Secretary of State Blinken is set to unveil the Biden administration's China strategy in a speech within days, according to POLITICO citing multiple sources. A new document titled "US-China Technological Decoupling: the Strategy and Policy Framework" from the think tank Carnegie Endowment for International Peace argues that the United States cannot afford to muddle through tech decoupling when it comes to China. Joining me today is the author of the document, Jon Bateman, a fellow at CEIP and a former senior intelligence analyst, policy adviser and speechwriter at the Pentagon. Thank you so much for being here with us. Thanks for having me.
So, Jon, controversy surrounding China's unfair market practice and human rights records are not new. You will remember when the United States policymakers decided in the 1980s, in 2000, that deepening bilateral economic engagement with China and integrating Beijing further into global institutions would be the best way forward to shape China's behaviors. Yet the mood has soured over the years.
Now there seems to be this bipartisan interest in tech decoupling with China. So can you help us understand the reasons behind this sea change? How did goodwill or optimism erode and eventually collapse? Well, that's a great question. And you're right, the concerns about China and Washington and Chinese technology are not entirely new. There have always been friction points in the relationship around such issues, like human rights and unfair competition. But in 1990 and 2000, the prevailing mood in Washington was one of cautious optimism or at the worst ambivalence about China's rise and integration into the global economic order. Now, I would say we're in a world of fear and concern, and so that's a big shift.
What was it that changed? I would argue that at least two key things changed, at least in the realm of technology policy. The first is that U.S. policymakers and leaders in Washington have developed much, much darker views of China over the last 5 to 10 years and this has largely been driven by changes in Chinese behavior. So you can look at well-known developments such as Beijing's land reclamation in the South China Sea and its militarization of disputed islands and then put that into a context of China's broader military buildup.
The quality and quantity, which has caught many Westerners off guard. Then there is the continued intellectual property theft and exploitation of international trade rules. Now, again, there have always been these concerns about China and this sort of long suffering hope that China would play by WTO rules.
But what's changed is that China has actually moved up the economic value chain so that these practices that are concerning to the United States actually have greater impact than they did before. At the same time, we see a deepening authoritarianism under President Xi. And so it's become clear that China is not on a path to liberalize politically, and the repression of the Uighurs is in a class by itself. Then we have Hong Kong and the eventual dissolution of the one country, two systems policy and lots of saber rattling against Taiwan. So just to sum up, American policymakers have a very different view of China today than they did even ten years ago, because China's behavior is very different.
And now China is seen as the greatest long term threat to American interests and values. The other key thing that's changed is American views of technology and tech policy. Traditionally, throughout the nineties and 2000, the United States was the biggest supporter of digital globalization or techno globalism, and there were lots of self-interested reasons for this. It was really the U.S. firms and Internet companies that were globally dominant and were benefiting. And this created national security benefits for the United States. At the same time, digital globalization really fit within the prevailing neoliberal paradigm.
And there was lots of hope that this could spread information around the world and that countries together. Now, China was one of a number of countries that always dissented from this techno globalist paradigm. And we could see this early on where the development of the Great Firewall. So really it was the United States government and policymakers in D.C. who were the last to come around to an ascendant techno nationalist worldview.
And there were a few key events here. Again, we already talked about the Chinese cyber enabled IP theft. There was also Russia's election interference in 2016.
Both of these events caused American elites to really see digital openness in the United States as a vulnerability as well as only a strength. At the same time, the rise of technologies like 5G and machine learning have had a huge impact on the policy conversation because these are dual use. They've been aggressively hyped as perhaps the most important technologies in a generation, and for the first time, there are signs that they could be won or dominated by China. So together, these two things, the darkening views of China and this rising techno nationalism, have created a relative consensus in Washington that some degree of technological decoupling and techno nationalism is the solution.
Fantastic. So you alluded to the United States' heritage of techno nationalism and we know the United States has successfully contested the Soviet Union, a geopolitical and ideological rival, and Japan, an economic and technological competitor. So why is this time different? How does a China the China challenge differ from the one posed by the Soviet Union or Japan? Right. So this new techno nationalism that's oriented around China, it's new, but it's not completely unprecedented. And in fact, the spectrum of techno globalism on the one hand and techno nationalism on the other, there's really been ebbs and flows from one side to the other throughout U.S. history. In fact, if you go back to the 1700s in the 1800s, early U.S. political history was dominated by questions around to what degree we should have tariffs to protect U.S. industry and technology of that era. So now that people are looking at this China threat, the two big parallels that are being drawn are to the Cold War and to the competition with Japan in the 1980s.
