The Biden administration, with broad, bipartisan support in Congress, is poised to launch an all-of-government effort to meet the commercial and security challenges presented by China’s relentless pursuit of global technological preeminence. Advanced technology can be used to spy, extort, sabotage, and conduct warfare, and that makes China’s technological capabilities matters of U.S. national security.
Beijing has been contesting U.S. primacy by funneling hundreds of billions of dollars per year into research, development, and production. It has been underwriting efforts to conduct technology theft on a grand scale. It has been extorting technology and other assets from U.S. businesses, as the price of entry into the Chinese market. And it has been using technology for repressive and other nefarious purposes, including to aggrandize and project its power abroad.
Beijing’s commitment to technological self-sufficiency became apparent during the George W. Bush administration, triggering a rift with the United States that has been widening ever since. China’s “indigenous innovation” policies, compulsory technology transfer requirements, state-sponsored intellectual property theft, discriminatory treatment of “uncooperative” foreign firms, and massive subsidies to technology research, development, and commercialization elicited complaints and demands for resolution from U.S. officials going back to 2006.
A document published that year by China’s State Council titled “The National Medium‐and Long‐Term Program for Science and Technology Development” presented a road map for transforming the Chinese economy into a major innovation leader by obtaining western intellectual property by all means and measures necessary. The blueprint included the goal of dramatically reducing China’s use of foreign technology by promoting indigenous innovation, which would be achieved by giving preferences to companies with products containing intellectual property registered in China, and by developing new technology standards.
As the baton was passed from Bush to Obama in 2009, Beijing unveiled its “Indigenous Innovation Product Accreditation” system, which required companies to be accredited as indigenous innovators or to share their technology in order to participate in China’s procurement market. A chorus of objections from U.S. officials prompted Chinese President Hu Jintao, in 2011, to retract the policy, but analysts were certain Beijing’s commitment to indigenous innovation and technological preeminence would live on through other programs.
In 2014, Beijing published its Guidelines to Promote the National Integrated Circuit Industry, which established a national goal of developing a completely indigenous, vertically integrated semiconductor industry. In May 2015, the Chinese government published a new 10‐year plan called “Made in China 2025,” which is a detailed road map for developing and enhancing China’s technological innovation capacity and followed up with a $160 billion investment to develop the domestic semiconductor industry.
In reaction to Beijing’s aggressive technology policies, the Obama administration and Congress began to consider stricter measures to keep U.S. technology out of the hands of Chinese entities. Reports published in early 2017 from the Government Accountability Office and the President’s Council of Advisers on Science and Technology led to the 2018 passage of legislation to broaden export controls and tighten the rules governing foreign acquisitions of U.S. technology and technology companies. Both the Foreign Investment Risk Review Modernization Act (FIRRMA) and the Export Control Reform Act (ECRA) passed by overwhelming margins in both chambers of Congress.
Xi Jinping and party officials insist that China’s model of state-directed nurturing of the technology sector is consistent with its rights as a sovereign nation, and that U.S. insistence on changing those policies is evidence of America’s interest in containing China and suppressing her rise. Of course, China can choose its own policies. And since it sees technological preeminence as paramount to its objectives, the tactics deployed in service to that goal are not especially surprising. But when China’s policies threaten other countries’ interests or violate international treaties, Beijing should expect consequences.
By enshrining the goal of self-sufficiency in semiconductors and other technologies, and by sanctifying all measures deployed in service to that goal, China long ago committed itself to a course of action that disregards its trade obligations and prioritizes “decoupling” from the United States.
From Technology Race to Cold War
For several years now, Beijing has been unabashed about its objectives and unapologetic about its tactics. But, in fairness, what government wouldn’t pursue technological primacy if it were a realistic possibility? Being king of the technological hill confers all sorts of strategic advantages—commercial, cybersecurity, intelligence, and military—including, perhaps most importantly, a head start in the race to develop the next generation of technology.
For the same reasons, why should Washington be faulted for trying to prevent or slow Beijing’s progress? The United States has in place a system of export controls to reduce the likelihood that fissile materials get into the hands of actors who may wish us ill. Lockheed Martin is prohibited from selling F-35 fighter jets to China. Certain technology in the wrong hands presents threats, too.
Staying ahead of China in the technology race—or getting ahead as the case may be with respect to 5G and 6G—is simply a U.S. national security imperative and must be treated as such. Primacy in the next generation of technology could lock in advantages with very serious security implications for years and decades to come. Preeminence in space technology, for example, may be necessary to protect and ensure the operability of satellite systems, which enable global communications, weapons guidance, and electronic warfare capabilities.
But some seem to focus only on the costs of these defensive U.S. measures. Restricting exports of semiconductors and chipmaking equipment, they assert, will result in lost revenues, declining market share, higher unit costs, and a hastening of the pace of China’s pursuit of self-sufficiency. Yes, those costs are real. But we live in an imperfect world which requires us to account for risk. Security isn’t free.
Policy choices are about tradeoffs—weighing the costs and benefits of the alternatives. When choosing among alternatives, the optimal policy is the one that maximizes the expected net benefits (expected benefits minus expected costs). Analysis that considers only the costs is not especially helpful when seeking to determine the best policy.
