Silver Star Communications worker lays fiber for home broadband network in Fairview, Wyoming (pop. ... [+] 275). Silver Star does not use Chinese made fiber or other Chinese ICT products in its network.
The Departments of Commerce (DOC) and Homeland Security just released the report “Assessment of the Critical Supply Chains Supporting the U.S. Information and Communications Technology Industry,” part of a larger Biden Administration effort on critical supply chains. The 87-page report describes many sobering challenges for the US in the production and manufacture of information communications technologies (ICT). High end ICT products are less likely to be made in USA, a key problem for strategic technologies like semiconductors for which domestic manufacture has declined from 37 percent of the world’s total to just 12 percent in the last 30 years. Moreover, the US share of global electronics manufacturing has decreased from 30 percent to 5 percent in the last 25 years, creating critical cyber-risk.
This reduction in manufacturing has decimated America’s ICT manufacturing workforce. While demand remains strong for software engineers and developers, the US has failed to foster education which produces sufficient American workers in the ICT industry. In addition, the US software industry is riddled with risk because of “ubiquitous use of open-source software.”’ A series of “structural vulnerabilities” exacerbated by Covid-19 are also described: increasing risk and disruption because of lack of domestic ICT production ecosystem, overreliance on single-source and single-region suppliers, and difficulty to maintain product integrity in complex supply chain. The US thus remains “overexposed to a variety of externally derived risks stemming from intellectual property theft, economic dependencies, weak labor standards and climate concerns.”
The report’s one bright spot is domestic manufacturing of optical transmission equipment, including fiber and optic cables. This renaissance in manufacturing is spurred in part by 5G deployment, which requires fiber to every antenna and tower. Relatedly, 5G is driving down the price of landline subscriptions and increasing competition in the broadband market.
Optical fiber is a flexible, transparent medium made of glass (silica), thin as a human hair. In 1970, New York’s Corning Glass Works innovated this material for data transmission with light beams. Today optical fiber is omnipresent in data networks, whether subsea cables, data centers, transnational long-haul traffic, middle mile networks, 5G backhaul, fixed wireless solutions, or the millions of connected US homes and businesses. The Fiber Broadband Association estimates that 43 percent of Americans have access to fiber infrastructure today.
Manufacture of fiber optic cable is a technical process involving the production of glass preform, chemical treatment, drawing the glass into ultra-thin strands (“bare fiber”), and coating the glass with protective materials (cladding). The production value chain includes a myriad of firms specializing in one or more parts of the process. Most production takes place in the US (Corning), Japan (Furukawa), and China (Yangtze Optical Fiber and Cable, Hengtong Group, ZTT, FiberHome).
Federal broadband policy stimulates fiber production. Examples include the groundbreaking reverse auction pioneered by the Federal Communications Commission’s Rural Digital Opportunity Fund ($20.4 billion) and the Infrastructure Investment and Jobs Act (IIJA) ($42 billion). In 2021, US fiber manufacturers Corning, Prysiam, CommScope, and Sterlite announced some $275 million in investment. IBIS Worlds estimates that annual US fiber optic manufacture will be roughly $2 billion in 2022, a 7 percent rate of market share growth and a welcome turn after some years of decline.
Despite laudable policy efforts to stimulate the demand for US made fiber and the growth of 5G, the report expressed concerns that China’s industrial policy could derail the important fiber optic sector. With a combination of trade distortions, subsidies (average of $60 million per company), and state ownership, China has grown its fiber capabilities to some 12 percent of the world’s raw fiber imports and more than 3 percent of global optical fiber imports in less than a generation. US exports have increased in dollar value but have declined as a share of the world's total. In 2000, the US represented 26 percent of global optical fiber exports. By 2017, that share had fallen by half.
DOC observed that China has stockpiled more than 300 million kilometers of excess fiber, estimated to double by 2024 and far exceeding its domestic needs. By comparison, the world’s total production of optical fiber in 2020 was close to 500 million kilometers. China overproduces on purpose as part of its mercantilist strategy to drive down price and win greater market share.
These predatory practices have real, debilitating impacts for global competition in international fiber markets. The European Commission recently found that China’s industrial policy led to significant injury in the European fiber market and violated anti-dumping and countervailing duty laws. As a result, the EU slapped a 44 percent tariff on China’s single-mode optical fiber cables.
The European determination is noteworthy. While trade law allows governments to combat predatory practices, the damage is already done to local markets well before punishments are levied.
DOC’s report suggests that the US is taking note of Europe’s experience. The US fiber manufacturing base is slowly growing, but the report provides a warning: “China’s excess capacity remains a global problem that will likely require coordinated actions to address.”
A critical element of the IIJA is its “Buy American” provision. The National Telecommunications and Information Administration (NTIA) is charged with ensuring that broadband subsidies are used to purchase products made in America, including fiber optic inputs. The IIJA also includes an important provision prohibiting use of funds in the bill to acquire or support “fiber optic cable and optical transmission equipment” manufactured in China. Both provisions are subject to a waiver, the latter of which may only be invoked upon proof the prohibition will “unreasonably increase the cost of the project.” But as NTIA Administrator Alan Davidson reiterated in a recent House Energy & Commerce hearing, after acknowledging the important national security concerns underlying Congress’ choice, application of a waiver is subject to a “very high bar.” DOC must think twice before issuing a waiver in either event applied towards this critical input for broadband networks.
Comments from China Tech Threat to NTIA’s Request for Information observed that these domestic sourcing provisions are vital for security, particularly to prevent intrusion by Chinese government actors in ICT products and services. Broadband networks encompass a range of inputs from optical fiber and optical transmission equipment, servers and switches, base stations, antennas, masts, set top boxes and customer premise equipment, satellites, routers, radios, terminals, receivers as well as end user devices such as computers, laptops, tablets, and smartphones—and the software which runs across all these elements, as well as the labor to produce them. As integrated, connected systems, the quality and security of these elements are critical.
America’s lost leadership in ICT didn’t just happen by itself. It was led largely by US policymakers and business leaders who professed that the US should offshore “low-value” manufacturing while keeping “high value” innovation and R&D onshore. The White House supply chain exercise proves the folly of that assertion. Not only is there high value in manufacturing, but when manufacturing is decoupled from R&D, innovation moves offshore as well.