Of course, the Cold War led to huge federal government investments and the space race, the National Science Foundation, and Silicon Valley, the education system. It also led to some of the most significant multilateral export controls. And then likewise, Japan, when that rose as a competitor in the 1980s, really touched off similar investments. The United States put together a public private partnership for semiconductor fabrication and also increased restrictive measures like the Committee on Foreign Investment in the United States, or CFIUS, which now is a well-known tool in the China toolkit.
But ultimately, these two prior periods are really quite distinct because while, as you said, the United States has successfully beaten back or contested one geopolitical adversary in the Soviet Union and one modern technological competitor in Japan, China arguably plays both of these roles and has more latent capacity than either the Soviet Union or Japan ever did. And you can look at some very basic statistics to understand this. Economically, there was a certain degree of competition between the Western world order and the Soviet order, but we actually drastically overestimated the size of the Soviet economy, which really never reached greater than 25% or 35% the size of the US economy. And Japan never exceeded 70% the size of the US economy.
Well, China is already at 70% the size of the US economy. And there's lots of varying predictions in flux about whether it will overtake the United States in the next ten years or whether that may never happen But there's no doubt that China's economy will continue to grow, to have greater durability than certainly the creaky Soviet economy ever did, and probably Japan's as well as a competitive threat. China's population, of course, is far larger than the Soviet Union, and ultimately its global economic and diplomatic integration is completely different than what we've seen from past competitors. So, again, hard to predict the future.
China's economy and its tech industry specifically are facing huge headwinds right now on a lot of fronts. It's possible that China could get stuck in some kind of middle income trap that its political influence over the technology ecosystem will ultimately stymie innovation. There can be a debt bubble that bursts, but Washington can't count on any of those things happening.
So it's important to consider that this competitive threat will be enduring for a long time. The final thing I want to say on this is that China is different, but other aspects of the environment are different, too. Unlike in the 1980s or in the 1940 or 50, 60, 70s, etc., the technological landscape is much more globalized today with globally integrated innovation and research ecosystems. It's much more private sector led.
And so managing competition in this kind of environment is a completely different challenge. And the final piece is that the United States is different and has a different role in the world. Unfortunately, the governance capacity of the United States and our very political stability have greatly diminished in recent years. And we have a declining economic and political influence in the world at large by a number of different metrics. So in many ways, the geo technological challenge facing United States leaders today is harder and more complex and more uncertain than those similar challenges that we face before these days.
When we read the news, it seems like the complicated reality of US-China relations has been sinking into the mire of one sensational heartache after another. So when US policymakers speak of pandering, China's technological threats and security risks, what tools do they actually have at their disposal and what goals do they have in mind? In your opinion, are those the right tools for the right objectives? Yeah. So let's start with the question of what goals they have in mind. This has to be the starting point and unfortunately it's often quite unclear. We've seen over the last number of years, starting in the Trump administration, many ad hoc, individual, uncoordinated actions, often taken against specific Chinese companies, whether it's TikTok or ZTE or Alibaba or others. And these don't always have a clear principle.
So the fundamental question is, firstly, what kind of vision for the future does the United States have? What kind of technological relation does the United States actually want to have with China? And I argue that there are three different paths that we can take. One path would be called cooperation as such, and this would involve continued technological engagement with China on the premise that this is win- win and beneficial for the United States, and there should not be significant technology restrictions. This path was once dominant but has really lost a lot of political influence. The opposite path is what might be called restrictionism, which is essentially pulling back the drawbridge and raising the moat and imposing drastically greater technology restrictions on our relationship with China.
So we see now a debate about, for example, whether there should be outbound investment screening to prevent Americans and American financial institutions from investing in large swaths of the Chinese technology economy. And then in the middle is a centrist path where it's sometimes called a small yard with a high fence. In other words, we would only seek to restrict and selectively decouple in a few of the most strategic and sensitive technology areas. And in other areas, we would allow cooperation to continue where it's seen as mutually beneficial for U.S. interests and for Chinese and other global interests.
