Trade warriors US and China race for technology of future

In mid-November, the US commerce department published a short notice that was striking for its wide-ranging implications. In it, the Trump administration presented a list of emerging technologies — including robotics, genomics, artificial intelligence and quantum computing — for which it was considering export controls to prevent them from falling into foreign hands, if they were deemed to be vital to national security.

The move was soon seen as opening a new front in the confrontation with China, at a time when presidents Donald Trump and Xi Jinping were already in a damaging trade war involving escalating tit-for-tat tariffs. Behind it are growing concerns among US officials and business executives that China is winning the race to develop the technologies of the future, and needs to be stopped — for economic, strategic and military reasons — if the US is to retain its global dominance in the 21st century.

Mr Trump casts the trade war with China as about bringing jobs home and cutting the trade deficit. But it is the technology rivalry that could prove hardest to settle as he tries to craft a truce with Mr Xi before March 2, the deadline they set during December’s G20 meeting in Argentina.

“Technology competition is at the centre of the trade war and I expect it will continue regardless of whether there is a deal,” says Ely Ratner, a former Obama administration official and executive vice-president at the Center for a New American Security in Washington. “China will likely address some US concerns but it’s extremely unlikely to cede to the Trump administration . . . on state-led support for its technology sector, so it will continue to be a source of friction,” he adds.

The US has accused China of employing unfair practices — including industrial subsidies, the theft of intellectual property and the forced transfer of technology to the Chinese in exchange for access to its market — in order to achieve its goal of developing a higher value, innovative economy by 2025.

Concerns in Washington, however, extend beyond commercial matters. There are growing US fears that Chinese entities could also use their advances in technology to gather intelligence, exploit gaps in the US defence supply chain and hack critical infrastructure.

Mr Trump casts the trade war with China as one of bringing jobs home and cutting the trade deficit

The threat of new export controls — which still have to go through a fairly lengthy bureaucratic process before they are specified and implemented — are only the tip of the iceberg. Coupled with them is new legislation tightening scrutiny of foreign investment in the US. This will make it harder for Chinese companies to directly acquire US producers of advanced technologies.

The US has called on domestic companies and international governments to stop doing business with Huawei, the Chinese technology and telecommunications company at the fore of the global race to develop 5G technologies. Critics accuse it of being a vehicle for spying. The company rejects the criticism. US prosecutors are increasing their efforts to crack down on Chinese entities suspected of stealing trade secrets. Justice department officials have signalled that indictments are pending.

This month, Mark Warner, the Democratic senator from Virginia, and Marco Rubio, the Republican senator from Florida, introduced legislation to create an office within the US executive branch designed to curb state-sponsored IP theft. “It is clear that China is determined to use every tool in its arsenal to surpass the United States technologically and dominate us economically,” says Mr Warner, vice-chairman of the intelligence committee in the Senate.

“We need a whole-of-government technology strategy to protect US competitiveness in emerging and dual-use technologies and address the Chinese threat by combating technology transfer from the United States,” he adds.

Beijing says the US has no right to stymie its economic aspirations. It argues that Washington is crying foul because it is losing competitiveness, ingenuity and clout to its Pacific rival.

Caught in the middle is Silicon Valley. Many US technology companies are concerned that China is using unfair and even illicit tactics to get ahead. But there are also rampant fears that the Trump administration’s approach could backfire. When the export controls notice was released, US technology lobbyists in Washington were at pains to explain that they were at risk of losing access to a big market for their new products, and of losing the ability to share information with Chinese researchers, which could help them develop more cutting-edge products. Many policy analysts agree that the US may be in danger of going too far.

“It is fair and appropriate for countries to defend their economic crown jewels from foreign exploitation or infringement,” wrote Ryan Hass and Zach Balin of the Brookings Institution in a report this month. But the US needed “to avoid inflicting self-harm”. The “big picture”, they added, was one in which both the US and China were increasing the distance between themselves and the rest of the world on innovation, partly by feeding off each other.

Nuanced arguments are likely to be overwhelmed by a sense of a technology cold war setting in between the US and China. This is unlikely to be resolved soon, whether or not Mr Trump wins a second White House term in 2020.

“I don’t think this issue is going to go away if there’s a new president in 2021,” says Mr Ratner.