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US controls on high-tech exports to China will backfire

Innovation happens globally and one country hindering it helps no one

| China

Even if the U.S. strikes a phase-one trade deal with China, as President Donald Trump has said is likely, the U.S. government will maintain its restrictions on technology transfer to China, to slow the flow, in three key areas: Chinese investment in the U.S., Chinese students in the U.S. and American exports of advanced technologies to China.

Export controls on emerging technologies risk hurting not just China but the U.S. too by stymieing innovation in critical fields for the future. These new controls are a reaction to China's technological advances, but can only work as a stopgap measure until a more comprehensive solution is developed. Instead, the U.S. government should reinvest in the country's capacity to innovate and lead the world in science and technology.

The closest historical examples for today's policies toward China are the trade war with Japan in the 1980s and the Cold War with the Soviet Union. In both cases -- albeit very different from now -- the U.S. approach was arguably effective.

U.S. economic measures against Japan, including import tariffs, put pressure on Japan to limit its exports, and the 1985 Plaza Accord to drive down the dollar defused that trade war. The policies also triggered Japan's decade-long economic stagnation.

Meanwhile, the Cold-War era Coordinating Committee for Multilateral Export Controls, or CoCom, helped slow the Soviet Union's technological advancement by restricting Western military and technology exports.

Yet in contrast to U.S. relations with China today, relations with Japan had no military element and relations with the Soviet Union had virtually no economic element. Japan was and still is a U.S. treaty ally. At its Cold War peak in 1979, U.S.-Soviet trade reached a paltry $4.5 billion; the U.S. and China had $737 billion of trade last year.

U.S. Trade Representative Mickey Kantor, left, aims a bamboo sword at Japan's Trade Minister Ryutaro Hashimoto prior to starting the negotiations on auto and auto parts in June 1995: relations with Japan had no military element.   © AP

The U.S. Congress supports the current approach to China: it passed bipartisan legislation on export controls which became law on August 13 last year. The Export Control Reform Act, or ECRA, created a much-needed permanent statutory authority for export regulations.

It codified the Commerce Department's approach to controlling emerging technologies, which has been in practice since at least 2012, and included a mandate for a new interagency process to identify "emerging and foundational technologies" that are "essential to the national security of the U.S."

Three months later, the Bureau of Industry and Security requested comments on proposed export controls on emerging technologies in fields such as artificial intelligence, quantum computing, and biotechnology.

These controls are in part a response to the Made in China 2025 plan, with which the Chinese government seeks to boost domestic production in 10 key sectors including next-generation information technology, robotics, aerospace and biopharmaceuticals.

The hundreds of comments received from industry, academics and private citizens largely warned about the risks to U.S. innovation of overly broad and unilateral controls.

If controls are too broad, they will make international collaboration difficult, which will ultimately make it harder for the U.S. to innovate. If U.S. controls capture more technologies than other countries are willing to restrict, China -- and other importers -- will go to third countries to obtain the technology it wants.

U.S. industry will be passed over, which will harm the U.S. economy and limit funding for future research and development.

An internationally harmonized approach to export controls is necessary for any controls to be effective. In recognition of this fact, the new export control regulations require the Secretary of State to propose any new domestic controls at the multilateral level.

Yet multilateral agreement will be difficult to secure, given countries' range of economic and security relationships with China.

The more realistic solution is for the U.S. to work on a bilateral basis with like-minded countries to discuss what technologies truly pose a security risk and how to best manage them.

In particular, given their own advanced technologies and deep economic links with China, the U.S. must work hard to get its allies in Asia on board. For example, Taiwan, which faces a direct military threat from China, still supplies Huawei with semiconductors. U.S. officials are trying to convince Taiwanese officials of the risk of doing so, but so far, Taiwan has not redirected its semiconductor exports.

The experience of the U.S. in petitioning its allies to ban Huawei from their fifth-generation, or 5G, mobile networks offers an indication of the uphill battle to come. Winning over U.S. allies to technology transfer controls in general or specifically toward China may require certain incentives to make palatable their prospective loss of business.

Technology, economics and national security will become more interlinked in the future and one cannot be protected without consequences for the other two. The global nature of research, supply chains and commerce, as well as China's growing indigenous capabilities, means that only the minimum level of truly critical technologies should be controlled.

The U.S. would also do well to delay implementation of its own emerging technology controls until it can forge at least a minilateral consensus among a small group of key supplier countries.

Ultimately, export controls are a reactive policy. The U.S. government needs to double down on its investment in American talent and enterprise while continuing to reap the benefits of foreign talent, collaboration, and global innovation.

Crystal D. Pryor is Program Director and Research Fellow at the Pacific Forum, a Honolulu-based think tank.

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