Techno-nationalism: U.S., China, and Weapons of Mass Disruption
From sparking the First Industrial Revolution in the 18th century to its role in enabling the ubiquity of powerful computers in our pockets today, technology has been an integral cog in the machinery of economics and politics. It has enabled the globalisation of both industry and power.
A double-edged sword, it has enabled man to fly but also to destroy; it has connected the world and yet today is also what seems to be driving it apart. To say the U.S.-China tech race is a high stakes game would be a gross understatement; the core technologies states adopt today will have lasting implications on the manner in which they operate and innovate for decades to come.
This explains today’s state of “Techno-nationalism” which is aptly defined by Alex Capri of the Hinrich Foundation as “mercantilist-like behaviour that links tech innovation and enterprise directly to the national security, economic prosperity and social stability of a nation”.
While trade has historically been a key weapon-of-choice used by states to wield economic power over the other in times of a dispute, we have also witnessed the increasing weaponisation of leading technology companies who have been placed at the intersection of the escalating Great Power competition.
China rose to its technological prominence through a mercantilist model, and it has consistently demonstrated a concrete commitment to this cause through its series of ambitious national technology initiatives including the prominent Made in China 2025 and China Standards 2035 plan as well as its Digital Belt and Road Initiative.
U.S. techno-nationalism, on the other hand, has been revved up more recently under the Trump Administration, seen through the rise of executive actions placing Chinese companies in Trump’s Entity List, and a noticeable effort in mounting pressure on rising stars from Huawei to ByteDance and DJI.
While a Biden Administration will likely simmer the tensions that have escalated in the form of sporadic, dramatic outbursts under Trump, it would be incorrect to assume the competition between both Powers will subside; in fact they may yet intensify, but in different form and function.
When Trump leaves the White House next month, the key drivers of the Great Power technology competition will not be leaving with him.
A deep sense of mistrust
In 2018, U.S. Vice President Mike Pence accused China of a “wholesale theft of American technology”. In the same year, a U.S. Defense Innovation Unit (DIU) report indicated that Chinese IP theft costs the U.S. more than $600 billion USD per annum, which threatens U.S. jobs as well as loss of market share in key foundational industries.
U.S. stakeholders are demanding to address these technological transfers and discriminatory business practices through the set of executive actions we have seen of late. The sentiment is bipartisan as clearly encapsulated in a widely-cited White House document as well as consistently addressed in the 2020 Democratic Party Platform.
However, while U.S. miscalculation of the risk of technology transfers to China has indeed been a key factor, one must also recognise that this deep sense of mistrust is a result of contrasting basic ideologies: democratic and authoritarian. Acknowledging the role of ideology is important as it influences how technologies are shaped, adopted, and utilised.
A high stakes game
U.S. DIU Director Michael Brown succinctly outlined three core factors that reveal the value of winning this great competition: first mover advantage, network effects and ability to set standards.
Huawei and its 5G solution have earned notoriety due to constant allegations received from the U.S. Government over the past year, largely due to security concerns but also because of its close ties to the Chinese government. However, one must also recognise the value of the 5G market to better understand these tensions. This can be achieved by referring to the U.S. experience in gaining its 4G advantage.
A Recon Analytics report in 2018 estimated that the introduction of 4G contributed 70% growth in the wireless industry between 2011–2014, boosting jobs by 80%. This is the advantage of being a first mover; one secures the opportunity to shape global standards and reap the benefits of the global ecosystem that depends on its platform.
This is just an example but one could see corresponding benefits in securing first mover advantage in other core technologies including artificial intelligence (AI), space technologies and robotics platforms. These technologies are also dual-use — in that they are applicable to both commercial and defence.
China currently leads on 5G and facial recognition technology, and it has a large database of various types of data that its loose privacy regulations enable it to use in various aspects of research. This gives China an edge that some U.S. stakeholders view as an existential threat to its global dominance and leadership role. As such, the world has seen an evident shift in the U.S. from liberalist towards a more mercantilist approach the past four years.
A growing arsenal of technology champions
One of the most recent demonstrations of U.S. techno-nationalism is the widely-reported case involving the U.S. Government and TikTok, an internet technology company known for its powerful short-form video algorithm, owned by ByteDance, one of China’s most valuable internet companies headquartered in Beijing.
This is an interesting case study because the scale and speed of Trump’s actions were unprecedented and have serious implications in tech policy and foreign direct investments (FDIs). Several companies were used as proxies in the dispute, based on political objectives, such as when the Trump Administration issued an Executive Order to hinder TikTok’s operations in the U.S., citing vague national security concerns, unless a “very American company” stepped in to purchase it.
