The path forward on the US-China technology competition

Econography

February 17, 2022

The way forward in the US-China technology competition

Well
Clit R. Willems

U.S. politicians are currently faced with key economic choices that will significantly affect the outcome of US-China technology competition. This includes deciding on China’s competitiveness legislation, how to expand economic relations with the Indo-Pacific countries, and how to resolve problems over U.S. major technology platforms.

It is important that U.S. policymakers fully appreciate the broader context in which these decisions will be made. The competition between US and China technologies is not limited to economics. Its outcome will directly affect U.S. national security and may even affect how we enjoy the freedoms we take for granted today.

Simply put, the U.S. and Chinese governments have very different views on how to use the technology, and the winner of the competition will have good opportunities to spread their views around the world. In general, U.S. policies protect and nurture a system that promotes free markets, free flow of information, and freedom of expression, even if the particular policies pursued differ over time. On the contrary, the Chinese government focuses on strengthening control over the economic and personal decisions of its citizens by controlling daily communications and movement, and does not hesitate to promote propaganda or censorship.

The Olympic Games vividly illustrate this difference in worldviews. The United States Olympic and Paralympic Committees have deemed it necessary to instruct their athletes to use “vodka phones” to avoid scrutiny by government officials while in China and download malware that will monitor them at home.

In 2022, China will host a groundbreaking meeting of the party congress to decide whether to extend Xi Jinping’s leadership and redouble its current policies. Most analysts expect President Xi’s rule to continue and the state’s repression of technology. Increasingly regulating China’s domestic technology sector, President Xi is seeking to eliminate diffuse centers of power that could challenge the CCP, and to put more control over the major technology companies and the data they possess. At the same time, China continues to support indigenous innovation and seeks to give its companies an edge over competitors through more confident forms of projection of diplomatic power.

2022 will also be a key moment for US trade and technology policy. In the coming months, Congress will decide how to deal with China’s competitiveness legislation, the administration will complete details of its Indo-Pacific trade agenda, and both will assess concerns about the size and activity of major U.S. technology platforms. Both Democrats and Republicans should depoliticize these issues and view their political choices through the prism of strengthening U.S. economic and technological competitiveness with China.

Adopt bipartisan legislation on China’s competitiveness

In recent months, the US House of Representatives and Senate have passed versions of China’s competitiveness legislation. This legislation aims to increase government incentives to promote innovation in key technology areas such as semiconductors, quantum computing, 5G and synthetic biology, among others. Both versions of the legislation also aim to increase the resilience and reliability of supply chains through partnerships with key allies around the world.

Finalization of the legislation should be a simple solution, but the prospects for its speedy completion are becoming less likely due to the actions of both parties. Democrats in the House of Representatives conducted a party process to develop key elements of the bill, such as trade components. Their strategy exacerbated tensions between the parties and yielded poorly designed proposals that could undermine U.S. competitiveness, such as an awkward outbound investment mechanism or efforts to raise tariffs on low-cost goods. As for Republicans, many seem to focus on gaining political points rather than passing legislation, calling the legislation “weak against China” without offering a viable alternative.

To move forward, Democrats must abandon party elements of the House of Representatives in favor of a two-party Senate approach. The Senate bill will cut costs for U.S. businesses through targeted tariff cuts, provide new tools to counter China’s censorship, and promote a much-needed digital commerce program. For their part, Republicans need to be prepared to support many of the same trade policies and supply chains they have championed over the past few years, even if some are also supported by the current Democratic president.

Promoting a real Indo-Pacific trading strategy

China’s effective strategy also requires an active trade policy, especially in the Indo-Pacific region. Domestic investment is important, but policymakers cannot ignore the growth opportunities that give American companies and working consumers living outside of America. Additional access to these opportunities is critical to U.S. long-term economic health, and establishing norms for economic engagement with China is critical to upholding American values.

China’s recent assertion in the Indo-Pacific region has further reinforced the need for U.S. action. China’s many years of efforts to promote the Regional Comprehensive Economic Partnership (RCEP), a regional trade bloc that will further link its supply chains with Australia, India, Japan and eleven other countries, were successfully concluded with the entry into force of the agreement earlier this year. In addition to the damage, China is also seeking to join the Comprehensive and Progressive Trade Agreement on the Trans-Pacific Partnership (CPTPP), a trade agreement that the United States initially championed under the Obama administration but later withdrew.

In the absence of a credible U.S. alternative, China’s efforts to join these agreements threaten to exclude American business and workers from the region and undermine our ability to advance our economic model and values ​​by bringing other economies closer to China.

The Biden administration’s Indo-Pacific Economic Framework (IPEF) has potential, but is now projected unlikely to be a viable alternative to China. The framework is limited to trade provisions limited in digital information, labor, environment and competition, instead of a much wider range of provisions covering market access, intellectual property and services, and these are just a few. Lack of market access is of particular concern, and if not changed, could eventually overthrow the initiative. Countries vulnerable to Chinese influence may be reluctant to face China’s anger by joining the U.S. alternative, which is much narrower and less substantial than what China offers. To address this issue, the United States should either make the IPEF more ambitious or reconsider the ill-conceived idea of ​​withdrawing from the CP-TPP and instead seek to reconsider its terms.

Avoid punitive measures against American technology

Both Democrats and Republicans are raising legitimate concerns with U.S. technology firms, including their size, political bias, and big role in misinformation. However, many of the policy responses under consideration appear to be punitive rather than aimed at solving real problems. What’s worse, some of the answers will put the U.S. tech industry at a structural disadvantage compared to China’s national champion firms.

The problematic bill now passing through Congress is the U.S. Innovation and Election Act online. This would impose US companies unilateral mandates to share data, while giving Chinese companies preferential access to American technologies and systems. This is not rhetoric: the bill requires U.S. companies to give foreign competitors the ability to “access or interact with … operating systems, hardware, or software” owned by U.S. companies. At the same time, the vague wording of “self-sufficiency” will force American firms to prefer content and applications from foreign competitors. This will cause firms to prevent platforms from providing the vertically integrated security services needed to protect U.S. infrastructure from foreign cyber threats. Many politicians have suggested going further and “smashing” Big Tech.

As an alternative to this “anti-competitive” day program, policymakers should use targeted tools designed to address real-world problems. If consumers are affected by the size of these companies, states should continue to consider antitrust cases, using existing laws to address the problem. When it comes to content, Congress must promote an “anti-censorship” agenda that ensures that Conservative votes are not overly silenced. A good starting point would be legislation (1) that requires technology platforms to ensure full transparency of their standards for banning content; (2) requiring regular reporting on the implementation of this policy; and (3) imposing fines for significant deviations from these standards.

2022 will be a critical year for US and Chinese competitions. It is important that American politicians develop working solutions to develop effective legislation on China’s competitiveness, a successful trade program in the Indo-Pacific region, and to address the challenges posed by high technology. Ultimately, US economic viability, national security and values ​​depend on it.


Clete Willems is a non-resident senior researcher at the Center for Geoeconomics of the Atlantic Council and is a partner of Akin Gump Strauss Hauer & Feld. Mr. Willems previously served as Deputy Director of the National Economic Council.

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