloud 59:23 connectivity so our latest generation drones have 5 modems built in they connect to the cellular network which 59:28 greatly expands their reach uh and so I think whatever the stakes are today they're just going to go up from a 59:34 national and a cyber security standpoint uh and so if we're going to act now is the time to do it okay my time is up 59:40 thank you Mr chairman while you back thank you representative aen Claus thank 59:45 you chairman terrific hearing so far I actually want to uh carry that thread 59:50 that my colleague just mentioned about drones um one of the sucess successes of the 59:56 last 6 to 12 months for Ukraine has been their use of drones in the Black Sea to push back the Russian Navy and I'm 1:00:05 wondering if you could talk to us uh about what US industry can do with our 1:00:12 allies not just Ukraine but Estonia Poland to uh double down on investments 1:00:19 in Maritime autonomous drones for use in establishing Maritime Supremacy and 1:00:25 freedom of navig in the Black Sea But ultimately in the Indo Pacific as well yeah it's a it's a great question 1:00:30 representative I mean I think that the the level of innovation drone innovation in Ukraine is astounding like they they 1:00:37 do they use drones for everything all the time they have a a burgeoning industry there I think the most 1:00:43 important thing for us to do is to recognize that uh and the products that 1:00:48 are being used on the front lines in Ukraine are the ones that are going to mature the fastest and be the most competitive on the global stage uh so 1:00:55 you know think the the opportunity is to to Surge in and supply us-made products 1:01:01 uh to the ukrainians to to help them in their fight against Russia and also uh Force our products to be on the Leading 1:01:07 Edge of of technology and competition it seems like doing that requires sort of this threading together of capital 1:01:15 expertise and then the sort of the living laboratory to to get feedback loops about what's working and what's 1:01:20 not of those three things what are we missing right now I think we got enough money right but is it is it the 1:01:26 expertise is it the is it the feedback loops from the battlefield to the to the technologists I mean the question I 1:01:31 would ask is is the money aimed at the right thing I mean the you know there's a lot of money available to to fund uh 1:01:37 fund supplies for Ukraine to date uh very little of that has gone towards drones yeah and the pentagon's uh uh 1:01:46 replicator program has not funded right uh it's I mean I think it's funded at a very low level yeah um but yeah you know 1:01:53 I think that there's there's a lot of momentum and and sort of talk about we need more small smart atrial systems I 1:01:59 think sending putting the dollars towards systems going to Ukraine is the what I see the best opportunity to to 1:02:06 make that real I've heard that repeatedly we're not putting the advanced Market commitments down for actual swarms of drones Maritime and 1:02:12 aerial we got to get serious about actually buying these things at scale yeah I i' buy them at scale and send them to Ukraine yep uh let me pivot here 1:02:22 uh and talk about AI for a minute um 1:02:27 I don't think any of us know what AI is going to look like in a decade in terms of its capabilities or its implementations but one thing I think we 1:02:33 can have increasing confidence about from listening to uh people on The Cutting Edge of the technology and the 1:02:39 investors is that it's going to require an unbelievable amount of compute and an unbelievable amount of energy we're 1:02:45 talking like 20% of current US electricity needs just for compute clusters we're talking about um trillion 1:02:52 doll clusters necessary my friend Mr Mr Connor from from California has talked a lot about making sure that America's 1:02:59 Tech progress is more evenly distributed across the country that everyone can partake in the productivity gains that are coming from the tech sector this 1:03:06 seems like a very clear-cutting example about how we could do that right if we need unbelievable amounts of compute 1:03:12 each one probably powered by a nuclear reactor frankly that should probably be 1:03:17 domiciled here in the United States I don't know that we want to have that overseas what can we be doing right now 1:03:23 to be building out these clusters in the United States that are going to require huge amounts of Steel that are going to 1:03:28 require huge amounts of energy huge amounts of of expertise and Dr Miller maybe you take the first crack at that and then Mr Paul well thank you for the 1:03:35 question representative I I think you're absolutely right that building out compute clusters is going to be key to our future technological advances and 1:03:41 prosperity on the compute side I think chip companies know what to do the energy side is the challenge we're going 1:03:47 to see the First Energy growth uh power consumption growth in the US for the first time in decades and it'll be driven by bigger data centers for AI 1:03:55 applications and that means we need more power and also the transmission to bring power to the data centers that require 1:04:00 it I think this is a do we need the transmission or do we just need to be able to collocate nuclear either fision 1:04:06 or maybe ultimately Fusion I think the number of places where you can collocate next to nuclear today is quite limited 1:04:12 would the advance Act help with that do you think well I certainly hope so Mr 1:04:18 Paul I do think in addition to what Mr Miller suggested that it it's also worth 1:04:23 looking at the right kind of performance requirements that we have as you suggested so that we're maximizing the 1:04:29 investment that we're making that will benefit other Industries such as the the construction of them and the energy 1:04:35 provision so and there's a number of means to do that I think that there there there there's a helpful guide in 1:04:40 some of the chips act uh that we can utilize in some of the other procurement preferences that that we've identified 1:04:46 through clean energy and other programs that have been scaled up over the last couple of years final question Dr Miller 1:04:53 do you think that these compute clusters should we be doing these in conjunction with our European and East Asian allies 1:04:59 or do we want to have a heavy bias towards us domiciled clusters I think us 1:05:06 technology firms have always succeeded because they've had access to International markets that doesn't mean every Market but for close allies I 1:05:12 don't see a reason why we should be worried about trading with them yeld 1:05:17 back representative new house thank you chairman molar and ranking member 1:05:22 Krishna Mory thank our guests for being here today and very important subject um 1:05:27 I want to start with you Dr Miller thinking about the Cold War um and any lessons that we may have learned during 1:05:34 that period um anything that you could recommend that uh as the US and European 1:05:40 Union try to work together uh to address a rising China you know we have I think 1:05:47 it's fair to say