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Intel Corporation

2200 Mission College Blvd.


Santa Clara, CA 95054-1537

September 6, 2018

Ambassador Robert Lighthizer


Office of the United States Trade Representative
600 17th St NW
Washington, DC 20006

Submitted via the Federal eRulemaking Portal: http://www.regulations.gov

Re: Notice of Action and Request for Public Comment Concerning Proposed
Determination of Action Pursuant to Section 301: China's Acts, Policies, and
Practices Related to Technology Transfer, Intellectual Property, and Innovation
(Federal Register Notice of July 17, 2018; Docket Number USTR–2018–0026

Dear Ambassador Lighthizer:

Intel Corporation (“Intel”) appreciates the opportunity to submit comments on USTR’s proposal
to impose tariffs of 10% or 25% on an additional $200 billion in commodity imports from China
as part of its Section 301 investigation into unfair acts, policies and practices of China.

Introduction

Headquartered in Santa Clara, California, Intel is the world’s leading semiconductor company.
Intel engineers push the limits of physics every day. Our processors, memory and other
technologies power the cloud and billions of connected devices around the world.

In 2017, Intel’s R&D and capital expenditures amounted to $24.9 billion, and we were the third
largest R&D spender in the world. The majority of Intel’s R&D and advanced manufacturing is
in the U.S. where we directly employee more than 50,000 skilled workers in R&D centers; state-
of-the-art wafer fabrication facilities in Oregon, Arizona and New Mexico; and at our other sites.
Intel’s supplier and partner network supports an additional 500,000 American jobs.

Intel’s products are the building blocks of our information economy and are instrumental in
emerging fields such as artificial intelligence, autonomous vehicles and 5G networks. Our
processors provide the brains in the servers and data centers that power the digital infrastructure
of the United States. To be competitive in this global environment, Intel depends heavily on the
ability to (i) ship products across international borders quickly and cost-effectively, and (ii)
generate significant revenue from sales overseas that sustains operations at home.
Tariffs on the Proposed List 3 Items Imported from China Are Counterproductive

In its July 17th Notice, USTR asked for input on “whether imposing increased duties on a
particular product would be practicable or effective to obtain the elimination of China’s acts,
policies, and practices.” The answer is no, especially for desktop and laptop computers, servers,
broadband gateways, and printed circuit boards (HTS 8471.50.01, 8473.30.11, 8473.30.51,
8517.62.00). Consistent with the statements we made in our comments submitted in response to
USTR’s June 15th Federal Register notice (Docket Number USTR–2018–0018), imposing
additional tariffs on these Chinese origin technology products will not change the behavior of the
PRC government because most of these products are developed by U.S. affiliates in China.

The List 3 tariffs, which could potentially increase from 10% to 25% of $200 billion worth of
Chinese-origin products, were proposed as a result of China imposing retaliatory tariffs on U.S.
origin products in response to USTR’s List 1 and 2 tariffs. The proposed List 3 tariffs were not
developed with an intent to reduce or eliminate unfair trade and industrial practices that China
may be using, nor will these additional tariffs be practical or effective in doing so.

Instead, if implemented, the List 3 tariffs would result in widespread harm to the U.S. economy
as they target both consumer products (e.g., digital processing units and transmission devices)
and components that are incorporated into consumer products (e.g., printed circuit boards,
network equipment such as routers and switches, and optical fiber cables). Moreover, the tariffs
would stifle advancements in our telecom infrastructure, including next generation technologies
like 5G, and thus may slow down its adoption and heavily anticipated benefits. Lastly, the tariffs
also would negatively affect U.S. businesses, both large and small. The negative consequence
would be much greater than with List 1 or 2 because almost every vital product and part used in
ICT manufacturing and services is included in the scope of List 3.

These consequences cannot be significantly mitigated, either because there are no other sources
for the affected products and parts outside of China or because it is too expensive to relocate
established and integrated supply chains.

I. Proposed List 3 Tariffs Would Harm U.S. Consumers

With the two prior tariff lists, already in effect, the Administration was able to avoid creating any
significant impact on consumers. However, consumers can no longer be protected now that the
value of imported commodities subject to tariffs is being quintupled from $50 billion to a total of
$250 billion. In other words, proposed List 3 is a game changer for the American consumer--
especially if the tariffs are increased from 10 to 25%. A wide array of technology products and
parts will now be subject to tariffs if List 3 is finalized as is.

