B8| RE-ORTONB4SINESS O THEGLOBEANDMAIL| THURSDAY,OCTOBER24,2019
The Trump administration is di-
vided over how aggressively to re-
strict China’s access to U.S. tech-
nology as it looks for ways to pro-
tect national security without un-
dercutting U.S. industry.
President Donald Trump and
many of his top advisers have
identified China’s technological
ambitions as a national security
threat and want to limit the type
of U.S. technology that can be sold
overseas. But a plan to do just that
has encountered stiff resistance
from some in the administration,
who argue that imposing too
many constraints could backfire
and undermine U.S. industry.
The debate underscores the ex-
tent to which Mr. Trump’s trade
fight with China has left many is-
sues unresolved. The President
announced plans this month to
sign a “Phase 1” trade agreement
that would require China to buy
more farm products and agree to
some technology protections in
exchange for a pause in new U.S.
tariffs.
The agreement, which has yet
to be signed, lowered tensions be-
tween the two countries. But con-
cerns about Beijing’s economic
ambitions remain, posing an even
greater challenge as the United
States considers what steps to
take to ensure U.S. companies
dominate the next generation of
technologies.
For nearly a year, the U.S. Bu-
reau of Industry and Security, a di-
vision in the Commerce Depart-
ment, has been working to identi-
fy emerging technologies that, if
shared, could pose a security
threat to the United States.
The restrictions aim to head off
new security threats. For instance,
3-D printers could create weapons
on the battlefield, making it un-
necessary to ship arms. Artificial
intelligence can decode encryp-
tions that previously could not be
cracked. Robots could provide
surveillance from space, while or-
ganelles could build tissue for sol-
diers injured in war.
Last year, Congress passed a
law requiring new controls on
emerging technologies. But de-
ciding which technologies should
be regulated has taken longer
than anticipated and prompted
an ugly conflict in the administra-
tion.
Some administration officials,
along with many in the business
and scientific communities, as-
sert that too-tight restrictions risk
pushing research offshore, crip-
pling the commerce that gave rise
to the U.S.’s technological superi-
ority in the first place. But China
critics, including many of Mr.
Trump’s political appointees, say
Beijing is a security threat that
must be addressed.
“There’s a clear fight in the ad-
ministration between those who
want to have a broad response to
China’s technology acquisition
and development strategies and
those who want to surgically limit
China’s access to very specific
items and essentially return to a
business-as-usual approach to
China,” said Michael Wessel, a
member of the U.S.-China Eco-
nomic and Security Review Com-
mission, who advocates more
comprehensive controls.
Next month, the bureau is ex-
pected to announce an initial set
of restrictions on exporting some
technologies, including quantum
computing, 3-D manufacturing
and an algorithm that guides arti-
ficial intelligence, an official from
the bureau said. While those re-
strictions are a start, they are not
enough to satisfy the President’s
more hawkish advisers.
Some analysts say the fight
goes beyond any specific technol-
ogy and encompasses a broader
debate echoing from the halls of
Congress to the White House
about how to revise U.S. policy to
confront a rising China. While
many in Washington see Beijing
as its biggest long-term rival, Chi-
na is also the U.S.’s largest trading
partner and crucial to industries
such as agriculture and manufac-
turing.“It’s more than just a battle in
the Commerce Department,” said
Derek Scissors, a resident scholar
at the American Enterprise Insti-
tute. “This is industry pushing
back against the Congress.”
Opponents of broad controls
say trade and the technological
development it fosters actually
give the United States security ad-
vantages – including information
and income that can be plowed
back into further research.
Business leaders and research-
ers say rules that are too expan-
sive could weigh on industries
that depend on freely trading
components or knowledge
around the world, such as devel-
opers of driverless cars or bioma-
terials. Such restrictions could en-
courage U.S. companies to move
research facilities to countries
without export controls.
“You can’t do science with
walls around it,” said Toby Smith,
vice-president for policy at the As-
sociation of American Universi-
ties. “If security dominates the
conversation, our scientific lead-
ership may lose out.”
Companies such as Google,
General Motors, Microsoft, Toyota
and Raytheon have urged the gov-
ernment to tailor its controls as
narrowly as possible to avoid dis-
rupting their ability to compete
around the globe.