the US is taking the lead on prohibiting a domestic integration of Chinese Technologies and 1:05:54 Investments through teror s and entity lists sometimes outright bans but um 1:06:01 some European countries are reluctant to take a such a hard-nose approach uh 1:06:07 there are belt and Road initiatives in Europe um as well as the use of log ink 1:06:13 and Huawei Technologies uh certainly they pose significant security risk to our NATO allies so just curious how 1:06:20 should in your estimation the government respond to some of our friends in Europe 1:06:25 accepting their Investments and using their Technologies representative I think this is a very important topic and 1:06:31 you're right during the Cold War there was extensive alignment of Technology controls between the United States 1:06:36 European allies as well as Japan and today we've got some alignment but much less than we had in the past and this 1:06:42 does create opportunities for Chinese firms to exploit differences in regulatory regimes I think this is the 1:06:48 problem that we need to to put more attention to solving thank you um Mr 1:06:53 Brie it's interesting you're here I was just uh been home in the district the last uh month several times talking to 1:07:00 those people that use drones in agriculture I'm a farmer myself it's becoming quite a technology that's being 1:07:06 embraced and thank thankfully your company provides a seror superior product to some of those that are 1:07:12 options that are probably the one that was shown here today um so I'm I'm very 1:07:18 happy about that but as you know American companies American consumers when it comes down to picking whatever 1:07:24 product they they may be looking their shopping for a lot of times come down comes down to the price so uh since 1:07:32 we're relying on these things so extensively and that's growing what tell 1:07:37 me what some of the barriers to producing more affordable drones in the in us might be and how we can maybe help 1:07:44 improve those market conditions and is there any role that the Department of Agriculture either federally or 1:07:50 Statewide could could play in making sure that farmers and Forest Service 1:07:55 planners everybody that utilizes these things has access to more affordable 1:08:01 americanmade machines well representative new house I really appreciate the question and the sentiment behind the question I would 1:08:07 say the the single biggest factor in price is scale the larger the scale you're manufacturing at the lower your 1:08:13 price is going to be um you know our cost structure is quite a bit higher than our Chinese competitors because we're operating at lower scale we don't 1:08:20 pass all of that cost along to our customers uh we we eat a lot of it ourselves but the larger scale we get to 1:08:26 the lower we can lower the lower we can get our costs the more affordable our products become the more customers they 1:08:32 can reach uh and so I think there's there's just this flywheel that we have to spin up and measures like uh we 1:08:39 discussed earlier where uh you know potentially tariffs on Chinese drones are used to to support and fund the 1:08:46 purchases of us-made drones and let the end users pick the best product technology that that suits them I think 1:08:52 things like that could make quite a bit of sense in leveraging the things that we're great at as a country in Innovation and competition to uh to get 1:08:58 the Flywheel spinning faster thank you um Mr Paul very U how 1:09:05 would you say concerning to hear some of the statistics that you uh have given a 1:09:10 76% of global ship building orders in April of this year alone uh that's a 1:09:16 very tenuous position for us to be in I would guess that most people in this country would tell you that that's um we 1:09:23 should not be in that position we should not be depended on foreign manufacturers so uh you've given us some 1:09:29 recommendations to amplify the our response here using the section 301 1:09:35 petition and we will definitely be looking at how we can be helpful there I just wanted to pose a question that's 1:09:41 been on my mind um recently you we we I guess a lot of us are very concerned 1:09:47 about the fact that China has long-term strategies they have specific outlines 1:09:53 of goals in 51 15 20 year even longer increments they're they're very Adroid 1:09:59 at doing that we as a United States tend to think much shorter periods into into the future it's a very frustrating thing 1:10:06 just your reaction to that and what you know at the risk of bringing that's 1:10:11 totally fine at bringing criticisms to the US Congress uh what should we be 1:10:16 doing differently should we change our our strategy it's a great question which would take five minutes to answer in 1:10:22 full but I'll summarize in 5 seconds if I can it takes a com time we have it takes a 1:10:28 combination of um of more aggressive trade policy of more focused and 1:10:33 strategic domestic uh uh incentives and investment in industries that will build 1:10:39 our future and it also takes collaboration with like-minded uh industrial democracies as well and I'll 1:10:47 be happy to explicate that for the record yes thank you again thank you all very much for being here today thank you 1:10:53 Mr chairman representative Torres thank you Mr chair for far too long the 1:10:58 United States has been planting the seeds of its own decline through a series of strategic miscalculations and 1:11:04 misplaced priorities first came the de-industrialization of America we made a miscalculation and allowing our 1:11:10 domestic industrial capacity to atrophy from neglect and then came the distraction of America we made a 1:11:16 miscalculation in allowing ourselves to be distracted by quag Meyers in the Middle East from the singular challenge 1:11:23 to American leadership which is the Chinese Communist Party thankfully under the leadership of President Biden aided 1:11:29 by a bipartisan consensus here in Congress we are correcting these historical errors to the benefit of us 1:11:36 strategic competitiveness one of the greatest achievements of the Biden Administration 1:11:41 lies in fundamentally changing the trajectory of the semiconductor arms race or what Mr Miller calls chip the 1:11:48 chip Wars both the chip Act and the export controls on China have been game changers according to a report rep by 1:11:55 the semiconductor industry Association and the Boston Consulting Group by 2032 the United States will account for 1:12:01 30% of advanced semiconductor production compared to only 2% for China uh Mr 1:12:08 Miller what is the percentage of advanced semiconductors that are projected to come not only from onshoring but also from near Shoring and 1:12:15 front Shoring beyond the reach of the Chinese Communist Party representative I think we're seeing substantial 1:12:21 Investments both in the United States but also in Allied countries in Europe and Japan and other partners that is adding to the 1:12:27 resilience of the semiconductor supply chain and to what extent does the restrictiveness of America's immigration 1:12:34 system undermine the capacity to domestically