The Sino American tech trap | The Financial Express

The Sino American tech trap

The US’s tough policies could be self-defeating, because its tech war with China is long on tactics and short on strategy

China, us
The US is convinced that there is no such distinction in China. (IE)

Technology is ground zero in the conflict between the US and China. For the US hegemon, it is about the leading edge of geostrategic power and the means for sustained prosperity. For China, it holds the key to the indigenous innovation required of a rising power. The tech war now underway between the two superpowers could well be the defining struggle of the twenty-first century.

Continue reading this story with Financial Express premium subscription
Already a subscriber? Sign in

China‘s Huawei quickly became the lightning rod in the tech conflict between the incumbent power and the wannabe. Feared as the ultimate threat to US telecom infrastructure, Huawei has been cast as a modern-day Trojan Horse, complete with a potential backdoor threat in its world-class 5G platform. Supported by tenuous circumstantial evidence—a few espionage charges that have nothing to do with the suspected backdoor, and the presumption of nefarious motives from the long-ago military service of its founder, Ren Zhengfei—the US’s case against Huawei is laced with false narratives.

Also read: Green Engine for India! Hydrogen train to showcase India’s cultural heritage, Know the route & technology behind it

The real issue in dispute is the murky concept of tech fusion—specifically, advanced technologies’ dual use for military and civilian commercial purposes. The US is convinced that there is no such distinction in China. In its view, China’s state and, by inference, its military, ultimately owns everything that falls under the purview of its tech sector, from hardware and software to big data and the surveillance of those at home and abroad. That is also the essence of the growing outcry over the social-media platform TikTok, which has more than 80 million monthly users in the US.

Never mind that the US has long practised its own strain of tech fusion. Over the years, the Darpa has spawned many of the US’s most important technological advances that have broad commercial applicability. These include the internet, the GPS, semiconductor breakthroughs, nuclear power, imaging technology, and numerous pharmaceutical innovations. Apparently, what’s fine for a (distressed) democracy is unacceptable for a system governed by the Communist Party of China The Huawei threat is the tip of the iceberg in the US’s tech conflict with China. The so-called Entity List that the US commerce department uses to blacklist foreign companies for national-security purposes has been expanded to include Huawei’s supply chain, as well as a number of Chinese tech firms engaged in domestic surveillance of ethnic minorities in Xinjiang Province.

At the same time, with the recent passage of the CHIPS and Science Act of 2022, the US has stolen a page from China’s industrial-policy playbook and embraced state intervention to support technological innovation. And last October, a far bigger shoe dropped: The Biden administration imposed draconian export restrictions on advanced semiconductor chips, aiming at nothing short of strangling nascent Chinese efforts in AI and quantum computing.

But the US’s tough policies could be self-defeating, because its tech war with China is long on tactics and short on strategy. The US has been quick to grasp the power of the “weaponised network”—the chokehold it can place on critical nodes of cross-border connectivity. That approach, in conjunction with the “friend-shoring”, has been key to the financial sanctions imposed on Russia in response to its invasion of Ukraine. It is debatable, however, that this approach will be as effective in controlling the complex multinational research consortiums and physical supply chains of modern technologies.

Also read: RBI MPC may still increase repo rate by 25 bps despite easing inflation, as core continues to be stubborn

More important, squeezing adversaries does not compensate for the lack of heavy lifting at home. That is especially the case for the US, given its surprisingly fragile tech leadership. While it responded forcefully to technology threats from the Soviet Union during the Cold War—especially the nuclear-arms race and the Sputnik-induced space challenge—it has dropped the ball since: federally-funded research and development fell to 0.7% of GDP in 2020, far below the peak of 1.9% in 1964.

Furthermore, in recent years, the US has under-invested in basic research, the pure science that is the seed corn of innovation. In 2020, basic research slipped to 15.6% of total R&D spending, well below its 18.8% peak in 2010. Nor are recent efforts doing much to change that; for example, only 21% of the funding in the CHIPS Act is earmarked for R&D.

Unsurprisingly, China is on the move. At the turn of the century, it spent just 0.9% of its GDP on R&D, or roughly one-third of the 2.6% share in the US. By 2019 (the latest year for comparable figures), China was spending 2.2% of GDP on R&D, or 71% of America’s 3.1% share. The US has also been lagging in STEM-focused educational proficiency (science, technology, engineering, and math), whereas China is now producing far more STEM PhDs than the US. In part, the US’s shortfall in the critical foundations of technology leadership—both R&D and human capital—is an outgrowth of the same deficiency of domestic saving that has given rise to chronic US trade deficits. Its penchant for blaming China for problems of its own making is an excuse, not strategy.

China’s more strategic approach is not without its own vulnerabilities, especially concerning AI. While China’s vast reservoir of data implies a huge advantage for machine-learning applications, its advances in this domain ultimately will be stymied without ever-increasing processing power. Th US’s tactical assault on the advanced chips that fuel China’s AI processing power targets precisely that weak link in the Chinese innovation chain. China gets that, and can be counted on to respond, one way or another.

In the 5th century BC, the Chinese military philosopher Sun Tzu counseled, “Tactics without strategy is the noise before defeat.” Some 2,500 years later, that advice is as relevant as ever. China continues to play a long game, whereas the US’s tactical assault on Chinese tech is all about the short game. Trapped in a political system that places little value on strategy, there is no guarantee that the US will prevail in an existential tech conflict with China.

The writer is former chairman of Morgan Stanley Asia, and a faculty member at Yale University

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 04-02-2023 at 04:45 IST