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US versus China -- a technology Cold War?

Some restrictions are needed, but dividing the industrial world serves nobody

| China

Politicians and analysts on both sides of the Pacific have become increasingly gloomy about U.S.-China relations with growing fears that the two superpowers may yet engage in a new Cold War. But not, this time, a Cold War focused on nuclear confrontation but on technology.

This pessimism is driven by a broad range of increasingly contentious disputes -- over the expanding Chinese presence in the South and East China Seas; allegations of cyber intrusions and espionage; claims about intellectual property theft and unfair trade practices; China's treatment of political dissidents and ethno-religious minorities; and so on.

Extreme views that we are on the brink of a new Cold War are overblown. There are important differences between the current U.S.-China tensions and the U.S.-Soviet rivalry, which counsel caution in offering such a dire prediction.

But there is an emerging dimension to the U.S.-China conflict which has worrisome echoes of that earlier conflict -- the growing division of the world into two technological blocs, each of which seeks autonomy and self-sufficiency and strives to limit the other's access to its advanced know-how.

As former U.S. Treasury Secretary Henry Paulson warned last fall: "I now see the prospect of an economic Iron Curtain -- one that throws up new walls on each side and unmakes the global economy, as we have known it."

In China, this approach is most evident in China 2025, a wide-ranging effort to provide government support to key technologies and to exclude from China Western companies that offer competitive technology. The plan called for China to achieve 70 percent "self-sufficiency" in key high-tech industries by 2025.

Although Premier Li Keqiang omitted any explicit reference to the program in his recent speech to the National Party Congress, perhaps in response to fierce criticism from the U.S. and others, the substantive aspiration seems intact.

The United States government, for its part, is busy trying both to promote American technological prowess, and to deny China the fruits of U.S. innovation. Last year the Pentagon announced plans to spend an additional $2 billion to support artificial intelligence research. At the same time, the administration is building ever higher technological walls around the United States. Recent actions include the Foreign Investment Risk Review Modernization Act (FIRRMA) which strengthened U.S. government oversight of foreign investments in emerging technologies with national security implications; a prohibition on American procurement of technology produced by China's Huawei and ZTE, both companies are accused of providing prohibited technology to Iran, and the addition of 44 new Chinese companies to the Commerce Department's "entity list," which names companies for which exporters of American technology require government licenses.

Both ZTE and Huawei appear on the Commerce Department's entity list for which exporters of American technology require government licenses.   © Reuters

Senator Marco Rubio of Florida recently introduced legislation to restrict Chinese investment in U.S. companies in China 2025 sectors.

Nowhere is the move toward technology blocs more apparent than in the race to build next-generation telecommunications networks and the U.S.-led fight to prevent Huawei -- China's "national champion" -- from gaining access to Western markets. The U.S. has mounted a global campaign to dissuade other countries from adopting Huawei technology; to date both Japan and Australia seem prepared to bar Huawei, but both Germany and the U.K. are resisting the pressure.

Proponents of the idea of "decoupling" argue that western dependence on China creates vulnerabilities and gives China leverage over U.S. and allies' policies. They point to an earlier Chinese effort to cut off Japan's access to "rare earth metals", in response to the dispute in the East China Sea, as evidence that China will use dependence to further its strategic interests. They argue that if Western countries become reliant on Chinese semiconductors or telecoms equipment, they will be at risk of backdoors sabotage.

These arguments are echoed in China, where advocates of autonomy point to high-technology sanctions imposed after the 1989 Tiananmen Square incident and revelations of whistleblower Edward Snowden as example of the costs of China's dependence on Western technology and the need to develop China' own capabilities.

During the Cold War, the United States and its allies built arrangements -- most importantly the Coordinating Committee for Multilateral Export Controls (Cocom), which strictly limited technology transfer to the Soviet Union. Western strategy rested on the idea that the only way to beat the Soviet Union was to build up the West's technology advantage through Pentagon-led programs and deny the USSR and its allies access to advanced military and dual use technology.

Certainly, there are risks associated with technology transfer. Both sides are keenly aware of the potential military and economic advantages of monopolizing key technologies. But any attempt to separate our systems into competing blocs has costs. Interdependence has fueled global supply chains, increasing efficiency and driving down costs. International collaboration has produced enormous breakthroughs, and scientific exchanges have created greater understanding among our peoples. Interdependence may create vulnerabilities -- but it is kind of mutual vulnerability, so that both sides stand to lose from conflict, giving leaders incentives to avoid conflict where possible and avoid dangerous escalation when conflict occurs. By contrast, decoupling may create a false sense that one side could prevail over the other at little cost, increasing the risk that a minor conflict or misunderstanding could spin out of control.

Moreover, any attempt to build stout barriers is bound to disappoint. Past efforts at technology control have demonstrated that deciding what technologies to control, and then enforcing those decisions, is enormously difficult. Especially where the technologies are very broad in their commercial as well as military application, controls will put a serious burden both on the governments and the private sector, increasing companies' costs and giving competitors significant advantages in countries that don't opt in to a U.S.-led system. The experience with trying to control exports of strong encryption in the 1990s is a cautionary tale; despite U.S. efforts, the technology became widely available and U.S. companies which were cut off from global sales paid the price.

This doesn't mean the U.S. and its partners must stand idly by. As we learned during the nuclear era, some technologies are too dangerous to share and are worth protecting against theft or transfer. Just as modest stockpiles of strategic materials made sense in the past, a government role in assuring that the U.S. and its partners have state of the art technology is appropriate, particularly for technologies that the civilian market might undervalue, although increasingly the arrow of innovation is going from the private sector to government, rather than vice versa. Rather than putting pressure on our allies, the U.S. should set up a collaborative mechanism to share information and coordinate strategies among like- minded countries.

Rivalry between the U.S. and China is undoubtedly here to stay. But both sides will lose if we move willy-nilly down the path to a technological cold war.

James Steinberg is a politics professor at Syracuse University and a former U.S. Deputy Secretary of State.

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