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Econographics February 17, 2022

The path forward on the US-China technology competition

By Clete R. Willems

US policymakers are currently facing key economic choices that will significantly shape the outcome of the US–China technology competition. This includes deciding whether to pass China competitiveness legislation, how to expand economic relationships with Indo-Pacific nations, and how to address concerns about large US technology platforms. 

It is critical that US policymakers fully appreciate the broader context in which these decisions will be made. The US–China technology competition is not confined to the economy.  Its outcome will directly influence US national security, and could even impact our enjoyment of the freedoms we take for granted today.

Simply put, the US and Chinese government have widely divergent views on how to use technology and the winner of the competition will be well positioned to proliferate their view worldwide. On the whole, US policymakers protect and nurture a system that promotes free markets, the free flow of information, and freedom of expression, even if specific policies pursued vary over time. By contrast, China’s government focuses on enhancing control of its citizens’ economic and personal decisions, monitoring everyday communications and movements, and does not hesitate to promote propaganda or censorship. 

The ongoing Olympic Games vividly illustrate this difference in worldviews. The United States Olympic and Paralympic Committee felt the need to instruct its athletes to use “burner phones” to avoid monitoring by state officials while in China and the downloading of malicious software that would follow them home.

In 2022, China will host a watershed meeting of the Party Congress to decide whether to extend Xi Jinping’s leadership and double down on its current policies. Most analysts expect President Xi’s reign and the State’s crackdown on technology to continue. By increasingly regulating China’s domestic technology sector, President Xi seeks to eliminate diffuse power centers that could challenge the CCP, and harness greater control over major technology companies and the data they possess. At the same time, China is continuing to support indigenous innovation and attempting to give its companies a leg up on their rivals through more confident forms of diplomatic force projection.

2022 will also be a key inflection point for US trade and technology policy. In the coming months Congress will decide how to proceed with China competitiveness legislation, the Administration will be finalizing the details of its Indo-Pacific trade agenda, and both will assess concerns about the size and activity of large US technology platforms. Democrats and Republicans alike should depoliticize these issues and consider their policy choices through the lens of strengthening US economic and technological competitiveness with China.

Pass Bipartisan China Competitiveness Legislation

In recent months, the US House of Representatives and Senate both passed versions of China competitiveness legislation. This legislation centers on increasing 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 seek to improve supply chain resilience and reliability through partnerships with key allies around the world. 

Finalizing the legislation should be an easy decision, but prospects for a swift conclusion appear increasingly unlikely due to actions by both parties. House Democrats pursued a partisan process to design key elements of the bill, such as its trade components. Their strategy exacerbated partisan tensions and yielded poorly designed proposals that could undermine US competitiveness, such as an unwieldy outbound investment mechanism or the effort to raise tariffs on low-cost goods. As for the Republicans, many appear focused on scoring political points rather than legislating by calling the legislation “weak on China” without offering a viable alternative. 

To move forward, Democrats should abandon the House’s partisan elements in favor of the Senate’s bipartisan approach. The Senate bill would lower costs for US businesses with targeted tariff relief, provide new tools to counter China’s censorship, and advance a much-needed digital trade agenda. For their part, Republicans should be willing to support many of the same kinds of trade and supply chain policies they have been advocating for over the past few years, even if some also happen to be supported by the current Democratic President.

Promote a Real Indo-Pacific Trade Strategy

An effective China strategy also requires an active trade policy, especially in the Indo-Pacific region. Domestic investment is important, but policymakers cannot ignore the growth opportunities afforded US companies and workers by consumers living outside American borders. Additional access to these opportunities is crucial to long-term US economic health, and setting the norms of economic engagement in China’s neighborhood is crucial to support American values. 

China’s recent assertion of itself in the Indo-Pacific region further increased the imperative for US action. China’s longstanding efforts to promote the Regional Comprehensive Economic Partnership (RCEP), a regional trading block that will further link its supply chains with Australia, India, Japan, and eleven other countries, successfully concluded with the agreement’s entry into force earlier this year. Adding insult to injury, China is also seeking to join the Comprehensive and Progressive Trade Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement that the United States originally championed under the Obama Administration but has since abandoned.

In the absence of a robust US alternative, China’s efforts to join these agreements threatens to lock US businesses and workers out of the region and undermine our ability to promote our economic model and values by tying other countries’ economies closer to China. 

The Biden Administration’s Indo-Pacific Economic Framework (IPEF) has potential, but as currently conceived is unlikely to provide a real alternative to China. The Framework is constrained by trade provisions limited in scope to digital, labor, environment and competition, instead of the much broader range of provisions covering market access, intellectual property, and services, just to name a few.  The lack of market access is particularly troubling, and if left unchanged, could ultimately doom the initiative. Countries vulnerable to Chinese influence may be reluctant to face China’s wrath by joining a US alternative that is far narrower and less substantial than what China is offering.  To address this problem, the United States should either make the IPEF more ambitious, or revisit the ill-conceived idea to walk away from CP-TPP and instead seek to renegotiate its terms.

Avoid Punitive Action Against US Technology

Both Democrats and Republicans raise legitimate issues with US technology firms, including their size, perceived political bias, and outsized role in policing disinformation. However, many policy responses under consideration appear punitive in nature rather than designed to solve real issues. Worse yet, some responses would put the US technology industry at a structural disadvantage compared with China’s national champion firms. 

A problematic bill currently working its way through Congress is the American Innovation and Choice Online Act. It would impose one-way data-sharing mandates on US companies while granting Chinese companies preferential access to US technology and systems. This is not rhetoric: the bill would require US companies to grant foreign rivals the ability to “access or interoperate with…operating systems, hardware or software” owned by US companies. At the same time, vague language on “self-preferencing” would compel US firms to favor content and apps from foreign rivals. It would lead firms to discourage platforms from providing vertically integrated security services necessary to safeguard US infrastructure from foreign cyber-threats. Many politicians have suggested going further and “breaking up” Big Tech.  

As an alternative to this “anti-competition” agenda, policymakers should pursue targeted tools designed to solve actual problems.  If consumers are harmed by the size of these companies, states should continue pursuing antitrust cases using existing laws to address the problem. When it comes to content, Congress should advance an “anti-censorship” agenda that ensures conservative voices are not unduly silenced. A good starting point would be legislation (1) requiring technology platforms to provide complete transparency about their standards for banning content; (2) requiring regular reporting on the implementation of these policies; and (3) imposing penalties for significant deviations from these standards.      

2022 will be a critical year for the US–China competition. It is essential that US policymakers develop working solutions to develop effective China competitiveness legislation, a successful trade agenda in the Indo-Pacific, and to manage the challenges Big Tech presents. Ultimately, US economic vitality, national security, and values depend on it.

Clete Willems is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center and is a a partner at Akin Gump Strauss Hauer & Feld. Mr. Willems previously served as Deputy Director of the National Economic Council.

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