So we still have really not decided as a country which path that we're on. And the major debate is between these restrictionists, on the one hand, and the centrists on the other. And I'll say that there are both camps are represented inside the Biden administration and inside Congress in both the Democratic Party and the Republican Party. Now, if you were to try to then break down these goals into more specific policy objectives, you would very quickly see that there's many, many different complicated technology policy goals at stake.
And sometimes these can conflict with each other. And so there needs to be a sense of priorities and tradeoffs. For example, we want to protect US sensitive technology in order to maintain a military edge, but we also want to compete economically on the world stage. You can look at past decades when strict regulation of the export of commercial satellite imagery, which was something the US government did to protect its military and intelligence advantages ultimately ceded market share to European and other foreign competitors. So that's an example of the trade off between some of these goals and why we need to be clear about them. Now, you asked what tools we have.
In general, I think you can break it into two pieces. Offense and defense offense, which we can talk more about, is self-improvement, investing and United States technological strength, resilience and competitiveness. We need to do much, much more of that. Unfortunately, most of the energy so far has been spent on what you might call defense, essentially protecting U.S. technological advantages from some kind of Chinese encroachment, theft,
or in some cases, holding down or thwarting Chinese technological influence or progress. And there's a huge array of these tools from export controls, tariffs, restrictions on investment both ways denying Chinese companies licenses to operate in the United States, denying visas for Chinese students and researchers, financial sanctions rules on how federal spending and grants can be spent when it comes to China. And while enforcement actions like the China initiative in all of these areas, what we've seen over the past five, six, seven years is an expansion of these authorities and an intensification of how they're being applied against China and the Chinese tech sector. So there are a lot of tools. They're very complicated and arcane. And unfortunately, without a clear strategy, these tools will probably be used in an ad hoc manner that's not coordinated or coherent and could send mixed messages around the world.
I see in the paper you wrote, you also remind us that tackling the China challenge is not all about disciplining China's unfair practices even on level playing field. China can still outcompete United States in some areas of technology deemed to matter most for the future. I wonder if you can give us some examples of areas you see China potentially overtaking United States and what's your policy prescription to US policymakers. Well, it's a very simple but obvious, often glossed over point, which is that we speak in terms of stopping Chinese unfair economic practices, whether these are subsidies, market access restrictions, discriminatory regulatory requirements, IP theft. We also speak in terms of winning economic competition and making sure that we're successful in the most important industries of the future. These two things are related, but they are different, right? There are cases where even under a level playing field, another country, including China, might outcompete us simply by virtue of natural advantages that it has, whether it's the fact that China is among the top countries in the world in STEM Ph.Ds, whether it's one of the top countries in the world in R&D spending and other things that it's done, particularly in the realm of supply chain integration and manufacturing integration.
So we need to pull these things apart and make sure that we're addressing each differently. And you asked for an example. I'll give you a couple examples. One is TikTok.
Tiktok of course, a Chinese social media platform has really exploded in the last few years in terms of popularity to become by far the most significant competitive threat to the dominant US based social media platforms like Facebook, Instagram, YouTube and Twitter to emerge in years. Now it's interesting in that the basic ideas for TikTok like short, shareable videos that would target youth. These ideas have been around for a long time and in the U.S. we even had a company called Vine a number of years ago that popped up, was successful for a while, and then faded away.
And so what TikTok has done is enter this marketplace and really compete and very successfully in it. It's done what Vine attempted to do, but in a way that's actually captured market share in the United States and globally. So now TikTok is the fastest growing social media company in the United States and a huge competitive threat. Now, there's lots of controversies around TikTok in the United States. There's concerns about the data practices, about youth addiction, content, moderation.
So TikTok is not a controversy-free company. But there have not been significant allegations of unfair practices. For example, there has not been any revelation that Tik Tok has received some kind of subsidy or support from the Chinese government or benefited from IP theft.
So that's an example of a company that simply arises organically within China's innovation ecosystem. And the United States has to be prepared to tackle those competitive threats and win on our own terms. Another example would be DJI, the drone manufacturer.