In comment letters submitted
in January, companies contended
that many emerging technolo-
gies, like machine learning and
quantum computing, were al-
ready well established in compa-
nies and research universities
abroad and that tight restrictions
could ultimately jeopardize U.S.
technological development and
national security.“Ultimately, it is far better for
U.S. national and economic secu-
rity for foreign countries to use
U.S. technology products than for
the U.S. to be forced to use theirs,”
Qualcomm said in its letter.
Facebook argued that restric-
tions could hurt the ability of U.S.
companies to develop technolo-
gies and “risk slowing innovation,
and the hiring and retention of
top researchers in the United
States.”
The export controls would ap-
ply beyond China to Russia and
other countries. But it is Beijing’s
efforts to harness advanced tech-
nologies that have prompted a bi-
partisan outcry in Washington.
As part of its Made in China
2025 program, China has intro-
duced plans to dominate industri-
es of the future, such as driverless
cars and biomedicine. In some ar-
eas of advanced technology, it is
now on par with the U.S., and its
weaponry is increasingly state-of-
the-art.
Some of these technologies
have been obtained through do-
mestic development or legitimate
investments. But others have
been stolen or coerced through
cyberattacks, espionage or unfair
economic practices, U.S. officials
say.
“Put plainly, China seems de-
termined to steal its way up the ec-
onomic ladder, at our expense,”
FBI Director Christopher Wray
told a crowd at the Council on For-
eign Relations this year.
That growing suspicion has
given rise to an array of policies to
more closely scrutinize the mon-
ey and technologies that are flow-
ing between the U.S. and China.
Washington has stepped up re-
views of Chinese investments
that could be a security threat and
blacklisted dozens of Chinese
technology firms, including tele-
com giant Huawei, from buying
U.S. technology withoutgovern-
ment approval.
Mr. Trump has also imposed
tariffs on more than US$360-bil-
lion of Chinese goods, including
semiconductors and aircraft
parts. The moves, taken together,
seem aimed at unwinding some
of the economic connections be-
tween the United States and Chi-
na – a process many in Washing-
ton refer to as “decoupling.”
Those who advocate limiting
economic ties with China say that
a previous policy of engagement
has failed to contain the country’s
more threatening ambitions and
that setting up barriers is the best
way to protect the U.S. Critics say
attempts to splinter the world’s
two largest economies and their
technologies could have devastat-
ing consequences, not just for
businesses but for the world.
Past efforts to regulate technol-
ogies provide a cautionary tale. In
the late 1990s, the United States
placed tight restrictions on ex-
porting satellite technology in an
effort to protect an industry
deemed vital to national security.
The effort backfired. Wary of re-
strictions that could cripple their
ability to ship products overseas,
companies such as Boeing, Maxar
Technologies and Lockheed Mar-
tin moved satellite manufactur-
ing overseas. According to a re-
port by the Commerce Depart-
ment, companies said the con-
trols had eroded U.S.
competitiveness in the industry
and led to US$1-billion to US$2-
billion of lost opportunities from
2009 to 2012.NEW YORK TIMES NEWS SERVICEWhilemanypeopleinWashingtonseeBeijingastheUnitedStates’biggestlong-termrival,Chinaisalsothe
country’slargesttradingpartner.JOHANNES EISELE/AFP/GETTY IMAGES
WhiteHousedividedover
howtorestrictChina’s
accesstoU.S.technology
Trump,someadvisers
seeBeijing’sambitions
assecuritythreatwhile
otherssayimposing
strictlimitsonwhatcan
besoldoverseascould
backfire,hurtindustry
ANASWANSONWASHINGTON
There’s a clear fight in the
administration between
those who want to have a
broad response to China’s
technology acquisition and
development strategies and
those who want to surgically
limit China’s access to very
specific items and essentially
return to a business-as-usual
approach to China.MICHAELWESSEL
MEMBER OF THE U.S.-CHINA ECONOMIC
AND SECURITY REVIEW COMMISSIONTesla Inc.on Wednesday surprised investors by posting a
profitable third quarter, boosted by record deliveries, cost
cuts and improved production schedules for its new electric
vehicle model, causing shares to soar in after-market trad-
ing.
The car maker’s gross margins, an important profit in-
dicator for investors, exceeded expectations and Tesla said it
was “highly confident” in exceeding the low end of its yearly
global vehicle delivery goal.
Shares rose 17 per cent after hours on the surprise news, in
which Tesla posted a cash balance increase to US$5.3-billion.
The car maker reported a profit of US$1.86 a share, far beat-
ing analyst expectations for a loss of 42 US cents a share.