produce Advanced semiconductors presentive I think if uh 1:12:41 we could have more immigrants with high skills in the semiconductor industry we'd have a more Innovative 1:12:48 ecosystem you know the term Pro uh protectionism is often invoked as a 1:12:53 portive to denounce the policy shift away from so-called free trade but in my 1:12:58 view there's nothing remotely free about trade with China uh the idealized vision 1:13:03 of free trade implies a Level Playing Field in which everyone is playing by the rules China has never been one to 1:13:10 play by the rules China is heavily subsidizing its own Industries in order to drive American manufacturers out of 1:13:16 business that is not competition that is cheating and President Biden's tariffs are protecting 1:13:23 American manufacturers not from competition I but from cheating Mr Paul 1:13:28 do you believe as I do that the protectionism versus free trade framing ignores the reality of cheating on the 1:13:35 part of the Chinese Communist party yes it's an easy headline but it doesn't distill all of the issues involved um 1:13:42 and I would just point out there's a difference between building a moat or a wall around your country and simply locking your door which is what I think 1:13:48 the tariffs do which is smart no no one wants to to to let something bad happen in their house yeah I feel like we and 1:13:56 the China committee have no greater Mission than to prevent a third world war between the United States and China 1:14:02 to prevent China from escalating aggression in the South China Sea and Taiwan Strait and a war in the Indo 1:14:09 Pacific as you know would largely be a naval war and according to the Secretary of the Navy quote one Chinese Shipyard 1:14:17 has more capacity than all of our shipyards combined you know we have a reputation 1:14:24 as the military superpower the naval superpower of the world you know are we truly the naval superpower of the world 1:14:31 when we have no independent ship building capacity and when ours pales in comparison to our greatest 1:14:37 rival I would say it's it's diminishing and that is the concern here is that we currently have a tonnage Advantage but 1:14:44 it's unsustainable we don't have a surge capacity I mean the thing that helped uh identify and I I'm glad the chairman 1:14:50 mentioned the arsenal of democracy was that we were able to do conversions very quickly 1:14:55 uh to scale up uh uh Battleship building capacity and you and the difference now 1:15:02 is that we don't we don't have that uh I mean that has disappeared we do have some shipyards that have been converted 1:15:09 to just doing repair work that we could scale back up but we are dangerously deficient when it comes to uh to when it 1:15:16 comes to scaling up to meet meet the kind of conflict that you're talking about for any sustained amount of 1:15:22 time um Mr Miller just one more question about uh obviously much has been said about this China's overc capacity of 1:15:30 Legacy chipm um do you think that the risk to the supply chain security of the United 1:15:36 States is so serious that it warrants a policy response from the United States and what should that policy response be 1:15:42 yes I think a policy response is warranted I think some mix of trade measures and restrictions on use of 1:15:48 Chinese semiconductors in critical system should be examined as potential policy responses my time has expired so 1:15:53 thank you representative Le Hood well thank you Mr chairman let me thank uh the witnesses 1:16:00 for your valuable testimony here today and for this conversation and I'm pleased that the committee is discussing 1:16:06 the potential impact of the prc's strategy to dominate three particular uh 1:16:11 important industry semiconductors ship building and drones Mr new house touched on this uh in in his uh comments but if 1:16:19 you look at China's made in China 2025 and the 14th 5-year plan that the 1:16:25 Chinese Communist party has made it clear that they intend to challenge United States as global economic 1:16:30 leadership and they are actively advancing their goals as we speak president XI has stated that he aims to 1:16:37 achieve 70% self-sufficiency in high-tech industries by 1:16:42 2025 and market dominance by the 100th anniversary of the prc's in in the year 1:16:48 PR PRC in the year 2049 we know that the CCP is investing billions across 1:16:54 strategic industrial sectors such as semiconductors new and emerging Technologies and energy such as solar 1:17:01 and EV batteries all in an effort to gain dominant control over the global market in fact the Wall Street Journal 1:17:09 recently reported uh that the prc-based semiconductor manufacturing international corporation is 1:17:15 aggressively adopting homegrown semiconductor production equipment into their into its product line part of a 1:17:22 broader campaign to eradicate americ technology in the PRC they dubb this 1:17:27 quote delete a unquote um that article that I'm referencing was dated June 3rd 1:17:35 2024 in the Wall Street Journal titled the goal of China's chip giant semicolon 1:17:42 cut out the US China's uh domestic chip industry strives for self-sufficiency Mr 1:17:48 chairman I would ask to submit for the record this article from The Wall Street Journal thank you whether it be through 1:17:56 subsidized state-owned Enterprises that will that do uh that do not play by the 1:18:02 same rules as their competitors the use of coercive tactics to manipulate the global market or forcible transfers of 1:18:08 technology and intellectual property the CCP clearly is willing to do whatever it takes to achieve this goal Dr Miller in 1:18:15 your written testimony you draw a comparison between China's increased subsidy campaign for semiconductors and 1:18:22 their efforts to dominate the solar panel and EV battery markets you note uh that such control over a given Market 1:18:28 can create a strategic advantage that may be exploited by the PRC down the line consequentially This committee has 1:18:35 heard from a number of companies that rely heavily on CH Chinese manufactured EV batteries and solar panels making it 1:18:42 difficult to drisk their supply chains out of China can you talk a little bit about what steps um we need to be making 1:18:50 to work with our allies and trading partners to prevent the overreliance on Chinese Legacy semiconductors and avoid 1:18:57 similar flash points representative today as I mentioned in my oral remarks most foundational semiconductors are 1:19:03 manufactured in the west in the United States in Japan in Europe or in Taiwan but that's changing as China invests 1:19:10 more right now and so the key for policy measures is to stop the new investment that's being made in China from reaching 1:19:17 Western markets in large quantities I think there are several approaches you could take to address this problem the first is trade measures the second is 1:19:24 restrictions on the use of Chinese components and critical systems and the third is to restrict the access of 1:19:30 individual Chinese firms that are particular challenges or security risks uh to sell into US markets I think some 1:19:36 mix of