Competition with China calls for carefully managed ‘decoupling’ of economic relations, writes Joseph N. Nye. One option, he argues, is for middle powers to lead a trade agreement for information and communication technology that would be open to countries meeting basic democratic standards.
The United States and China are competing for dominance in technology. America has long been at the forefront in developing the technologies (bio, nano, information) that are central to economic growth in the twenty-first century. Moreover, US research universities dominate higher education globally. In Shanghai Jiao Tong University’s annual Academic Ranking of World Universities, 16 of the top 20 institutions are in the US; none is in China.
But China is investing heavily in research and development, and it is already competing with the US in key fields, not least artificial intelligence (AI), where it aims to be the global leader by 2030. Some experts believe that China is well placed to achieve that goal, owing to its enormous data resources, a lack of privacy restraints on how that data is used, and the fact that advances in machine learning will require trained engineers more than cutting-edge scientists. Given the importance of machine learning as a general-purpose technology that affects many other domains, China’s gains in AI are of particular significance.
Moreover, Chinese technological progress is no longer based solely on imitation. Former US President Donald Trump’s administration punished China for its cybertheft of intellectual property, coerced IP transfers, and unfair trade practices. Insisting on reciprocity, the US argued that if China could ban Google and Facebook from its market for security reasons, the US can take similar steps against Chinese giants like Huawei and ZTE. But China is still innovating.
After the 2008 global financial crisis and the ensuing Great Recession, Chinese leaders increasingly came to believe that America was in decline. Abandoning Deng Xiaoping’s moderate policy of keeping a low profile and biding one’s time, China adopted a more assertive approach that included building (and militarising) artificial islands in the South China Sea, economic coercion against Australia, and the abrogation of its guarantees with respect to Hong Kong. In response, some people in the US began to talk about the need for a general “decoupling.” But as important as it is to unwind technology supply chains that directly relate to national security, it is a mistake to think that the US can decouple its economy completely from China without incurring enormous costs.
That deep economic interdependence is what makes the US relationship with China different from its relationship with the Soviet Union during the Cold War. With the Soviets, the US was playing a one-dimensional chess game in which the two sides were highly interdependent in the military sphere but not in economic or transnational relations.
With China, by contrast, the US is playing three-dimensional chess with vastly different distributions of power at the military, economic, and transnational levels. If we ignore the power relations on the economic or transnational boards, not to mention the vertical interactions between the boards, we will suffer. A good China strategy therefore must avoid military determinism and encompass all three dimensions of interdependence.
The rules governing economic relations will need to be revised. Well before the pandemic, China’s hybrid state capitalism followed a mercantilist model that distorted the functioning of the World Trade Organisation and contributed to the rise of disruptive populism in Western democracies.
Today, America’s allies are far more cognisant of the security and political risks entailed in China’s espionage, coerced technology transfers, strategic commercial interactions, and asymmetric agreements. The result will be more decoupling of technology supply chains, particularly where national security is at stake. Negotiating new trade rules can help prevent that decoupling from escalating. Against this backdrop, middle powers could come together to create a trade agreement for information and communication technology that would be open to countries meeting basic democratic standards.
One size will not fit all. In areas like nuclear non-proliferation, peacekeeping, public health, and climate change, the US can find common institutional ground with China. But in other areas, it makes more sense to set our own democratic standards. The door can remain open to China in the long run; but we should accept that the run could be very long indeed.
Notwithstanding China’s growing strength and influence, working with likeminded partners would improve the odds that liberal norms prevail in the trade and technology domains. Establishing a stronger transatlantic consensus on global governance is important. But only by cooperating with Japan, South Korea, and other Asian economies can the West shape global trade and investment rules and standards for technology, thereby ensuring a more level playing field for companies operating abroad.
Taken together, democratic countries’ economies will exceed China’s well into this century; but only if they pull together. That diplomatic factor will be more important than the question of China’s technological development. In assessing the future of the US-China power balance, technology matters, but alliances matter even more.
Finally, a successful US response to China’s technological challenge will depend upon improvements at home as much as on external actions. Increased support for research and development is important. Complacency is always a danger, but so, too, is lack of confidence or an overreaction driven by exaggerated fears. As former MIT Provost John Deutch contends, if the US attains its potential improvements in innovation potential, “China’s great leap forward will likely at best be a few steps toward closing the innovation leadership gap that the United States currently enjoys.”
Immigration also will play an important role in maintaining America’s technology lead. In 2015, when I asked former Singaporean Prime Minister Lee Kuan Yew why he did not think China would surpass the US, he pointed to America’s ability to draw upon the talents of the whole world – a possibility that is barred by China’s ethnic Han nationalism. It is no accident that many Silicon Valley companies have Asian founders or CEOs.
With enough time and travel, technology inevitably spreads. If the US lets its fears about tech leakage shut it off from such valuable human imports, it will surrender one of its biggest advantages. An overly restrictive immigration policy could severely curtail technological innovation – a fact that must not get lost in the heated politics of strategic competition.
Joseph S. Nye, Jr. is a professor at Harvard University and author, most recently, of Do Morals Matter? Presidents and Foreign Policy from FDR to Trump (Oxford University Press, 2020).
Banner image: US and Chinese currency side by side. Credit: Oleg Elkov, Shutterstock.
Copyright: Project Syndicate, 2021 – www.project-syndicate.org