TO: Technology Policy Strategists
FROM: Peter Engelke and Emily Weinstein
DATE: November 16, 2022
SUBJECT: Designing domestic and multilateral strategies for maintaining technological superiority
This fall, the Scowcroft Center for Strategy and Security and the Global China Hub convened experts and officials in a private workshop to discuss how the United States, in conjunction with allies and partners, might design strategies to maintain technological superiority over China. The workshop explored the necessary components of a competitive strategy via both “protect” and “run faster” policies. This memo draws from insights gathered during the workshop to give policy makers a better understanding of the potential tools in the strategic arsenal.
The United States is currently engaged in a protracted competition with the People’s Republic of China. Although this competition is multifaceted, much is centered around which state will acquire or maintain technological superiority over the other. Dialogue regarding emerging technologies such as artificial intelligence (AI), quantum computing, and more focuses on acquiring or maintaining first-mover advantage in both the military and economic realms. Both US and Chinese leadership fear an overreliance on the other state for access to critical technologies and components. Moreover, this tech-focused competition has spillover consequences for the rest of the world. The sizes of the US and Chinese economies, as well as their dominant positions in global supply chains, have raised the international community’s concerns regarding the trajectory and impacts of this bilateral competition.
To craft an effective response to this technological competition with China, the United States must ensure that its strategy includes elements of both “protect” and “run faster” (or “promote”) policies. These two elements must work in tandem, as policy levers on the “protect” side like export controls and sanctions are likely to cause inefficiencies that must be addressed using “run faster” industrial policies. Moreover, many policies are more effective when pushed through multilateral channels rather than implemented unilaterally. As such, policymakers should work to balance the “run faster” and “protect” efforts on both the domestic and international stages.
As policymakers in the United States and allied countries have begun to grapple with the challenge posed by China’s quest for technology dominance, elements of coherent strategy have started to emerge. The Biden administration has had productive conversations with allies and partners in various multilateral forums like the US-EU Technology and Trade Council (TTC) and the Quadrilateral Security Dialogue (the Quad) on subjects ranging from technology standards to investment screening, export controls, investment opportunities, and more.1“Fact Sheet: U.S.-EU Trade and Technology Council Establishes Economic and Technology Policies & Initiatives,” White House Briefing Room, May 16, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/16/fact-sheet-u-s-eu-trade-and-technology-council-establishes-economic-and-technology-policies-initiatives/; and “Quad Principles on Technology Design, Development, Governance, and Use,” White House Briefing Room, September 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/24/quad-principles-on-technology-design-development-governance-and-use/. More recently, industrial policies like the CHIPS and Science Act, in conjunction with new tailored controls on high-end semiconductors and semiconductor manufacturing items, demonstrates an attempt to exercise both “run faster” and “protect” policies. Although it is too soon to judge the effectiveness of these complementary policies, they are indeed a strong start at a comprehensive strategy to maintain technological dominance over China.
Key components of a comprehensive tech strategy
At minimum, the following four concepts are key aspects of a technology strategy that should be deployed to maintain technological superiority over China. Many if not all of these tools can and should be used in conjunction with one another. Policymakers in the United States should encourage allies to make use of similar tools within their domestic authorities, if not via multilateral pathways when possible and available.
Protecting US and allied technology and technological lead
Intelligence is always a crucial part of any competitive strategy. In the context of US-China technology competition, intelligence and counterintelligence will both play critical roles in protecting, monitoring, and keeping up-to-date with our competition.
On the intelligence front, a competitive technology strategy will require the US intelligence community to extend and deepen the tools and resources it has to properly monitor technology progress in China. The US intelligence community has historically relied on classified sources and materials to conduct science and technology (S&T) intelligence. However, much of this information now exists in open-source venues like academic publications, conference proceedings, and more. The reason is straightforward in that scientific inquiry is collaborative, frequently transnational, and very often a public enterprise. As such, the US intelligence community will have to augment its approaches to gathering and evaluating S&T intelligence, as many of the important early indicators and even warnings come from outside the classified space altogether—the arena in which the intelligence community always has invested its assets the most and upon which it has placed the greatest interpretive weight.2Tarun Chhabra et al., “Open-Source Intelligence for S&T Analysis,” Analysis, Center for Security and Emerging Technology (CSET), Georgetown University Walsh School of Foreign Service, September 2020, https://cset.georgetown.edu/publication/open-source-intelligence-for-st-analysis/. The United States Congress has recognized this challenge specifically with respect to monitoring and assessing China’s rising technological capabilities. Although heavily redacted, an unclassified report published in 2020 by the House Permanent Select Committee on Intelligence said flatly that “open source intelligence (OSINT) will become increasingly indispensable to the formulation of analytic products” vis-à-vis competition with China, including in the tech space.3US House Permanent Select Com., The China Deep Dive: A Report on the Intelligence Community’s Capabilities and Competencies with Respect to the People’s Republic of China, Redacted Summary, September 29, 2020, 29, https://intelligence.house.gov/uploadedfiles/hpsci_china_deep_dive_redacted_summary_9.29.20.pdf.