In today’s marketplace common household products such as cell phones and household internet
routers (HS 8517.62.00) integrate “digital processing units” and “transmission devices” that are
on List 3, including for instance the cameras integrated into smartphones and laptop computers
(HS 8525.80.30). Imposing tariffs on such digital devices ultimately will increase their cost to
consumers. In addition, the printed circuit board assemblies (HS 8473.30.11) also included on
List 3 are important components of consumer electronics, including, but not limited to cell
phones, laptops/desktops computers, and “Internet of Things” enabled home appliances.

2
Proposed List 3 also would impose tariffs on components that are integrated into finished
consumer products. Such components include printed circuits assemblies (HS 8473.30.11), parts
of automatic data processing (ADP) machines (HS 8471.60.10, 8504.40.60, 8471.80.10,
8537.10.91), and electrical cable for networking (HS 8544.42.20), which are used in desktop
computers, laptops, Wi-Fi routers for networks in homes, and cable boxes. In summary,
proposed List 3 is so broad and encompasses so many information, communication and
technology (ICT) products that significant consumer harm is unavoidable.

An economic assessment published by the Consumer Technology Association finds that a 25%
tariff on just the printed circuit assemblies (HTS 8473.30.11) and wireless telecomm equipment
(8517.62.00) will increase the price of final consumer goods using these components by about
6%.1 Other research on the economic effects of the proposed List 3 tariffs is underway.

II. List 3 Tariffs Would Harm the Critical U.S. Telecommunications Infrastructure

The ICT products included on proposed List 3 integrate numerous components that enable data
to be processed and disseminated via the internet. List 3 would capture all smart or
interconnected devices that respond to or reproduce any voice or image data, as well as all
telecommunications equipment that relies on gateways, modems, and routers which serve as the
primary devices that enable internet connectivity among U.S. households and businesses.

For example, “digital processing units” (HS 8471.50.01) includes desktop computing terminals,
laptop computers, and some servers that are vital components of our digital infrastructure.
Moreover, digital processing units form the backbone of the data centers that power the U.S.
technological infrastructure. More specifically, “printed circuits” (HS 8534.00.00) and “printed
circuit board assemblies” (HS 8473.30.11) are the basic building blocks of the internet’s
infrastructure, as they house and process data within data centers and server based “cloud”
platforms. And “transmission devices” (HS 8517.62.00) cover radio base stations and switch
units, which connect wireless devices to wireless networks. More broadly, automatic data
processing (ADP) machines refer to another wide array of connected hardware that automatically
obtains, stores, manipulates, and/or transfers data. Thus, List 3 affects many components of our
telecommunications infrastructure.

Today’s American economy relies on the U.S. digital infrastructure to power our homes,
government, educational system, large businesses, and small and medium sized enterprises
(SMEs) across the country in ways that increase productivity and innovation. The increased costs
of ICT products from the proposed tariffs will adversely impact the ability of these beneficiaries
around the country to upgrade their ICT equipment and information technology networks.

In brief, the broad List 3 tariffs will make updating and expanding the U.S. digital infrastructure
to use new technology applications significantly more expensive as a time when America can ill
afford to fall behind in telecom services. Next generation technologies such as “5G” wireless
technology are critically important to maintain U.S. industrial competitiveness for years to come
as they will bring advancements in transportation, industrial automation, digital health care
applications, smart city infrastructure, and other network-based innovations in Artificial

1
“Estimated Impacts of Proposed Tariffs on Imports from China: Printed Circuit Assemblies and Wireless
Telecommunications Accessories,” Prepared for the Consumer Technology Association (August 6, 2018).
3
Intelligence and computing capabilities such as virtual and augmented reality platforms. These
advancements are poised to provide increased innovation, more significant productivity benefits,
and greater operational capability from enhanced data processing functionality.

