America Is Losing Its Tech Contest With China

beijingwalker · Sep 8, 2022

America Is Losing Its Tech Contest With China

By Eric Schmidt and Yll Bajraktari

September 8, 2022

The United States is in the midst of a high-stakes competition with China for dominance in the next wave of technological innovation. Despite a flurry of activity at the federal level over the past three years, Washington has for the most part been playing catch-up.

This summer, with the CHIPS and Science Act, the U.S. government committed to provide the semiconductor chip industry with more than $50 billion in federal investment over the next five years. But that was only after a supply-chain crisis had roiled the U.S. economy for two years as a result of the COVID-19 pandemic, and after the Pentagon had warned that it had become dependent on East Asian suppliers for 98 percent of the commercial chips it uses.

In 2019, the United States ramped up a diplomatic campaign to thwart China’s bid to dominate the world’s 5G infrastructure. But that was only after the massively state-subsidized Chinese companies Huawei and ZTE undercut major Western competitors, seemingly cemented positions in the communications networks of U.S. allies, and flooded the zone in standard-setting bodies.

And last year, the National Security Commission on Artificial Intelligence (on which both of us served) delivered its final report, calling for a comprehensive approach to sustaining U.S. leadership in education, research, and applications in AI that would mean an infusion of millions in new federal investment and a sustained government focus. But that report came out four years after China had already launched its national strategy on artificial intelligence, which generated billions in new funding, identified national-champion companies, and integrated AI into Beijing’s military-civil fusion strategy.

This reactive approach is hardly a recipe for future success. The United States needs to win on these tech battlegrounds and make sure it is not caught by surprise again. Even taking into account the important steps Washington has taken in the past three years, it is hard to say with any confidence that the United States is now better positioned or organized for the long-term contest. Washington cannot sit by and allow Beijing to gain an advantage on the next round of emerging technologies, which will extend beyond the digital domain to include biotechnology, smart manufacturing, and new methods for producing and storing energy.

Technology is at the heart of the U.S.-Chinese competition to build a thriving society, a growing economy, and sharper instruments of power. At stake is the future of political freedom, open markets, democratic government, and a world order rooted in democratic values and cooperation rather than authoritarianism and coercion. Washington needs a national plan that brings together commercial, academic, and government sectors to carry out a techno-industrial strategy. And the federal government needs to make a serious commitment to revamp the instruments of U.S. statecraft, including the military, to weather a prolonged period of danger.

LOSING IS AN OPTION

As Washington fiddled, Beijing’s centralized system for high-tech research and development churned, investing billions of dollars, training students, and subsidizing tech companies. It is entirely possible to imagine a future where systems designed, built, and based in China dominate world markets, extending Beijing’s sphere of influence and providing it with a military advantage over the United States.

Under that scenario, countries that come to rely on technology made in China, including some U.S. allies, could be pulled into Beijing’s political orbit, slowing international progress on issues such as climate change, human rights, and the fight against corruption and eventually eroding the U.S.-led, rules-based international order. What is more, as China’s demographic trends dar ken and growth slows, the Chinese Communist Party could fear that its window of opportunity is closing and decide to press its newfound technological advantages in dangerous ways.

The United States has a withering technology manufacturing base.

It is fair to wonder how Washington allowed things to get this bad. The explanation is rooted in a paradox: the United States is a technological superpower that nevertheless suffers from significant technological vulnerabilities. On the one hand, the country seems to have it all: enormous companies with huge global platforms, the world’s leading chip designers, a rich startup ecosystem, and innovation hubs sprouting far beyond Silicon Valley. The United States still boasts the best universities in the world and serves as the destination of choice for global talent in technology. On the other hand, there is plenty of evidence that something is amiss: a withering technology manufacturing base, a military that struggles to adapt quickly to innovations, and a general paralysis when it comes to new technologies such as AI.

For most of the post–Cold War era, the high-tech ecosystem in the United States evolved according to the logic of globalization rather than in response to strategic considerations. High-margin and high-value-chain investments and the search for cheap suppliers abroad made good business sense for U.S. companies and investors but devastated the U.S. technology manufacturing landscape. The absence of national technology priorities set by the federal government and a relative decline in government-funded R & D allowed commercial interests to drive the tech agenda, indifferent to the international strategic implications or U.S. competitiveness.

Additionally, the rise of venture capital added a powerful new category to the so-called innovation triangle that had long brought together government, industry, and academia. Venture capitalists jolted the innovation landscape but largely stayed away from “deep tech” (technology requiring major scientific research, engineering innovation, and significant capital) and from attempts to commercialize basic R & D —both of which would have required enormous patience and less promise of sizable returns. The government’s relative power to shape and drive innovation weakened, and Washington lost its focus on national technology priorities.

WON’T GET 5G’D AGAIN

To dig itself out of this hole, Washington needs a national competitiveness strategy that centers on technology and leverages the new geometry of the contemporary innovation ecosystem. To carry out such a strategy, the United States first needs a process—almost certainly led by the White House—responsible for making sure that it does not get “5G’d” again. The idea would be to go beyond merely identifying and listing priority technologies. Instead, it would create a national action plan for investing in, incentivizing, and accelerating innovation in biotechnology, quantum (and other new methods) of computing, new forms of energy generation and storage, new manufacturing paradigms, and wildcards such as food and water security and countering autonomous disinformation systems.