these uh policies would be an effective response to the risk that we become more Reliant excessively reliant 1:19:42 on chips produced in China and those three things you mentioned uh how do you grade the current Administration on the 1:19:48 implementation of those three there have been steps taken on each of those fronts but I think there is more work to be 1:19:54 done um and as a followup you draw a distinction between Legacy semiconductors and advanced small node 1:20:01 semiconductors when we in Congress talk about semiconductors is rare that the distinction is made should we be 1:20:07 approaching policy solutions that would apply broadly to both Advanced and Legacy chips or is it more effective to 1:20:14 distinguish between those two types of Technologies representative I think we need to distinguish between these two 1:20:19 categories in advanced ships we and our allies have a major technological Advan 1:20:25 over China when it comes to foundational semiconductors China in many cases is close to The Cutting Edge in 1:20:31 foundational chips and so our ability to restrict their access to technology is less significant in the sphere of 1:20:36 foundational semiconductors moreover the use of Chinese foundational semic conductors is already present in US 1:20:43 manufacturing Supply chains and so we need to be careful when we take restrictive measures not to do so too rapidly in a way that would uh enable or 1:20:50 make it difficult for us firms to continue their existing manufacturing operations so that's why I think for any measure we take we should phase it in 1:20:57 over time uh to give us manufacturers time to adjust to any potential supply chain issues thank you I yield back Mr 1:21:04 chair representative Brown thank you Mr chairman there is Broad bipartisan 1:21:10 consensus against the Chinese Communist party's unfair industrial policies putting Americans our economy and the 1:21:17 international order at risk on this one issue Republicans and Democrats strongly 1:21:23 agree a rising World Order promoted by the People's Republic of China North 1:21:29 Korea Russia and Iran is dishonorable dangerous and deadly it is 1:21:36 worth taking a step back to get a full picture on the significant steps we have taken to address these challenges when 1:21:42 it comes to China's dishonest manufacturing and trading policies the Biden Harris Administration has 1:21:48 implemented Monumental measures here's just a few one President Biden and 1:21:54 increased the Tariff rate on electric vehicles under Section 301 from 25% to 1:22:00 100% he did the same for certain steel and Aluminum Products raising their rates from 0% to 1:22:08 25% two President Biden launched the historic indopacific economic framework 1:22:14 for Prosperity with 13 Regional Partners like Australia and India to enhance 1:22:19 long-term economic cooperation three under the Biden under 1:22:26 Biden's leadership we have brought $680 billion in private sector 1:22:33 investment in advanced manufacturing and clean energy alone to the United States 1:22:38 and especially to places like my home state of Ohio these are just three 1:22:43 examples of hundreds of actions the Biden Harris Administration has taken to protect American workers to strengthen 1:22:50 our economy and to combat unfair CCP practices so Mr Paul can you speak to 1:22:57 the success of President Biden's efforts to create a new century of manufacturing 1:23:02 in the United States and specifically how are the president's programs like by 1:23:08 America supporting a diverse Workforce and workers of color thank you very much for the 1:23:14 question representative Brown I think it's undeniable that over the last two 1:23:21 or three years that we've seen a factory construction boom in the United States 1:23:27 whether you measure it in raw terms as a percentage of GDP or more recently as a 1:23:33 um as a percentage of of business investment we haven't seen Factory construction like this for Generations 1:23:39 in the United States so there is an impact we we have been adding manufacturing jobs uh and the 1:23:47 Investments have been uh all over the country um in in many of these sectors 1:23:55 uh at the same time we're seeking to reduce some vulnerabilities that we have and I think that we're in progress on 1:24:01 that I'm glad you lifted up by America because I think it's fair to say that there's never been more Federal 1:24:08 investment subject to by America requirements than there is today um and that's a testament to the work that the 1:24:14 Congress has done and and the administration implement it implementing it right now there's there's always room 1:24:20 for improvement as we're on this journey but but I do think that in a lot of ways we we're off to a good start thank you 1:24:26 very much and we all know there is more to do to combat combat unfair CCP practices and the threats posed by CCP 1:24:34 Russia Iran and North Korea these threats are intertwined and Putin relies 1:24:39 on China North Korea and Iran to arm its illegal war against Ukraine which begs 1:24:45 the question what are they getting in return well for one the CCP is selling 1:24:50 tens of millions of dollars worth of drones and drone components to Russia for use in its illegal War so Mr Paul or 1:24:58 uh Mr bri can you speak to the steps we in Congress need to take to address our adversaries drone 1:25:07 cooperation well look I I appreciate the question I think the most obvious opportunity is to look at our own military's use of drones look at the 1:25:13 scale of our own military's use of drones and look at our form our support for Ukraine in the form of drones and I 1:25:19 think there's a lot more to be done on on every front I think the best antidote is to to support us industry this 1:25:26 technolog is inherently dual use so if you invest in in military drones especially at the smaller lighter less 1:25:32 expensive class you're also uh boosting the supply of drones for other Industries uh and I think that's the 1:25:38 thing that we have the most direct control over it's very clear that in any near peer modern conflict our adversaries are going to be flying 1:25:44 Chinese drones and it's critical that we have us technology to match that all right well thank you clearly um 1:25:52 there are measures Congress needs to take to provide President Biden additional authorities to tackle CCP 1:25:58 practices which put us at an economic disadvantage and POS a security threat 1:26:04 we took the first significant and historic step by passing the chips and science act in the 117th Congress and 1:26:11 there is more we can do on a bipartisan basis to strengthen expand and defend these winds and my time has expired 1:26:17 thank you Mr chairman representative Henson thank you Mr chairman for holding this hearing today and to our ranking 1:26:23 member as well thank you to our Witnesses um I I want to tackle and kind of follow up on a couple of items that 1:26:28 my colleagues have already T talked about today um but really the barriers that are hindering our ability to 1:26:34 strengthen and expand us domestic drone manufacturing is what I'm concerned about and I think that there is