Microsoft first made an offer that aligned with the requirements set by the Administration but was rejected by TikTok, then Oracle and Walmart proposed an offer for a technical partnership. China craftily issued an update to its export controls which impacts negotiations in the U.S., and now the attempted ban is undergoing legal review in the courts, with the likelihood of an actual ban in place remaining slim.
This one case poses several implications to the global tech environment. First, the deal the Trump Administration originally proposed does not solve the key fundamental issues it sought to address. While Oracle would have assumed responsibility of hosting U.S. customer data, TikTok was reportedly going to remain majority-owned by ByteDance. This contradicts the initial goal put forward by Trump and does not address the Administration’s concerns regarding foreign government’s ability to manipulate TikTok algorithms to influence content and political messaging in America.
What the deal would have achieved, should it have passed, was a demonstration of how a foreign company could be forced by the U.S. government into a sale, despite a lack of evidence of misconduct. This is ultra-protectionism in display and could discourage future FDIs and broad sharing of technologies, which the U.S. used to be a proud proponent of.
Second, this event encourages protectionist “splinternet” policies where states control what aspects of technology will be available in their market and in what form, with domestic players gaining all the advantage.
Implications: Mass Disruption
TikTok is just one case but as demonstrated this shift of the U.S. in embracing a techno-nationalist approach already poses a number of implications. The broader U.S.-China competition is disrupting the international political and economic order on several levels, which at its worst could see the dreaded decoupling unfold, but at its best could result in better technologies — and under a Biden Administration may usher in a return to multilateral cooperation.
Disruption that decouples…
The trade war has already caused a structural disruption which has caused businesses to review their global value chains (GVCs) and consider diversification or repatriation of manufacturing lines.
Trump’s unilateral moves against China bypassed the institutions the U.S. played a key role in initiating, resulting in a diminished role for the World Trade Organization (WTO). The WTO’s ruling in favour of China, stating that U.S. action was “inconsistent with international trade rules” has already been dismissed by Trump’s aides. Again, a Biden Administration may revive the role of the U.S. in these institutions.
A decoupling of technologies — be it 5G network systems or social media platforms — also not only results in reduced and less efficient markets but also removes the value of interoperability across the globe. This is already demonstrated by challenges brought by ‘The Great Firewall’ in China today where only approved technologies are accessible within the domestic market.
On a domestic level, a decoupling would impact the future of work — where jobs will be based, what technology will be available and how these available technologies will interact. This could breed inefficiencies as companies need to invest in various infrastructures and systems to adhere to local standards. Will travellers need two types of mobile phones again? Will people have a choice between a “democratic” internet and one that is heavily monitored but contains better features and “security”?
On an industry level, the Great Power competition supports the development of domestic monopolies under the aegis of national champions. It is also distracting the technology community from addressing critical issues in their solutions, including the rise of misinformation campaigns and election interference as well as the rising challenges related to data governance. These have direct and indirect implications to the international political economy. Technologies, especially like AI and 5G, are high-value, high-risk solutions, and require adequate regulation and oversight to maintain important ethical and environmental standards. These regulations are still lagging far behind today.
…or disruption that develops?
While it carries some challenges, a diversification or movement of GVCs may provide an opportunity to spread the wealth to neighbouring countries in the region, especially emerging economies in Southeast Asia. A Biden Administration may also look to increase investments and market collaborations in other regions in an attempt to compete with China’s Belt and Road Initiative, and demonstrate the value of states maintaining a preference for U.S.-dominated technologies.
As competition breeds innovation, the technology race will also lead to better innovations. Take the prior example of travellers potentially needing two types of mobile phones in order to connect to different standards. This problem was solved by innovation. We could expect to see similar innovations that seek to solve challenges resulting from a potential decoupling.
Europe also has an important role to play in this competition. The region has led the establishment of key data regulations (including the General Data Protection Regulation, or GDPR), has been involved in setting technological safety standards as well as has been a proponent of environmentally-friendly policies.
There is an opportunity here for Europe to take a neutral position and try to act as an intermediary between the two technology powers, perhaps to advocate for the establishment of multilateral standards that brings the role of the institutions back at the forefront, during this period of competition.
States who control the development and distribution of core technologies have the power and ability to shape the innovation and economies of the next few decades. States who don’t will experience more dependence, risk, and inequality, which could lead to another great divergence of productivity.
Thus, we must focus our efforts on managing this disruption; while it may be inevitable, it need not be destructive.