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The Sino-American Tech Trap

Feb 01, 2023

Technology is ground zero in the conflict between the United States and China. For the American hegemon, it is about the leading edge of geostrategic power and the means for sustained prosperity. For China, it holds the key to the indigenous innovation required of a rising power. The tech war now underway between the two superpowers could well be the defining struggle of the twenty-first century. 

Huawei, China’s national technology champion, quickly became the lightning rod in the tech conflict between the incumbent power and the wannabe. Feared as the ultimate threat to US telecommunications infrastructure, Huawei has been cast as a modern-day Trojan Horse, complete with a potential backdoor threat in its world-class 5G platform that would make the mythological Helen smile. Supported by tenuous circumstantial evidence – a few espionage charges that have nothing to do with the suspected backdoor, and the presumption of nefarious motives from the long-ago military service of its founder, Ren Zhengfei – America’s case against Huawei is laced with false narratives. 

The real issue in dispute is the murky concept of tech fusion – specifically, advanced technologies’ dual use for military and civilian commercial purposes. The US authorities are convinced that there is no such distinction in China. In their view, China’s state and, by inference, its military, ultimately owns everything that falls under the purview of its tech sector, from hardware and software to big data and the surveillance of those at home and abroad. That is also the essence of the growing outcry over the social-media platform TikTok, which has more than 80 million monthly users in the US. 

Never mind that the US has long practiced its own strain of tech fusion. Over the years, the Defense Advanced Research Projects Agency has spawned many of America’s most important technological advances that have broad commercial applicability. These include the internet, the Global Positioning System, semiconductor breakthroughs, nuclear power, imaging technology, and numerous pharmaceutical innovations, notably COVID-19 vaccine development. Apparently, what’s fine for a (distressed) democracy is unacceptable for a system governed by the Communist Party of China. 

The Huawei threat is the tip of the iceberg in America’s tech conflict with China. The so-called Entity List that the US Commerce Department uses to blacklist foreign companies for national-security purposes has been expanded to include Huawei’s supply chain, as well as a number of Chinese tech companies engaged in domestic surveillance of ethnic minorities in Xinjiang Province. 

At the same time, with the recent passage of the CHIPS and Science Act of 2022, the US has stolen a page from China’s industrial-policy playbook and embraced state intervention to support technological innovation. And last October, a far bigger shoe dropped: The Biden administration imposed draconian export restrictions on advanced semiconductor chips, aiming at nothing short of strangling nascent Chinese efforts in artificial intelligence and quantum computing. 

But America’s tough policies could be self-defeating, because its tech war with China is long on tactics and short on strategy. The US has been quick to grasp the power of the “weaponized network” – the chokehold it can place on critical nodes of cross-border connectivity. That approach, in conjunction with the “friend-shoring” of alliances, has been key to the severe financial sanctions imposed on Russia in response to its invasion of Ukraine. It is debatable, however, that this approach will be as effective in controlling the complex multinational research consortiums and physical supply chains of modern technologies. 

More important, squeezing adversaries does not compensate for the lack of heavy lifting at home. That is especially the case for America, given its surprisingly fragile tech leadership. While the US responded forcefully to technology threats from the former Soviet Union during the Cold War – especially the nuclear-arms race and the Sputnik-induced space challenge – it has dropped the ball since: federally-funded research and development fell to 0.7% of GDP in 2020, far below the peak of 1.9% in 1964. 

Furthermore, in recent years, the US has under-invested in basic research, the pure science that is the seed corn of innovation. In 2020, basic research slipped to 15.6% of total R&D spending, well below its 18.8% peak in 2010. Nor are recent efforts doing much to change that; for example, only 21% of the funding in the CHIPS Act is earmarked for R&D. 

Unsurprisingly, China is on the move. At the turn of the century, it spent just 0.9% of its GDP on R&D, or roughly one-third of the 2.6% share in the US. By 2019 (the latest year for comparable figures), China was spending 2.2% of GDP on R&D, or 71% of America’s 3.1% share. The US has also been lagging in STEM-focused educational proficiency (science, technology, engineering, and math), whereas China is now producing far more STEM PhDs than the US. 

In part, America’s shortfall in the critical foundations of technology leadership – both R&D and human capital – is an outgrowth of the same deficiency of domestic saving that has given rise to chronic US trade deficits. America’s penchant for blaming China for problems of its own making is an excuse, not a strategy. 

China’s more strategic approach is not without its own vulnerabilities, especially concerning AI. While China’s vast reservoir of data implies a huge advantage for machine-learning applications, its advances in this domain ultimately will be stymied without ever-increasing processing power. America’s tactical assault on the advanced chips that fuel China’s AI processing power targets precisely that weak link in the Chinese innovation chain. China gets that, and can be counted on to respond, one way or another. 

In the fifth century BC, the ancient Chinese military philosopher Sun Tzu counseled, “Tactics without strategy is the noise before defeat.” Some 2,500 years later, that advice seems as relevant as ever. Today’s China continues to play a long game, whereas America’s tactical assault on Chinese technology is all about the short game. Trapped in a political system that places little value on strategy, there is no guarantee that the US will prevail in an existential tech conflict with China. 

Copyright: Project Syndicate, 2023.


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