Investors have shown impatience with the company’s se-
rial failures to meet financial and production targets in the
past. Earlier this month, Tesla shares slumped after the com-
pany reported delivering 97,000 vehicles for the third quar-
ter, just short of analysts’ forecasts and only 2 per cent ahead
of the previous quarter.
But Tesla on Wednesday exceeded promises by its billio-
naire chief executive Elon Musk, who in July said Tesla
would break even in the third quarter and turn a profit by
the end of 2019.
The company has said it plans to deliver 360,000 to
400,000 vehicles for all of 2019, and on Wednesday said it
was “highly confident in exceeding 360,000 deliveries this
year.”
The company also said production of its new electric SUV
Model Y and its Model 3 vehicle factory in Shanghai were
ahead of schedule. Model Y production is expected to
launch by the summer of 2020, while production of full vehi-
cles on a trial basis was already under way in Shanghai, Tesla
said.
“We have cleared initial milestones toward our manufac-
turing license and are working toward finalizing the license
and meeting othergovernmental requirements before we
begin ramping production and delivery of vehicles from
Shanghai,” the company said in a statement.
The electric car maker’s net income attributable to com-
mon shareholders was US$143-million, or 78 US cents a
share, for the third quarter, compared with US$311-million,
or US$1.75 a share, a year earlier.
Excluding items, Tesla posted a profit of US$1.86 a share.
Analysts were expecting a loss of 42 US cents a share.
However, revenue fell nearly 8 per cent to US$6.30-billion
in the quarter ended Sept. 30. Analysts had expected reve-
nue of US$6.33-billion, according to IBES data from Refinitiv.REUTERSTESLA (TSLA)
CLOSE: $254.68, DOWN 90 US CENTSTeslasharesjump
afterautomakerposts
profitablethirdquarter
AKANKSHARANA
TINABELLONAlberta has scrapped two government schemes aimed at
drawing petrochemical investment to the province, but is
keeping Phase 2 of its $1.1-billion petrochemicals diversifica-
tion program.
The change means the end of the petrochemical feedstock
infrastructure and partial upgrading programs implemented
by the previousNDP government.
Energy Minister Sonya Savage said Wednesday they were
too financially risky for Albertans, relying as they did on
grants and loan guarantees.
Round 2 of the diversification program was announced
last year. The April election put the program on ice, with only
$150-million of the $1.1-billion in available royalty credits
confirmed up until this week.
Associate Minister of Natural Gas Dale Nally said the prov-
ince would now move quickly to examine and approve new
petrochemical diversification projects under Phase 2 of the
program.
His ministry will also seek industry input on the diversifi-
cation program in the coming weeks.
The program supports privately funded large-scale pro-
jects by providing royalty credits to companies that build fa-
cilities to turn ethane, methane and propane feedstocks into
products such as plastics, fabrics and fertilizers.
Royalty credits, which Ms. Savage called “a beautiful
mechanism to incent” industry investment, are issued once
projects become operational.
“This program has demonstrated success in developing
projects in a financially responsible way with private indus-
try taking the lead,” she said. “We will continue to ensure Al-
bertans come first while we attract new investment.”Albertacontinues
diversificationplan
whilescrappingtwoother
petrochemicalsprograms
EMMAGRANEYGATINEA4Cannabis companyHexo Corp.says it is post-
poning its fourth-quarter earnings release as it announc-
es a $70-million private placement of convertible deben-
tures led by a group of investors, including its chief
executive.
The Gatineau-based company says that in light of this
financing and additional time needed to finalize its year-
end filings, Hexo will push back its earnings release to
Oct. 28 and its conference call to Oct. 29.
Hexo says in a release that it has entered into sub-
scription agreements with a group of investors, including
chief executive Sébastien St-Louis, directors and other
long-term shareholders, that have agreed to purchase on
a private placement basis $70-million of unsecured con-
vertible debentures of the company.
The company says it intends to use the net proceeds
of the private placement for working capital and general
corporate purposes.
After closing, the debentures will bear 8-per-cent in-
terest and mature three years after its issuance, and after
one year will be convertible into common shares of Hexo
at a conversion price of $3.16. Shares of Hexo closed at
$3.51, up 3.5 per cent, in Toronto on Wednesday.
Hexo was scheduled to release its fourth-quarter and
full-year results on Oct. 24.THE CANADIAN PRESSHEXOPOSTPONESEARNINGSCALL
AMID$70-MILLIONFINANCING