um uh a 1:26:40 lot of regulatory environment Improvement that we could probably be making um we have to ensure that our 1:26:45 supply chains are secure that's absolutely critical for our national security we talk a lot about the vulnerabilities that exist in the 1:26:51 technology right now um coming from China um we have seen though that that um that 1:26:57 stringent regulatory burden for manufacturing and purchasing drones here in the US can be detrimental for our us 1:27:02 businesses First Responders we've got a lot of farmers in Iowa who use these drones um and they're using Chinese made 1:27:08 drones right now we're trying to change that obviously but uh when foreign companies are importing these into us we've talked about the price 1:27:14 discrepancies there um obviously um they don't have to follow that same regulatory challenge that we do um and I 1:27:20 know Mr Bri you already talked about this a little bit but um are there areas of us regulation where you think we 1:27:26 could make some improvements to help us really strengthen um domestic drone production what steps would you say need 1:27:32 to be um taken to help diversify those Supply chains so we we are not relying on chips from China for our our 1:27:38 manufacturing here yeah I really appreciate the question representative I I point to two things and actually touching on something we talked about 1:27:44 earlier immigration policy uh you know we compete for the world's best talent in Ai and Robotics uh and often times we 1:27:52 have to jump through all kinds of crazy Hoops to get phds and Master's level folks uh many of whom have studied 1:27:58 abroad in the US to to receive those degrees um and I think there may be a misconception I mean it's not a zero 1:28:03 some game like one brilliant scientist or engineer can create 10 or 100 or thousand other jobs uh by bringing good 1:28:10 ideas to the table um so that strikes me as a as a real opportunity especially at 1:28:15 the high end uh for highly skilled people with unique skills there's just a huge multiplicative effect in every 1:28:21 industry especially leading Ed Edge technology industries by by making it easier for those folks to come and then 1:28:26 the second area I'd point to uh is our airspace regulation uh you know the the 1:28:32 airspace regulation set the rules of the road so to speak for for drones uh historically the the US has lagged a 1:28:39 little bit behind in permitting more advanced uses of drones being able to fly Beyond visual line of sight which is 1:28:44 incredibly useful for large infrastructure inspection as well as responding to emergencies in public safety I think we're making progress 1:28:51 there uh but the more that our own regulations reflect the next Century of Aviation the more Innovation we're 1:28:57 likely to see in the US and then have that Innovation spread to the rest of the world um how do you think the 1:29:02 government can work to help offset some of the cost because I mean we've talked about that discrepancy what what more can we do there well I I think the the 1:29:09 idea that's been floated of uh of placing tariffs on on Chinese drones or increasing tariffs on Chinese drones or 1:29:15 at least enforcing the tariffs that are already there I mean the Chinese are also trying to get around these by going in through other countries and using 1:29:21 those funds to give end users the ability to to purchase us-made products uh of their own choosing I think is is 1:29:27 one of the more more natural opportunities that's going to leverage our strengths yeah I'm actually working on a bill right now to make sure they 1:29:32 can't get around tariffs so we're we're definitely trying to tackle that side of it um I think another place where um I 1:29:38 want to follow up on what you said Mr Paul you talk about the three things that you think we need to work on trade policy domestic incentives 1:29:44 collaborations with friends we know this is what China is doing right they're trying to continue to um manufacture um 1:29:51 the raw materials and and they they're partnering with other countries and they're using diplomacy to do all of 1:29:57 that um and I think that's again another attempt to directly marginalize the United States um on the global market so 1:30:03 um we talk about friend Shoring continuing to develop Global coalitions here to strengthen our supply chains um 1:30:09 are there ways where you think we can leverage our existing relationships better um for Mutual benefit um what 1:30:15 investments or Partnerships do you think are really necessary to help us achieve this this is an excellent question I think this comes to in play particularly 1:30:21 when we're talking about critical Mir minerals which are involved in semiconductors in drones and in a lot of 1:30:26 different applications and there's a lot that we can be doing here to provide a 1:30:31 uh a better environment uh to to get them through both uh purchases regulation uh regulatory reform and what 1:30:39 have you and also seeking to leverage our our allies assets there and I think that has to be a a big part of the 1:30:45 strategy I think the other part with respect to ship buing where this is important is that in addition to Direct ship building China's established a 1:30:52 series of ports uh and uh log in as as I know the committee is very familiar 1:30:57 around the world and we need to enlist our our allies uh in push back on that because that's dangerous access to uh 1:31:05 crital critical commercial infrastructure uh and data around the world ab and it's not just China it's 1:31:11 Russia too with they're definitely eyeing I had a chance to go to Ukraine um in April and they're eyeing obviously the port at Odessa too so I mean there's 1:31:17 so much strategy involved with controlling ports uh when it comes to all of these Technologies so um I'm out 1:31:23 of time I know know we could talk about this for hours but I appreciate you all being here thank you so much I yeld back Mr chair representative Molton thank you 1:31:30 Mr chairman uh genten thank you very much for being here today um you know the title of of our committee is all 1:31:37 about competition and we all want to improve our competitiveness with China we want to 1:31:43 stop them from eating our lunch stealing our ideas taking all the good work that 1:31:48 we do in research and development and then profiting off of it by selling those products to the world 1:31:54 but really what this committee should be about is deterrence that's foundational 1:31:59 we can have better competitive Pro uh policies competitiveness policies but if they don't fundamentally improve 1:32:06 deterrence preventing what could literally become World War II then we're 1:32:12 failing as a nation so Mr Miller I want to Dr Miller I want to talk to you about uh your points on connecting 1:32:19 competitiveness with deterrence about how economic policy has to be part of 1:32:24 our deterrent picture and while the Silicon Shield of course is really 1:32:31 important to uh taiwan's deterrence I often make the the point to to people in 1:32:36 the states that we we actually don't want necessarily all the highest end