To implement “5G” wireless capability, however, U.S. business and governmental authorities
will need to make major investments in modernizing their digital infrastructure (e.g. servers,
telecommunication networks, and routers). Taxing the network equipment composed of many
computing and communication devices needed to deliver the 5G benefits will slow down the
pace of technology adoption across the U.S. economy, causing American firms and institutions
to fall behind foreign competitors outside of China that are not subject to the same tariffs.2
According to one study, the U.S. today trails China and Korea in 5G readiness when measured
by spectrum and infrastructure policies, industry investment, and overall government support.3
Tariffs on the products and components needed to upgrade computing hardware and
telecommunication networks will handicap the U.S. in 5G implementation, and as a result, may
provide the opportunity for other countries like Japan and Great Britain to leapfrog the U.S. in
the race for 5G leadership.

III. List 3 Tariffs Would Undermine U.S. Industry’s Competitiveness

Studies abound that show how lower prices for ICT products have led to much greater demand
and use, resulting in significant gains in GDP due to productivity increases.4 As noted earlier,
much of today’s modern economy is anchored by electronic based platforms. So cost effective
access to computing products is more important than ever before. Small and medium size
enterprises across the economy utilize ICT products (e.g. routers, computers and servers) to run
their day-to-day business. ICT products and services manage payroll, inventory, and tax
systems, which are connected to a wide array of enterprise and government systems via a
complex digital infrastructure made of computing and telecommunications systems.

USTR Lists 1 and 2 already have levied 25% tariffs on microprocessors, memory modules, and
integrated circuit memory devices that are critical to ICT products used by every business, both
large and small. List 3 would add an additional 10% to 25% tariffs on yet many more ICT
products and components that will further increase the overall cost of computing and
communications to all industries.

2
See, e.g., “Why Tariffs on Chinese ICT Imports Threaten U.S. Cloud Computing Leadership,” ITIF, September 4,
2018 (“Lower profits [as a result of the tariffs] would lead to less investment in new data centers or research and
development needed to stay ahead of international competition.”); available at
https://itif.org/publications/2018/09/04/why-tariffs-chinese-ict-imports-threaten-us-cloud-computing-leadership.
3
Steve Pociask, “The Global Race for 5G Technology is On, And It’s Not Looking Good” (April 17, 2018);
available at https://www.forbes.com/sites/stevepociask/2018/04/17/the-global-race-for-5g-technology-is-on-and-its-
not-looking-good/#7717a54c555b (citing to David Abicassis, Chris Nickerson, and Janette Stewart, “Global Race to
5G—Spectrum and Infrastructure Plans and Priorities,” Final Report for CTIA (April 2018); available at:
https://api.ctia.org/wp-content/uploads/2018/04/Analysys-Mason-Global-Race-To-5G_2018.pdf).
4
See, e.g., https://itif.org/publications/2012/12/16/benefits-ita-expansion-developing-countries (“the World Bank
has found that a 10 percent increase in high-speed broadband Internet penetration adds 1.38 percent to annual per-
capita GDP growth in developing countries. Likewise, a 10 percent increase in mobile phone penetration adds 0.81
percent to annual per-capita GDP growth in developing countries”).
4
In today’s marketplace, computers have become essential business tools.5 They are used in
every aspect of a company's operations, including product creation, marketing and
administration.6 Tariffs will raise costs for U.S.-based technology companies that manufacture
ICT products such as desktop computers, laptops, and servers--thus decreasing their
competitiveness. The overall effect of the additional tariffs on computer and communications
products would be to drive down demand for these ICT products, which would lower overall
economic productivity and shrink revenues for U.S. technology companies selling the affected
products. The immediate impact would surely be felt by U.S. ICT products producers like Intel
and its downstream consumers. Thus, as several economists concluded with regard to tariffs on
technology components generally, “Rather than hitting the administration’s intended target—
Chinese firms that may have unfairly obtained American technology—the proposed tariffs would
actually inflict damage on U.S. high technology sectors.”7

More broadly and in the longer term, the proposed tariffs of 10 or 25% on computer and
computing products and components from China would become a significant tax on U.S.
businesses generally given their extensive reliance on technology. Some of the additional costs
likely will be passed down the supply chain via price increases to businesses and consumers.
Nearly half of the American workforce is employed by small businesses,8 and these enterprises
must have access to affordable sources of computing products to maintain their competitiveness.

