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Economic Reform Can Defend Against Counterfeit ICs

In addition to nearly $600 billion in trade deficits that have resulted from free trade policies, the counterfeit electronics entering the United States supply chain from China has become a national security threat.

Initially, the US manufactured all defense-related products at home, while building consumer electronics in China to capitalize on low labor costs. The progression to advanced transistor technology, however, required increasingly large investments on the part of defense contractors that manufactured semiconductor wafers in the US.

Hence, several independent and for-profit defense contractors based in China started making use of Chinese-built ICs for military weapons such as missiles, machine guns, and drones. The state-of-the-art infrastructure and technical know-how to make advanced technology products have also been transferred to China.

China is now flooding the US defense supply chain with counterfeit ICs. The Government Accountability Office (GAO) claims that 40 percent of the US Department of Defense's supply chain is undermined by fake or defective parts. It has become very expensive to mitigate introduction of counterfeits into the US supply chain, and it is cutting into the profits of US defense contractors.

There is no solution for the twin budget and trade deficits under the exploitative free trade scenario. The US cannot afford to run year-over-year budget deficits. To protect its sovereignty, it needs to reexamine its internal economic policy, as well as its foreign policy.

We need to restore the US manufacturing supply chain to ensure a sustainable economy, eliminate budget and trade deficits, balance consumer demand with supply, and have the 99 percent own 99 percent of the wealth through mass capitalism.

This would ensure that wages of hard-working Americans catch up with their productivity. This would establish a free market economy ensuring that supply and demand rise and fall with minimal government intervention. Additionally, such a system would establish a balanced economy without running any trade deficits and budget deficits.

This EBN article is based on my thoughts on restoring the US manufacturing supply chain. Share your thoughts below.

24 comments on “Economic Reform Can Defend Against Counterfeit ICs

  1. Nemos
    July 26, 2013

    I believe economic reform must be in every productive country that its economy based on manufacturing. You mentioned in the article about “fake or defective parts” I would like to ask you how a part can be sold as a fake? Also to note here, considering the defective parts that the supply chain must develop a system that will be possible to recognize any possible defect of the part. Have in mind that in the coming years OEMs will have to enforce their supply chain with recycled parts. 

  2. apek
    July 26, 2013

    Glad that you atleast believe that economic reforms are necesarry in every countRY. A part cannot be sold as fake but as Failure Analysis engineer for Micro-electronics company, we deal with counterfeits and whole industry is worried about counterfeits. I would recommend you to also read the articles in my post which have hyperlink. Fake chips cannot be sold but when it is easy to introduce a 100 defective parts in a batch of million parts…in order to screen million parts, it requires countless man hours and hence in most statistics these fake chips may never get detected. Forget the detection of these fake chips….My recommendations go above and beyond mitigation of counterfeits in balacing the SUPPLY and DEMAND of economy. Counterfeits are just a by-product of the FREE Trade practices which has shifted manufacturing to LLCs. Also, I would also like companies going green but US cannot enforce its laws in China. If you would ahve attended ISTFA 2010 in DALLAS,TX, the key note speaker gave a photo guided tour of extent of counterfeiting that goes in mainlan China which is supported by Chinese government.

  3. hash.era
    July 26, 2013

    @NEMOS: Good point but the issue occurs when we try to fetch the data of those fake items. Its not easy to track down the items. A constant monitoring will be helpful but Im not sure how it can be done since the number of users are huge.    

  4. apek
    July 27, 2013

    Supply chain has become too much distorted with sub contractors in supply chain and it is seriously threatening the whole economy. Hence, I suggest to restore the economy and eliminating the trade deficit through fair trade practices would not just eliminate counterfeits but it will also create 6 million jobs in US paying 100k salary per year….well…we also have a jobs crisis presently in US.

  5. ahdand
    July 27, 2013

    Eliminating is a good option indeed and it will help the economy in a great deal for sure but how to identify them and make sure is the difficult part here.          

  6. apek
    July 27, 2013

    In my article ” Mitigation of Counterfeit Electronics through Macro-economic Policies” published in EDFAS journal, I have put that control in hands of Americans. Firstly, When you can eliminate the source of counterfeits, the effort spent in detection is far too low.  Now, If US imposes import duty on cheap Chinese goods which are dumped into US, then US manufactured goods would be competitive compared to their chinese counterparts. This policy would not just preserve manufacturing jobs in US but if there are incidences of counterfeiting by Chinese suppliers, American consumers would refuse to buy Chinese goods. This would automaticlaly force the suppliers to mitigate introducing counterfeits into supply chain. A good economic reform can go long in eliminating so many unnecessary problems created for short term micro-economic profits at the expense of Macro-economic disasters in the long run.

     

  7. hash.era
    July 27, 2013

    @nimantha.d: Yes its kind of impossible but that has to be done at some point if they want to go forward in making this a secure place. Nothing is impossible if you put your heart into it.              

  8. Lavender
    July 28, 2013

    Every country faces the problem of counterfeit IC. And before the parts from China entering into the US, there must be examination, then how the 40% of counterfeit IC in your article comes from and what's the cause?