Workshop participants echoed such concerns, stressing the importance of gathering intelligence, when possible, via open sources and in conjunction with allies and partners in Europe and Asia. Many of these countries may have unique access to the leading Chinese research institutions and companies working at the cutting edge, particularly if US scientists, engineers, and technology firms find it increasingly difficult to collaborate in China going forward due to an unfavorable political climate.
In addition, a competitive strategy should include elements of counterintelligence to ensure that we can secure and protect our intellectual property. This is especially critical in the context of China, a country that has relied on legal, illegal, and extralegal means of acquiring US and other foreign intellectual property to benefit its own technology development efforts.4William Hannas and Huey-Meei Chang, China’s Access to Foreign AI Technology, Analysis, CSET, Georgetown University Walsh School, September 2019, https://cset.georgetown.edu/publication/chinas-access-to-foreign-ai- technology/. Much has been done in this space over the past two administrations, particularly in the academic realm. The Trump administration ramped up efforts to scrutinize academic collaborations with China via measures like the former China Initiative under the Department of Justice. In this context, the concerns around Chinese talent programs and China’s efforts to take advantage of the United States’ free and open academic environment are indeed legitimate and deserve significant attention from the counterintelligence experts. However, these concerns must be addressed in a tailored and targeted fashion to avoid overly scrutinizing academics of Chinese heritage or ethnicity. As we address further down, in order to effectively compete with China, the United States must do its best to ensure that we can attract and maintain the best S&T talent from around the world, including from China.
2. Trade controls
Trade controls such as export controls and sanctions have been at the forefront of US competitive “protect” strategies for the past five years. These policy maneuvers, often deployed to prevent China from gaining access to US capital or technology, can be powerful tools to cut China off from the resources it needs to execute Beijing’s goals. However, if the United States wants to effectively compete using trade controls, policymakers must work to tailor these controls as specifically as possible to avoid any potential long-term consequences that might arise, especially unintended economic harm to companies operating in sectors deemed relevant to national security.
This year, both the Biden administration and Congress have been mulling over options, including legislation, to restrict US tech-related investments into China, based on the premise that Chinese access to America’s critical technologies, possibly transferred via US investment in Chinese technology companies, poses a national security risk.5Jennifer Jacobs and Daniel Flatley, “Biden Weighing Actions to Curb US Investment in China Tech,” Bloomberg, September 2, 2022, https://www.bloomberg.com/news/articles/2022-09-03/biden-weighing-actions-to-curb-us- investment-in-china-tech. In this context, the Atlantic Council workshop participants repeatedly stressed the downside consequences to restrictive export control and sanctions, warning of the economic harm that might await US firms should policies be poorly designed. Experts assert that export control policies, among many other things, ought to be narrowly targeted at transactions having the highest national security risks and be developed collaboratively with both affected private-sector actors and foreign allies and partners.6For a lengthy treatment of these and similar considerations, see Sarah Bauerle Danzman and Emily Kilcrease, “Sand in the Silicon: Designing an Outbound Investment Controls Mechanism,” Atlantic Council, September 14, 2022, https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/sand-in-the-silicon-designing-an- outbound-investment-controls-mechanism/.
Moreover, policymakers should design policies that consider both “protect” measures like export controls and sanctions and “run faster” policies like financial incentives to help ensure that US firms are not adversely affected. For example, the CHIPS and Science Act will provide $52.7 billion for US semiconductor research and development (R&D), manufacturing, and workforce development.7“Fact Sheet: CHIPS and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China,” White House Briefing Room, August 9, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/. This revenue may ease market impacts on US firms from export controls and sanctions. American semiconductor firms Nvidia and Advanced Micro Devices (AMD) assert that recent US semiconductor export controls risk their sales to the massive Chinese market.8Cheng Ting-Fang, “US Tightens Export Rules to China, hitting Nvidia and AMD,” Nikkei Asia, updated September 1, 2022, https://asia.nikkei.com/Business/Tech/Semiconductors/U.S.-tightens-chip-export-rules-to-China-hitting-Nvidia-and-AMD; and Debby Wu and Ian King, “Chip Exports to China at Risk on New US Rules, Sparking Selloff,” Bloomberg, Updated September 1, 2022, https://www.bloomberg.com/news/articles/2022-09-01/nvidia-gets-limited-licenses-for-ai-chip-exports-to-china.