manufacturing of chips to come to 1:32:42 America because otherwise that leaves you know there there's not as much of a deterrent value uh that those chips the 1:32:49 chip Manufacturing in Taiwan presents but explain to us how our strategy could 1:32:54 backfire if we just basically give China the keys to the king Kingdom with 1:33:01 foundational chips well representative today China spends as much money each year importing 1:33:06 chips as it spends importing oil there's no product in which they're more reliant on the outside world for and it's the 1:33:12 United States and partners and allies like Taiwan Korea and Japan that are major suppliers of chips to China today 1:33:18 and if China were to start a conflict it would face immense difficulties because it would struggle to Source the chips that it needs that's day but this 1:33:24 landscape is going to change dramatically over the next couple of years as China invests very heavily in 1:33:29 its manufacturing base for foundational semiconductors and there's not much doubt that China has the technological 1:33:36 capabilities to produce ADV foundational chips uh once it builds these facilities and so it's going to become much more 1:33:42 self-sufficient towards the end of the decade than it is today especially in foundational chips and I think you're 1:33:47 right that that does change deterrence calculations in around the time on Straits so they gain economic Leverage 1:33:54 we lose economic leverage and the deterrent value that comes with it if they can produce all these chips that 1:33:59 they need themselves what about the high-end chips is there a risk that uh that we they will no longer be dependent 1:34:06 on Taiwan for high highend chips of course up until now they've been able to buy whatever they want I support the 1:34:12 Biden administration's policies I think there's generally bipartisan support uh for for the policies of making sure that 1:34:18 certain critical semiconductors are not allowed to be sold to to China but is that just going to 1:34:24 create too much of an incentive for China to figure out how to produce these themselves or can we continue to hold them back well China needs no incentive 1:34:31 to try to create self-sufficiency in its Advanced chipm industry it already had all this incentive that it needed this 1:34:37 desire was built into industrial policy programs like made in China 2025 so it's not US policies that are driving Chinese 1:34:44 self-sufficiency efforts it's Chinese policies today the US and allies like Taiwan Korea are uh technological 1:34:51 leaders in advanced ships China can't compete the production of the most Cutting Edge chips today and at least 1:34:56 for the next couple of years we have fairly high confidence that China will struggle to produce the most advanced 1:35:02 chips and so for now China remains reliant on the west for Cutting Edge 1:35:07 chips but for foundational chips the picture is changing quite dramatically so the CH the picture is changing for foundational chips um you've given us 1:35:14 confidence that for the next two or three years we'll be safe with high-end chips that doesn't give us a lot of confidence two or three years is not a 1:35:20 lot of time what sort of proactive policiy should we be making uh both to 1:35:26 ensure uh that that we have the capacity to produce chips here but also that our allies have the capacity to produce 1:35:33 these overseas because this has got to be a team effort uh against China here I 1:35:38 think that's right and we've seen over the past couple of years Japan European countries Korea Singapore and other 1:35:45 trusted suppliers uh expanding their own manufacturing capacity for foundational chips as well as uh for advanced chips 1:35:52 and this is a very positive development but companies in these countries are also threatened by the same non-market 1:35:57 practices of Chinese foundational chip makers and so there is I think room to work with allies and partners on this 1:36:03 exact issue since their companies face the exact same challenges is there policy specifically that Congress should be pursuing we're not pursuing today 1:36:11 we're we're not being proactive enough well I think the last G7 meeting if you 1:36:16 read the statement allies endorsed uh Allied efforts at sourcing chips from 1:36:22 trustworthy companies trustworthy providers I think there's a a consensus around uh this issue among G7 countries 1:36:29 and I think it's pretty clear which providers we trust and which providers we don't trust and pushing uh policy action in that direction to make sure 1:36:36 that not just our but also Allied manufacturing Supply Chains Don't become too reliant on untrust trustworthy 1:36:41 manufacturers is something we could certainly get the Europeans and the Japanese to agree to thank you Mr chairman thank you uh now I'd like to 1:36:48 call on our newest member uh for some questions uh representative Klein thank 1:36:53 you Mr chairman I appreciate the welcome and I'm eager to get to work uh the Chinese Communist party is an 1:36:59 existential threat to America and its allies and make no mistake is seeking to uproot freedom and democracy in the 1:37:05 pursuit of power and their partnering with their own cadra of authoritarians to do so emboldened by the perceived 1:37:12 weakness of this Administration the CCP regularly engages in underhanded trade and Market manipulation practices 1:37:17 subsidizes the deadly fentanyl precursors pouring over our borders and is actively building up its military in 1:37:24 preparation for a possible invasion of our Allied Taiwan we there therefore have to be cleare eyed and Resolute in 1:37:29 our response to Chinese aggression and ensure that this Congress is taking the right measures to prioritize our 1:37:36 economic and National Security interests U Mr Bry uh drone technology 1:37:41 has been identified as a particular industry of Interest as we consider our 1:37:47 competitive posture with China doe in part to both its vast potential for future Innovation as well as its dual 1:37:52 use purposes with defense um recently autel was added to the entity list for their involvement in 1:37:58 distributing controlled items to Aid Russia's war effort and DJI was already listed due to their use cases of 1:38:05 biometric surveillance and tracking to complement China's yuger genocide operation these ties are troubling as 1:38:11 Market studies indicate that Chinese made drones account for roughly 60% of the American industrial market and have 1:38:17 an outsized presence in the first responder Market however you're now seeing States taking matters into their 1:38:22 own hands restricting the use of Chinese drones States like Florida Mississippi and Arkansas uh can you tell me what 1:38:29 kind of other drones use cases present National Security threats and 1:38:35 vulnerabilities well representative Klein I really appreciate the question I think one of the most important things to understand is just the Dual use 1:38:42 nature of the technology and you can see it in the information that you're citing uh oftentimes the same drones that are 1:38:48 being used in public safety are the ones that the