It is reasonable to expect this technological decoupling to lead to broader economic, financial, and cultural decoupling, as Beijing and Washington descend more deeply into an adversarial relationship owing to the sanctions and other restrictions that require producers to find new suppliers and new customers. Taken to its logical conclusion, the relationship could easily devolve into conditions best described as a cold war—a characterization that sounds like fingernails on a chalkboard to those who regard the term as self-fulfilling, consider the historical parallels inapt, worry it offers a new excuse for endless defense spending, or fear that adopting type-casted terminology will inhibit the creative thinking needed to find a durable solution.
A cold war doesn’t mean a replay of the Cold War with its proxy wars and political assassinations. But Cold War parallels are in abundance. As with the arms race with the Soviets, technological breakthroughs—being first—confer important strategic advantages. As in the Cold War, today the United States and China are trying to win the allegiances of other governments. Both have and will continue to use carrots (loans, market access, infrastructure investment, etc.) and sticks (sanctions, threats of sanctions, tariffs, etc.) to try to convince third countries where their best interests lie. Recall U.S. threats to stop sharing intelligence with governments that wouldn’t agree to rid their telecommunications networks of Huawei gear. Consider China’s full court press against Australian exports for Canberra’s audacity to suggest a formal inquiry into the chronology of the pandemic.
Meanwhile, the bilateral relationship is already characterized in cold war terms by media and policy analysts who keep score of which countries trade and invest more with China versus the United States, which capital—Washington or Beijing—is making deeper inroads through trade agreements or infrastructure finance projects, who is signing long-term energy deals with whom, and so on.
The recently agreed Regional Comprehensive Economic Partnership in Asia and China’s Belt and Road Initiative are rightly portrayed as evidence of China’s strategic use of soft power to cultivate and deepen ties with other governments. Whether the United States or China is first to accede to the CPTPP (the successor to the Trans-Pacific Partnership after U.S. withdrawal) is a question frequently discussed through the lens of this inevitable competition.
The Trump administration committed many errors in its conduct of trade policy, probably none more significant than its disregard for the utility of soft power in advancing U.S. interests. By pulling out of the Trans-Pacific Partnership, hitting most of the world with tariffs on steel and aluminum, and then waging a trade war with China, the blindness to the necessity of alliances couldn’t have been made any clearer.
As Biden attempts to repair that damage, rebuild frayed alliances, and perhaps assert its interest in closer ties with African governments, it necessarily will be reinforcing divisions with China and creating new fronts in the cold war. A United States offering preferential trade deals, granting export credits to governments in Latin America to build telecommunications and transportation infrastructure, approving acquisitions of U.S. companies by businesses headquartered in favored countries, and revoking preferential treatment of imports from countries whose governments are considered too cozy with Beijing is how this cold war will be waged.
Biden administration officials haven’t been shy about their hopes of working with allies to present a unified front against China, but the depth of receptivity to Biden’s overtures remains to be seen, as most governments don’t want to have to choose sides. Indeed, at the World Economic Forum meeting in Davos in January, Xi Jinping warned of the consequences of any U.S.-lead alliances against China. Arguably, every official overture and rebuke in the diplomatic realm, and every trade and investment decision will be viewed through the prism of the cold war.
Where to for U.S. Policy?
Despite the clarity of China’s unwavering commitment to achieving technological preeminence and the abundant evidence that Beijing uses technology to aggrandize its power and repress all dissent in perpetuity, some policy commentators see no cause for alarm. Others see it as a lost cause—there is nothing the United States can do now. China’s behavior, they contend, is a natural expression of its increasing weight. It is asserting itself as other powers would.
Of course, that is true, but then aren’t U.S. measures to prevent erosion of its advantages also justified? America is not without leverage and this is not about trying to suppress China’s inevitable rise. This is about Americans’ expectations of security. It’s about the responsibility of the U.S. government to protect its citizens and not foolishly squander the advantages the United States has accumulated over the years through diligence, determination, and dumb luck. It would be a dereliction of duty of the greatest magnitude if the U.S. government—presiding over the richest, most powerful country in history—failed to muster the wherewithal to at least try to secure essential U.S. technological advantages and protect the U.S. position because it didn’t take the threat seriously or appreciate the implications of ceding leadership. That cannot be the U.S. policy that yields the highest expected net benefits.
Like a successful business that reinvests to fortify its incumbent advantages, U.S. policymakers must do what is necessary to preserve and augment advantages that contribute to the relative strength and security of the United States. That doesn’t mean reaching for sledgehammers. U.S. technology policy toward China should aim to achieve its objectives as surgically as possible. That may call for a mix of export controls and investment restrictions. It may necessitate the blacklisting of certain Chinese entities. It may require tightening loopholes in those restrictions by working with like-minded allies. And it may require measures to prevent U.S. firms and domestic research and development from being chased from the market by Beijing’s market distorting practices. Ultimately, the goal should be to raise the costs to Beijing enough to persuade it to abandon its beggar-thy-neighbor technology policies.
There are no easy answers when a country with the economic and demographic heft of China commits itself to a course of action that generates significant, negative externalities. There really are no solutions, just tradeoffs. More transparency would ensure greater awareness of the costs of those tradeoffs and would encourage policies that are more precise and more effective. And that would be more likely to lead Beijing to reassess the pros and cons of its own technology policies, which is necessary if we hope to leave open the door to eventual rapprochement.
I’m former director of Cato’s Herbert A. Stiefel Center for Trade Policy Studies, focusing on WTO disputes, regional trade agreements, U.S.-China trade issues, steel and