Trade controls also should be multilateral efforts whenever possible. In the context of export controls, unilateral policies have proven to be ineffective over time and often lead to unintentional consequences. Take the US satellite industry for example, where a unilateral US policy implemented in 1999 brought the total US market share of global satellite exports down from 75 percent in 1995 to just 25 percent ten years later.9Tim Hwang and Emily S. Weinstein, Decoupling in Strategic Technologies: From Satellites to Artificial Intelligence, Analysis, CSET, Georgetown University Walsh School, July 2022, https://cset.georgetown.edu/publication/decoupling-in-strategic-technologies/. Convincing like-minded countries to jump on board with trade controls such as export controls will allow the US and its allies and partners to have greater reach and impact, and will also increase the strategic delay imposed upon China with these controls. Where the effectiveness of unilateral controls eventually erodes over time as technology evolves and supply chains shift, multilateral controls in conjunction with allies and partners can force China’s development curve backwards in a more comprehensive fashion.
Running faster and promoting innovation
Governance, and the role of government in industry, should be at the forefront of strategists’ minds when thinking about competing with China. For decades, federal, state, and local governments in the United States have worked alongside the private sector and research institutions, including the United States’ world-best university system, to promote innovation across numerous sectors. The federal government has made strategic investments in R&D, for example through Defense Advanced Research Projects Agency (DARPA) investments in basic R&D at the nation’s universities, and has set other parameters that have helped create and sustain the US innovation ecosystem, for example through its H-1B visa program that encourages recruitment of highly skilled scientific and engineering talent from abroad. When done well, innovation ecosystems that combine smart public policies and investments with open and tolerant business environments are best at growing a nation’s innovative capacity.10The US innovation ecosystem is reviewed by Peter Engelke and Robert A. Manning in Keeping America’s Innovative Edge, Atlantic Council, April 4, 2017, https://www.atlanticcouncil.org/in-depth-research- reports/report/keeping-america-s-innovative-edge-2/. Global innovation ecosystems are reviewed by Manning and Engelke in The Global Innovation Sweepstakes: A Quest to Win the Future,” Atlantic Council, June 26, 2018, https://www.atlanticcouncil.org/in-depth-research-reports/report/the-global-innovation-sweepstakes-a-quest-to-win- the-future-2/.
Countries like China have challenged many preconceived notions regarding the roles that government should play in building and sustaining innovation ecosystems. China has made significant strides in building an ecosystem and in upgrading its technological development capabilities, many of which evolved organically.11Emily S. Weinstein, “Beijing’s ‘Re-innovation’ Strategy Is Key Element of U.S.-China Competition,” TechStream, Brookings Institution, January 6, 2022, https://www.brookings.edu/techstream/beijings-re-innovation- strategy-is-key-element-of-u-s-china-competition/. The greater part of Chinese innovation has surfaced thanks in large part to Chinese government initiatives, policies, incentives, and more. For instance, in AI, China has made massive strides—particularly in AI education—thanks to national- and provincial-level policies and support.12Dahlia Peterson, Kayla Goode, and Diana Gehlhaus, AI Education in China and the United States: A Comparative Assessment, Analysis, CSET, Georgetown University Walsh School, September 2021, https://cset.georgetown.edu/publication/ai-education-in-china-and-the-united-states/. Whether China can sustain the vibrancy of its tech-innovation ecosystem, given the government’s recent heavy-handed crackdown on the tech sector, is an open question, with Chinese entrepreneurs voicing concerns that the crackdown has had a permanent chilling effect on start-up investment and associated risk-taking.13Coco Liu, Zheping Huang, and Sarah Zheng, “China’s Tech Giants Lost Their Swagger and May Never Get It Back,” Bloomberg, June 23, 2022, https://www.bloomberg.com/news/articles/2022-06-23/china-tech-crackdown- eases-but-startups-worry-xi-may-up-regulatory-pressure.
Regardless of China’s trajectory, the United States not only will need to retain the core capabilities of its tech-innovation ecosystem but strengthen them as well. Federal, state, and local governments will need to continue to invest in and otherwise boost basic R&D, high-quality twenty-first century infrastructure, and broad-based education and skills training. Immigration policies to encourage high-skilled in-migration will need to be retained and strengthened.14See Peter Engelke and Robert A. Manning, Keeping America’s Innovative Edge, Atlantic Council, April 2017, https://www.atlanticcouncil.org/in-depth-research-reports/report/keeping-america-s-innovative-edge-2/. In the context of competition with China, the United States may need to inject some financial support into private companies in order to adequately prepare them to compete with Chinese firms that are often heavily subsidized or don’t have the same fiduciary responsibilities. In this case, this “promote” approach by US government to step in and level the competitive playing field may yield results.