Now this example is a little bit less clear cut because DJI as a somewhat opaque, privately held company and we've learned recently that there were some Chinese government investments in DJI but by and large, it appears as though China has become the globally dominant drone manufacturer in large part by doing simple things very effectively. This means having innovative designs, having a tremendous amount of R&D that's successful and having a really well-honed supply chain and manufacturing integrative process. So ultimately, to respond to these competitive threats, the United States needs to do two things at the same time. It needs to seek to enforce rules under the global trade order and perhaps modify those rules when current bodies like the World Trade Organization aren't effective in reining in some of the most systemic and subversive Chinese unfair economic practices. And occasionally this will mean unilateral measures like some of the tariffs and export controls that we've been describing.
But really, what the United States needs to do more than anything else is invest in and nurture its own innovation ecosystem so that it can compete on its own terms with Chinese companies. And that may work differently in the drone marketplace, as in the social media marketplace. But there's a lot that the United States can do to invest in itself. Right. You mentioned those self-improvement or offensive policies will have the greatest long term potential for strengthening US resilience and competitiveness. What are the main hurdles to actually implementing them? Yeah. So there's so much the United States needs to do and what I call offense or self-improvement to strengthen U.S. technological competitiveness, leadership, resilience. The first thing that we need to do is just spend a lot of money, and this can be done in different ways.
But essentially what we need to support is research and development, which at a federal level has declined over the decades. We need to rebuild our manufacturing capacity, at the very least in those industries where for national security and economic security reasons, we need to have some kind of secure manufacturing capacity with the semiconductor industry. We also need to reinvest in our education system, particularly technical and STEM education to make sure that we're churning out the best and the brightest to create the new innovations of the future. At the same time, we need to do a lot of investments and spend a lot of money in the realm of security.
So a lot of the decoupling agenda is driven on fears of Chinese sabotage or military operations or intelligence operations. And so we need to combat those. But we also at home need to build up our own critical infrastructure resilience.
We need to continue to transform our own military forces to compete more effectively against the PLA. And we need to invest in counterintelligence capabilities. So that's all in the category of spending money.
And there's some signs that this is on the way. Some of the China bills that Congress is considering are a down payment on the R&D, the manufacturing and the supply chain resilience. There's also things that we need to do in the realm of regulation. So if we're worried about China stealing our personal data or hacking our networks through some kind of backdoor, it should be of concern to Americans that we have no coherent national cybersecurity and data data privacy standards that apply to a broad range of data, including critical infrastructure information and personally identifiable information. So Congress needs to get on that. If we're concerned about Chinese influence operations, subverting U.S. elections or political conversations,
well, there's a lot that we need to do at home to regulate our own platforms, reform campaign finance, and restore trust in our own information. And you can go on down the line in terms of antitrust, making sure that we're respecting human rights. Building coalitions abroad. These are all things that are complementary to and in some ways more important than the restrictive measures that we would take to target or thwart or combat China directly. And my argument is ultimately that these restrictive measures, although important, really are limited Band-Aids. So export controls, investment restrictions, visa limits.
These should be used to buy time for these other long term investments to bear fruit to pay off. I'm cautiously optimistic about some of this because of the progress on Capitol Hill of these two China bills. But we'll find out over the next few months if these actually are signed into law or not.
You asked what the barriers are. Unfortunately, anyone who studies U.S. politics knows that it's become increasingly difficult to get any big things done in the US government. There's tremendous polarization in Congress and although there's a bipartisan consensus that we need to better compete and protect ourselves against Chinese technology sometimes one party or the other can use this as a political football and seek to deny one party a win before the midterm election. So I'm worried about that.
I'm also worried that traditional US debates, like, for example, about the role of unions in our economy could actually prevent some of this funding from being passed because we already see controversies over whether supply chain resilience funds should be attached to unionization requirements. So all of the same political battles that unfortunately Americans sometimes get stuck on are going to reassert themselves when some of these national security issues really become domestic policy issues at the advent of a new era of industrial strategy. So in order to overcome that, we'll need to develop U.S. domestic consensus around the urgency of tackling the competitive and national security threats from China. And we'll need to have good faith negotiations across both parties.
What happens with these two China bills? USICA and the America COMPETES Act in the next few months will be a big signal about which path we're headed down. Fantastic. Thank you so much, Mr. Bateman, for this very insightful conversation. We will include a link to your report in the show notes section of this program so our audience can take a closer look if they want.
Thank you so much for being here with us, Mr. Bateman. I look forward to talking with you in the future.
2022-05-04