Any part of the costs from tariffs that could not passed down due to its impact on decreased
demand would be absorbed by manufacturers of ICT products, and the drop in profit they would
experience from both reduced demand and increased costs would naturally result in a reduction
of their R&D investments to develop new technologies.9 As one study found, “Raising the cost
of ICT products by levying tariffs on ICT imports from China would reduce growth in U.S. ICT
investments, which would lower productivity growth, and thus economic growth.”10 Overall, less
R&D investment in fundamental U.S. technologies like semiconductors and downstream
innovations may result in ceding U.S. competitive advantage to foreign ICT competitors located
in places like Taiwan.

5
Among all Americans, 85% think that having a detailed understanding of how to use computer technology is very
or extremely important for workers to be successful in today’s economy. See Table 1 in Appendix and
http://www.pewsocialtrends.org/2016/10/06/the-state-of-american-jobs/.
6
E.g., Steven L. Alter, “How Effective Managers Use Information Systems,” Harvard Business Review (November
1976); available at https://hbr.org/1976/11/how-effective-managers-use-information-systems.

7
See Lovely, Mary and Yang Liang, “Trump Tariffs Primarily Hit Multinational Supply Chains, Harm US
Technology Competitiveness,” Peterson Institute for International Economics (May 2018) (The lion’s share of U.S.
imports in these sectors originates in Chinese-based affiliates of multinational firms, not Chinese firms.”); available
at https://piie.com/system/files/documents/pb18-12.pdf (emphasis added).
8
U.S. Small Business Administration; https://www.sba.gov/sites/default/files/OER_2017_Annual_Report.pdf.
9
See http://www.icinsights.com/news/bulletins/Top-10-Semiconductor-RD-Spenders-Increase-Outlays-6-In-2017/.
10
Robert D. Atkinson, Stephen J. Ezell, and J. John Wu, “Why Tariffs on Chinese ICT Imports Would Harm the
U.S. Economy” (March 2018).
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IV. Global Supply Chains Cannot Be Easily Changed

We understand that the Administration may have drafted List 3 under the assumption that many
of the listed products could be sourced from countries other than China. This assumption fails to
take into account the realities of how the U.S. ICT industries operate—i.e., they are heavily
dependent on global supply chains to produce goods and deliver services cost effectively and
according to local needs. Global diversification of lower value operations also is necessary from
a risk management perspective.

As we pointed out in our comments on List 2, assembly test plants cannot be moved overnight.
Not only is it extremely expensive to move such a plant, doing so would disrupt an ecosystem of
customers and contractors that has been developed over decades to provide customized and cost
effective products with time to market advantages. Moreover, we note that semiconductors are
America’s fourth largest export, and our industry has a global trade surplus of over $6 billion and
a surplus with China of close to $2 billion in 2017.11 Thus, we are puzzled as to why the
Administration may be using tariffs in part to re-engineer global ICT supply chains that have
served U.S. companies so well.

Lastly, given the breadth of proposed List 3 tariffs we note that even low margin parts assembled
in China, like printed circuit assemblies, would be taxed. Tariffs on such boards would drive up
the costs of the high end ICT manufacturing and assembly operations in the United States that
import them to complete their computer systems. Ironically, then, the effect of proposed List 3
may be to induce the few remaining domestic high end ICT manufacturing and assembly plants
out of the U.S. where such operations would be cheaper.

Conclusion

The List 3 tariffs will not be effective in eliminating any Chinese unfair trade practices or
industrial policies. Instead, imposing increased tariffs on ICT products such as desktop and
laptop computers, servers, and printed circuit boards would effectively tax consumers and
businesses, creating a chain of negative consequences. In addition to increased prices for
consumers and businesses, the consequences from such broad based tariffs would include
decreased demand for essential technologies resulting in slower upgrades to our critical telecom
infrastructure; reduced innovation due to lower use of ICT products and less R&D investment by
technology companies; and diminished productivity gains realized from regular access to
affordable, leading edge computing products. Intel thus recommends that before USTR proceeds
with List 3, it carefully examine the effects of the tariffs it already has implemented and evaluate
how well they have addressed and resolved the findings of the Section 301 Report.

Sincerely,

Greg R. Pearson
Global Policy Officer and Senior Vice President
General Manager, Corporate and Government Affairs

11
Official U.S. government trade data obtained from Dataweb: https://dataweb.usitc.gov/.

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Appendix

The data in Table 1 below shows the importance of computers to business at large.

Table 1