Improving this system also will require innovations in the processes of governance itself. On the domestic side, policymakers should reconsider how best to evaluate the impacts of new technology policies, whether those policies are in the protect or promote categories. At the Atlantic Council workshop, several participants argued that the US government needs to create a testing mechanism, wherein proposed legislation and new regulations would be vetted through an interagency, whole-of-government, or even whole-of-society process. The basic idea was to devise a kind of experimental forum under the aegis of the White House that would allow new legislation and regulations to be assessed from multiple points on the economy-security spectrum, by representatives not only of multiple departments and agencies within the government but also from affected industries and sectors outside of it.
On the foreign policy side, US leadership needs to invest in multilateral solutions to technology governance challenges. The United States is well equipped to build bridges with allies and partners in the technology space. As noted in the trade controls section, US policymakers can and should convince allies to work in unison to counter the threat from China, ensure a level tech playing field, and address novel issues from emerging technologies. The Biden administration’s two important trade initiatives, the US-EU TTC and the Indo-Pacific Economic Framework (IPEF), do in fact “aim to strengthen US economic ties with allies and key trading partners and make progress on rules for the digital economy, technology, labor, and environmental standards, as well as supply chain resilience,” according to the authors of a recent Atlantic Council report.15Clete R. Willems and Niels Graham, TTC, IPEF, and the Road to an Indo-Pacific Trade Deal: A New Model, Atlantic Council, September 27, 2022, 10, https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/ttc- ipef-and-the-road-to-an-indo-pacific-trade-deal-a-new-model/. Although both of these initiatives have a significant level of participation from allied and partner countries, both also have some way to go before they facilitate commonly accepted regulatory approaches to technology governance and the technical standards that go with them.16Willems and Graham, TTC, IPEF, and the Road to an Indo-Pacific Trade Deal.
As briefly mentioned in the above section, talent is a central component of any successful tech-innovation ecosystem. In order to “run faster,” the United States needs to make sure that it is home to the best and brightest S&T talent. This will require a multifaceted effort that tackles both immigration and education reform. Although often contentious, these pieces represent two key components of a comprehensive strategy that can keep us ahead of China.
On the education side, much still needs to be done to level the playing field in science, technology, engineering, and mathematics (STEM) education across US states. Although the decentralized nature of the US education system indeed has its strengths, it also caused a rift between those with access to more resources—often in wealthier and more urban and suburban regions—and those without, often in poorer areas, including but not limited to more rural areas. Efforts are currently underway to remedy this gap. Proposed US legislation like the Rural STEM Education Act are positive steps forward at the K-12 level.17Rural STEM Education Research Act, H. R. 210, 117th Cong. (2021), https://www.congress.gov/bill/117th- congress/house-bill/210/text. Countries—both allies and adversaries alike—are working to incorporate technical education into curricula at earlier grades. If the United States wants to keep up, more is needed to close this gap.
We are witnessing similar phenomena in higher education as well. Over the next few years, China is projected to graduate more STEM PhDs than the United States, and although questions of quality versus quantity are warranted, this is a clear example of the Chinese government’s blunt force strategy bearing fruit.18Remco Zwetsloot et al., “China is Fast Outpacing U.S. STEM PhD Growth,” Data Brief, CSET, Georgetown University Walsh School, August 2021, https://cset.georgetown.edu/publication/china-is-fast-outpacing-u-s-stem- phd-growth/. To effectively compete with China in higher education, the US government needs to incorporate immigration and research security reform into its competition strategy. On the immigration front, working to speed up long-standing backlogs in the visa process would be hugely beneficial. In addition, the US government could think through more ways to modernize our immigration system to improve our innovative capacity by introducing, for instance, easier paths for foreign entrepreneurs to set up companies in the United States. Furthermore, it will be critical for any talent-related strategy to reiterate our policies of nonxenophobia, as many scientists and researchers—particularly but not limited to those of Chinese ethnicity—are increasingly wary of US research security policies in the aftermath of the Department of Justice’s China Initiative.19Eliot Chen, “America’s Brain Drain,” Wire China, October 9, 2022, https://www.thewirechina.com/2022/10/09/chinese-scientists-in-america/.
Emily Weinstein is a Research Fellow at The Georgetown University Center for Security and Emerging Technology and a Nonresident Fellow at the Global China Hub.
Peter Engelke is Deputy Director and Senior Fellow for Foresight at the Scowcroft Center for Strategy and Security, and a Nonresident Senior Fellow at Global Energy Center.