  9. apek
    July 28, 2013

    Here is the history….as I have told you over last 40 years China has become the Walmart of the world….a manufacturing base of every developed country. This crony capitalism which is based on short term profits has resulted in depletion of American manufacturing. Wall Street investors have encourages most businesses to offshore high paying manufacturing jobs from US. During 1960s and 1970s offhoring of jobs was still going on. Semiconductor jobs were first set of jobs to be offshored to Asia (Japan). At that time since the taxstructure in America was still progressive with high taxes on riches Americans, the taxes like payroll, social security, sales tax were lower on rest of the coutry…hence the consumer purchasing Capacity of Middle class America was very high. As people had a high spending power…the domestic demand in US did not hurt so much initially. Everything changed after Reagan under the guidance of cronies enacted tax cuts for the wealthy…and that resulted in huge budget deficits. Reagan advisors knew that the deficits have come from tax cuts…but to compensate for the deficit…Reagan instead raised taxes like payroll tax, social security tax and sales tax which fall on middle class America [Regressive tax structure] to pay for the budget deficit. Since, Reagan's Socialism (Wealth redistribution) we have obserbed that Americans have started living under huge debts…while budget deficit has continued to soar from those tax cuts…the trade deficits are something that no one talks about.Today American consumers are so impoverished that they have to buy cheap chinese items…they perhaps will not be able to afford things manufactured in US. As China has become a manufacturng base for US, Chinese government know that as long as FREE trade continues…they can slowly and steadily bankrupt America by making US more and more indebted to China. There is no choice for America unless it stops its free trade with China and imposes import duty on cheap chinese goods. When you have no domestic manufacturing and corrupt polical process ( Lobbying) , US has no control over the counterfeits dumped into China….virtually every MNCs has sent high tech anufacturing to Asia and this is where 40% of counterfeits in US Military come from and it is very difficult to stop them as the counterfeiters are getting better at their job. This is a unnecessary drag on US economy. US has aso lost its leverage in other internatonal policies. China is virtually controlling the US economy, its domestic and foreign policies. I was reading on Huffington post today about 80% Americans living under poverty and underemployment. I would recommend you to read the following articles which I have authored:-

    http://www.semiwiki.com/forum/content/2554-globalization-semiconductor-manufacturing-industry.html

    http://www.truth-out.org/news/item/14887-a-failure-analysis-of-the-us-economy

    http://truth-out.org/opinion/item/16944-loss-of-us-dominance-in-global-electronics-and-semiconductor-industry-causes-revival-solutions-and-associated-us-economic-growth

    There is one professor who has 5 National best sellers in US. I met him in Dallas and I also interviewed him as he received Gold medal from Italian Senate for correctly predicting the Collapse of Soviet Communism 15 years before it occured. He also predicted in 1978 that US economy would go under depression because of Crony Capitalism. You might consider listening to that interview as well…it is very informative and I specially requested the Radio station to provide me with recording after I interviewed Professor Ravi Batra from SMU, Dallas

    http://apekmulay.com/apek-interviews-professor-ravi-batra-on-radio-station/

  10. cameron
    July 29, 2013

    Apek,

           I appreciated your post on the article “Economic Reform can Defend Against Counterfeit IC's” as I use to sell to military customers back in the 90's and early 2000's but decided to only sell to commercial companies because I was losing bids from other competitors who were buying stock on military parts in China.

    I do not however believe that your Regan comments and “his cronies” was inaccurate and deem much more of just your opinion.

    Just as a thought…..have you seen what Obama has done to this country as far as military spending  and the disaster he has caused with small businesses?

    As a small electronics company I have seen them. Taxes, health insurance and the hand outs that the unemployed are still receiving are ridiculous. Just my thoughts here but both political parties should try to work together to bring demand back.

    Just one more thought on the counterfeit post here. When I would discuss quotes and orders with military companies like Raytheon, Northrup Grumman, Honeywell and Lockheed Martin and ask them why they would keep buying from certain suppliers that they had so many problems with their response baffled me… they said ” They were the cheapest!”

  11. apek
    July 29, 2013

    Cameron. I am neither Obama fan nor a Reagan fan…only president who did great for America was FDR. I believe what FDR did even if current presidents do 10% of his work …perhaps US would be doing better

  12. apek
    July 29, 2013

    Also, I believe that US needs smaller government, lower taxes on all and balanced economy. But, If all these are needed…we need to reform economy towards Economic Democracy with Economic Decentralization. We cannot have low taxes on all in a centralized economy. Hence, What Republican politicians want to good but they are hurting the american consumers in trying to achieve that dream in a Centralized economy. I am authoring my next article on restoring USD to Gold standard and having balanced economy with lower taxes and smaller government but with economic decentralization and economic democracy. Let me know if you are aware of any good media which would consider publishing such a novel concept. I dont think any publication would easily accept such brand new ideas.

  13. elctrnx_lyf
    July 30, 2013

    Apek, I appreciate your energy to share so many valuable details here. There is no wonder why US is still depending on China that can make USA full of unemployment. Instead US should reduce the free trade with china and start doing something for the home. I believe atleast India is doing little better with PMA but there is objections from countries like USA.