Russians are using on the battlefield in Ukraine um so there's 1:38:54 just an inherent National Security risk because it's such a such a powerful du use technology you know another sector I 1:39:00 would point to uh which is a really important one for us is energy um so we sell to a number of the largest energy 1:39:05 Utilities in the US they use our drones to inspect the energy grid and we're headed towards a world where drones 1:39:11 essentially become part of the energy infrastructure where every Power Plant every substation has an autonomous drone installed there that can fly itself that 1:39:18 can perform persistent inspections uh and so you know if the if the risk is is three or four today it goes up to a 9 or 1:39:25 10 when these things really become Network connected installed infrastructure critical infrastructure 1:39:31 Bridges roads as well yes yes sir I mean we we sell to uh a number of the state 1:39:37 Departments of Transportation they are heavy drone users um you know I I think we're we're doing quite well in that 1:39:42 market but the Chinese drones are are still present in what ways does the 1:39:47 technology present privacy concerns to wouldbe users so this is another really important question and something we 1:39:52 think quite about uh one of the ways we think about what we're building is the world's best automated data capture 1:39:58 platform which is super powerful for all kinds of great uses but but definitely comes with some privacy concerns as well 1:40:04 um this is something we work with our customers on we've T taken a proactive stance in best practices for example in 1:40:09 public safety we do a lot of work with our customer agencies there on community engagement transparency best practices 1:40:16 uh to build trust with community and make sure that their officers are using drones in appropriate ways uh but I think the privacy concerns uh speak to 1:40:23 the the greater sort of risk profile of having drones that are are connecting back to Chinese servers and and in the 1:40:28 worst case could actually be taking instructions from those servers thank you Dr Miller appreciate 1:40:34 you being here I enjoyed your book very much uh one distinct advantage that the US and Taiwan possesses over China is 1:40:41 its advances in semiconductor technology and it's been the policy of the us since 2019 to carry out strict export controls 1:40:47 on the sector to limit China's ability to obtain high-end semiconductor chips technology manufacturing equip and 1:40:53 knowhow however while an impediment China's largest semiconductor Foundry smic still managed to raise some 1:41:00 eyebrows with its development of a 7 nanometer chip used in huawei's 5G phone 1:41:06 what suggestions might you have to ensure that gaps in this technology denial strategy aren't 1:41:11 exploited representative I think it's clear that the initial export controls that were released in 2022 did have some 1:41:18 loopholes in them that have been tightened somewhat uh since then and I think deserve to be tightened further 1:41:24 it's bad to let technology go into China but it's even worse to let advanced technology be sold into China in ways 1:41:30 that we're trying to prevent uh and I think uh we need to focus on this issue we need to make sure that our 1:41:35 regulations are aligned with those of allies that have comparable Technologies uh and this octopan area Focus would you 1:41:42 say European allies have a role to play in this effort and are they doing enough I think both our European and our Asian 1:41:47 allies have a role to play and I think there's more they should do okay thank you I Y back thank you representative 1:41:53 Kaa thank you Mr chair the ibw and the United Steel Workers along with three 1:42:01 other unions have filed a petition about the unfair trade P practices of China 1:42:08 when it comes to ship building this committee should support 1:42:14 unequivocally their petition and demand that the US have remedies I mean it is 1:42:21 unconscionable what we've allowed as a country China started out with 5% of the global market in ship building 1:42:30 in 1999 they're up to 50% they're producing a, ships every 1:42:37 year the United States which used to lead is producing 10 ships every year 1:42:45 the this committee is for American leadership we should be for ensuring 1:42:50 that we're not losing 100 to one on sh ship building to China the way we won 1:42:55 World War II was that we had the arsenal of democracy we mobilized building ships 1:43:00 and airplanes and now China is out producing us 100 to one now these unions 1:43:07 are asking for something very simple they're asking for a docking fee a 1:43:13 docking fee of about a million dollars which would be less than $50 per 1:43:18 container which would mean that Americans may have to pay a few cents more for their jeans or their shirt so 1:43:25 that we can have americanmade ships again but guess who's opposed to it the 1:43:31 Chamber of Commerce they've been opposed to every policy on Industrial policy for the last 1:43:36 40 years they're testifying no we can't pay a few cents more on the our shirts 1:43:44 or jeans to have ship building in America this is the philosophy that bankrupted and de-industrialized America 1:43:52 for cheap labor for cheap prices we kept sending our industry overseas to China 1:43:58 and we're still doing it Mr Paul can you speak clearly about the political forces 1:44:03 at play here is the chamber opposing the unions and bringing a docking fee why 1:44:09 are they doing that can we ask every member instead of just saying oh I'm on the committee I'm a tough one China to 1:44:15 actually endorse having docking fees on these uh Chinese 1:44:21 ships thank you for the question I can't tell you exactly the motivations behind the Chamber of Commerce opposition to it 1:44:28 but I think it's shortsighted uh and I think that a fee like that again could be well absorbed within our economy and 1:44:36 the when the benefits would be focused towards lifting up our uh ship building capacity which has reached a critical 1:44:42 breaking point in the United States Dr Miller representative I'm far from an 1:44:49 expert on ship building so I'll defer to my colleague do you think the logically if we're losing a th000 to one to to 1:44:56 China th to 10 that it makes logical sense that we should have some fee on 1:45:03 Chinese ships representative I I I'm no expert on ship building I don't like the idea of ship building I'm just saying 1:45:10 the China is basically subsidizing these ships Japan and Korea are subsidizing 1:45:16 their ships the United States doesn't subsidize our ships we've had this argument time and again that basically 1:45:23 we don't want to pay a penny more on consumer prices we want to maximize corporate profits and so we've allowed 1:45:28 industry after industry to go to China finally we're trying to fix it and we're saying let's have a docking fee on these 1:45:34 Chinese ships does that seem a reasonable argument to you well represenative I I agree that the ship buing industry is very important for US 1:45:40 National Economic Security but the specific policy is out defer to ship