The United States also needs to address its diminishing ability to produce critical technology and its reliance on supply chains that run through, or dangerously close to, its main rival. The federal government will need to make sure that investments in digital infrastructure, starting with 5G and fiber optic networks, are deployed swiftly and efficiently and support more basic research and piloting of next-generation applications. It must help develop a tech-savvy workforce (including more talent from abroad) in critical industries, starting with AI, biotech, and semiconductors. The United States will need to expand its manufacturing capacity for advanced batteries, permanent magnets, and microelectronics by partnering with the private sector and using tools such as grants, government-backed loans, and purchase commitments to minimize the risk posed by investing in cutting-edge technology.

Meanwhile, Washington needs to insulate itself from China’s acts of economic malpractice, such as intellectual property theft and coercive tech transfers, that undermine U.S. firms. “Industrial policy” is a fraught label, but targeted government intervention can fill critical gaps and provide public goods when the market falls short in creating paths for the diffusion of technologies across the economy, unleashing private-sector innovation and boosting economic output. The CHIPS and Science Act is cause for optimism. But if it is not implemented successfully, it risks becoming the first and last step in a new taxpayer-supported techno-industrial strategy.

A tech-centered strategy will also require a balanced approach to tech regulation. New technologies can be deeply destabilizing, harm individuals and communities, undermine confidence in government, and engender a backlash that stifles innovation. The United States can find a competitive advantage if it develops a model of technology governance that upholds democratic values and norms while also supporting disruptive innovation, economic growth, and national security. The United States already has a rich system of technology governance that includes technologists, trade associations, advocacy groups, and media outlets that make use of a range of tools including voluntary norms and standards, investigative journalism, and the legal system. They should continue to lead the American approach. When regulation is necessary, the federal government should rely on existing regulators to develop rules for emerging technologies on a sector-by-sector basis. Regulation should focus on high-consequence uses of such technology, and should take into account factors such as the number of people impacted and the significance of the potential harm.

Washington needs to insulate itself from China’s acts of economic malpractice.

Meanwhile, the United States must recommit to its alliances. Washington and its allies and partners have a shared stake in the future of the rules-based order; their collective resources can overcome Beijing’s advantages in scale. The United States should integrate its allies in Asia and Europe into a single approach to shaping and promoting democratic digital norms, joint R&D investments, talent exchanges, new regimes for export controls and investment screening, and tech governance issues such as data privacy and content moderation.

Washington must develop incentives that can appeal to “swing states” that are currently calculating whether China or the United States offers a more attractive approach to technology. The United States and its allies should focus on areas where each has relative advantages that can work to the benefit of the larger democratic world. For example, even if the United States lacks a commercial leader in exporting 5G networks and technology, it can leverage its financial tools to support allies and prevent Huawei, ZTE, or another Chinese company from winning.

The United States will also need to reinvigorate public-private alignment to channel private-sector energy toward strategic technology initiatives such as multinational consortia to coordinate scientific investments and research agendas. The CHIPS and Science Act takes a step in the right direction by authorizing $500 million to establish an International Technology Security and Innovation Fund. That fund should be used to connect microelectronics ecosystems so that the United States and its partners can design, build, and package the chips they all need.

The United States’ to-do list is admittedly long and daunting.

A new competitiveness strategy will fail if it does not contend with the United States’ flagging hard power. To circumvent China’s recent military advances, Washington must more fully embrace the distribution of network-based operations that can outmaneuver the Chinese People’s Liberation Army’s rigid, hierarchical forces. By 2030, the U.S. military must fully integrate human-machine teaming into every aspect of its operations and develop low-cost, easy-to-manufacture AI-enabled platforms.

The Pentagon should also pursue and maintain software supremacy because in the future, the quality of software will determine a military’s advantage in collecting, aggregating, and analyzing information; thwarting attacks; and identifying opportunities to most effectively attack opponents. Every future system, capability, and operational concept of the Department of Defense should be developed with software in mind, so that the U.S. military can dominate in future combat. And the U.S. military services need to create new specialties for tactical software development and train leaders on how to use software for military advantage.

Finally, the U.S. intelligence community must adapt to the challenges of the contemporary digital environment and focus greater attention on understanding foreign technology trends. As private companies and U.S. adversaries gain new capabilities, Washington’s intelligence agencies risk falling behind. Once unique capabilities such as geospatial and signals intelligence have been commercialized. Private companies are often better positioned than the U.S. government to exploit AI-driven data analytics. The U.S. intelligence leadership needs to accelerate the digital transformation of its agencies by embracing a unified strategy, common data standards, and an interoperable digital infrastructure. They must also update security and human resource processes to ensure that the best talent and technology can be safely integrated into and scaled across the intelligence community.

This to-do list is admittedly long and daunting. But the United States has every reason to believe that its technological competition with China will only intensify in the years to come. And in this contest, there will be almost no margin for error. Action on all fronts must start now.