  14. Hailey Lynne McKeefry
    July 30, 2013

    @Cameron, your last point is interesting… the goverment isn't largely known for worrying about prices… and you would think that, especially with things as critical as aerospace and military equipment, that quality and caveat emptor would be key ideas.  Do you think this is something that has always been true or is it becoming more true now than before?

  15. SunitaT
    July 31, 2013

    Was there no inspection process before delivery of the IC? If there is investigation process, how 40% counterfeit or defective ICs could enter US? If there are so many defective parts, US should stop the business with China.

  16. ahdand
    July 31, 2013

    @electrnx: I don't think that US has to depend on any country. True China has a good market for manufacturing but still they don't do it for free of charge.

  17. SunitaT
    July 31, 2013

    I think US has made a big mistake by investing in foreign markets, mainly for wanting to settle for a lower price. The article explains that this flooding of the supply chain can be overcome by being independent, both in cost and kind. It must accept indigenous parts like before, to avert such security crisis.

  18. apek
    July 31, 2013

    Thank You to the ones who support my views. I personally believe…Globalization has been one of the biggest mistakes. I believe in Free Markets but I also belive in Balanced economy. The whol control of US economy and its Policies is done by few elite who profit at the expense of 99% suffering. But, This process cannnot continue forever…It lead to a bloody revolution in Roman Empire and collapsed the empire. American business empire might see similarfate unless econom is not reformed. But, In order to refrom the economy…political corruption has to be stopped. The Politicans today in US brag that they have raised so many millions in their political campaign…the sad part is that these politicans end up work for those investors who make them political contirbutions rather than for the ordinary AMericans hwo vote for them. This “Corporatocracy” has to be transformed so that there is economic democracy alongwith Political democracy. Please read this article where we have discussed how can this be made possible.

    http://apekmulay.com/an-opinion-corporatocracy-to-cooperatocracy/

  19. cameron
    July 31, 2013

    @Hailey, paying a higher price for good quality parts was important 7-10 years ago. I would say in the last five years these military contractors are all about the cheapest price in my opinion. These same companies are taking an extra 30-45 days to pay these open invoices as well.

    I have witnessed these contractors getting caught buying parts from companies like VisionTech and Tytronix because the price was low and they were looking to pad their wallets. Then they get caught by the US GOVT when the parts are bad and the equipment doesn't work they point the finger at the broker when they knew right well that if a $100 part is being sold at $40 each there is a reason why.

    When will it be time to hold these military contractors and the buyers accountable for THEIR actions?? Don't get me wrong, the brokers that I mentioned above should know better and should not be remarking components in the first place.

    Like the old saying goes, if it's too good to be true it usually is. It just seems that common sense is thrown out the window. This is the main reason why in my opinion my company doesn't sell to these contractors anymore. I hope this answers your quesion Hailey.

  20. apek
    July 31, 2013

    When will it be time to hold these military contractors and the buyers accountable for THEIR actions?? 

     

    @Hailey,

                   Have we held the bakers accountable for their actions after ruining lives of million americans after 2008 crash? No ..in fact…American tax payers bailed out the banks and they ahve become even bigger and stronger. There is no solution until this crony capitalism is brought to an end. No one is going to held the private defense contractors accountable as they work for PROFIT!!!!

  21. Daniel
    July 31, 2013

    “the goverment isn't largely known for worrying about prices… and you would think that, especially with things as critical as aerospace and military equipment, that quality and caveat emptor would be key ideas.  Do you think this is something that has always been true or is it becoming more true now than before?”

    Hailey, for avionics and military high grade qualified components are very much required. Such components are qualified after a series of qualifying tests and performance monitoring

  22. Daniel
    July 31, 2013

    “There is no wonder why US is still depending on China that can make USA full of unemployment. Instead US should reduce the free trade with china and start doing something for the home.”

    Elctrnx, I don't think US is depending on China for any reason. Actually by anti dumping treaty US is trying to keeping Chinese products away from their internal market

  23. Hailey Lynne McKeefry
    August 2, 2013

    @Cameron, thanks, that's very useful. This type of situation really does call for common sense.  In the past, i told my clients, “Cheap, fast, good: Pick two.”  I think the electronics industry might have a corrolary in terms of ICs.

  24. apek
    August 2, 2013

    @Hailey and @Cameron…BINGO!!! This calls for use of Common sense and understanding of common sense when it comes to logic of Supply and Demand as well.  Producers and Consumers are like two wings of a bird. If either of the wings gets hurt, the bird will no longer be able to fly. If that bird is not nursed quickly and properly, it would be disabled and either die from hunger or fall prey to a predator. With the same analogy, both producers and consumers have to prosper for a robust economy. What is happening today is that because of SUPPLY shide economics since 1980…CONSUMER DEMAND has gone down and impovershing Americans has depreciated the domestic consumer demand due to growing wage disparity in US. Unless economic reforms are proposed to increase consumer deamnd through higher wages rather than indebting the consumers, I belive it would bring back the Golden era of Free AMrket Capitalism of 1950s and US would not ahve to do trade with counterfeiters and threaten their own security.

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