building experts Mr uh Adam 1:45:48 right uh well look sir as I mentioned in my opening statement I'm a you know I know a lot of about Ai and drones I know 1:45:54 much less about ship building um I think it's overall important for us to focus on the competitiveness of our Industries 1:46:00 and competitiveness of our manufacturing uh you know the the Chinese have invested extremely heavily over the last 1:46:06 two to three decades in trade policy and Industrial policy to build up a formidable consumer electronics 1:46:11 manufacturing base you know I oftentimes say wherever they're building iPhones they're going to be building a lot of other stuff as well because of the 1:46:17 ecosystem that get that get that gets pulled along with it uh and that's something that we see and face in the 1:46:22 Drone industry but I also don't think it's an insurmountable task uh you know we actually see in Silicon Valley now a 1:46:27 lot of manufacturing coming back to the US I think that's worth supporting to your specific question you know I I 1:46:33 think we're going to have to pay for that somehow uh and there's you know there's short-term costs for long-term 1:46:38 benefit um you know I'm not an expert in the trade-offs there but I I think that we have to recognize that we are going to have to make some Investments as a 1:46:44 country to bring back the manufacturing base appreciate that thank you Mr 1:46:50 chairman thank you representative bar thank you Mr chairman that was an interesting exchange and and I uh I 1:46:57 appreciate my colleague from California's conversation and and I'm I'm open to to what he's saying about a 1:47:06 a fee because I think China is an exceptional case I think what the Chamber of Commerce may be concerned 1:47:11 about however is that uh this kind of a policy this kind of protectionist policy 1:47:17 could evolve into uh something uh Beyond China and that uh could be used even in 1:47:24 cases where we have reciprocal free trade agreements with allies and partners that I think would be a mistake 1:47:31 uh I do not believe that we should try to counter China by imitating Chinese 1:47:36 industrial policy the the advantage that we have in our country is that we're capitalists we do believe in free and 1:47:43 reciprocal trade not with China because China is an exceptional case and they don't engage in free trade but I think 1:47:49 it would be a mistake to try to copy Chinese industrial policies because that 1:47:57 actually is the best way to misallocate resources free markets are the answer in 1:48:03 our competition with China generally let me uh ask Dr Miller a question about Taiwan and semiconductors in Taiwan I 1:48:11 was recently in Taiwan with a bipartisan delegation and we were able to tour uh 1:48:18 the very uh uh impressive semiconductor capabilities there we visit at tsmc uh I 1:48:24 think they have 30% of global market share of advanced semiconductor chips the chips that power artificial 1:48:30 intelligence um we had the opportunity to ask the chairman of tsmc about a 1:48:36 Taiwan Invasion scenario and he was very direct he said an invasion of the island 1:48:43 would uh take us down instantaneously paint a picture for the 1:48:49 American people for the people watching my constituents why Taiwan matters Dr 1:48:54 Miller what would happen to the average American Consumer uh and Americans access to 1:49:02 chips in the event of an invasion representative thank you for the question during the pandemic when there 1:49:08 were relatively minor chip shortages we saw a experiment in real time as to just 1:49:13 how costly that would be I mentioned in my testimony the Auto industry alone faced hundreds of billions of dollars in 1:49:20 cars that couldn't be sold because they couldn't source chips and it wasn't just Autos it was tractors it was hearing 1:49:25 aids it was across the uh manufacturing sector of the economy and that was at a time when there were minor disruptions 1:49:31 as you said Taiwan is the world's most important producer of chips especially when it comes to the most advanced chips 1:49:36 and so for phones computers telecoms infrastructure certainly any artificial intelligence application we would face 1:49:42 enormous delays uh huge inflation as a result of any disruption to the chip production in Taiwan well I think that's 1:49:50 a why we we need deterrence with Taiwan um and we also need to uh have supply 1:49:55 chain resiliency and build out our our our uh uh uh diversification of access 1:50:00 to chips Beyond China um Mi Mr Paul let me ask you about Subic Bay and ship 1:50:05 building um when I was in Subic Bay we spoke to cber us about their decision to buy the shipyard uh and the state 1:50:12 department tatted the success of an American company purchasing this critical infrastructure but we also saw 1:50:17 how much the shipyard and Port is underutilized and Cerberus expressed concern that they were not making returns 1:50:23 on investment how can the United States government actively encourage or help us 1:50:28 companies invest in the capabilities at Subic and can Subic be uh part of the 1:50:34 part of the answer to our ship building capabilities and part of the deterrent strategy uh in the Western Pacific Mr 1:50:42 bar I'm glad you raised up that question because I do believe that there are possibilities that this isn't a this is 1:50:47 not a hopeless case and and I'm I'm I'm glad you mentioned that the idea behind 1:50:52 just just going back to the fee is that it would provide a revenue source to have some investment in new technology 1:50:59 in Port upgrades and in Workforce training that we're going to need to scale up is it we're we're at such a 1:51:06 breaking point now we have a very fragile supply chain in ship building we've lost 1:51:13 20,500 suppliers in the ship building sector over the last two decades and so 1:51:19 we needed to be agile and that is going to take some investment uh again uh yes 1:51:26 I do believe that we should operate as a free market whenever possible even Adam Smith suggested ship building is a 1:51:32 unique case and that you need to find Revenue sources to support your de and can I say Mr Paul I appreciate your 1:51:38 testimony I appreciate the the comments from my friend from California Mr kanana 1:51:43 and I'm open to that but I want to make sure it's limited to China I think it would be a mistake to broaden that and a 1:51:50 source of Revenue to revitalize our ship building capacity great I'm for it but let's not let that evolve into an overly 1:51:57 broad industrial policy uh that limits uh uh free trade with allies and partners that's my point now tell me 1:52:05 about Subic uh uh and Cerberus and and we need to get back into into Subic Bay 1:52:10 and does that present some ship building opportunities with the Philippines yeah it it may uh let me respond for the 1:52:17 record since I seen up but I'd be happy to explicate more that uh in in in a written response resp thanks so much how 1:52:24 you thank you and I want to thank all of our Witnesses today um questions for the 1:52:30 record are due one week from today and without objection the Committee hearing is 1:52:51 adjourned