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January 6, 2019

Responding To: Examining the Impact of the U.S.-China Trade Dispute on Technological Innovation

Impact of the Increasingly Contentious U.S.-China Relationship on Technological Development and Innovation

Adam Segal

What will be the impact of the increasingly contentious U.S.-China relationship on technological development and innovation? On one hand, Washington and Beijing risk destabilizing a globalized system of innovation that has served them remarkably well. The U.S. science and technology system has depended in part on the inward flow of foreign talent and ideas, and American technology companies responded to the challenge from Japan by building supply chains that spanned the Pacific. Beijing absorbed massive amounts of investment and, through both legal and illegal means, foreign technology. Artificial intelligence, seen on both sides of the Pacific as driving the next wave of technological development, is replicating these patterns of interdependence, with scientific talent traveling between Silicon Valley and Zhongguancun, and American and Chinese companies and universities entering into partnerships and research exchanges.

Political forces are pulling these interconnected systems apart. Beijing has a long tradition of techno-nationalism that has been re-energized under President Xi Jinping; the National Cybersecurity Law and Made in China 2025 are the most recent efforts to free China from dependence on the West for critical technologies. Washington, increasingly anxious about China’s rising technological capabilities and its program of military-civil fusion, has limited Chinese investment in U.S. technology sectors, blocked Chinese telecommunications companies from doing business in the United States and other markets, and is considering restrictions on student visas in a number of fields of study.

On the other hand, competition, and national security competition in particular, could accelerate technological development. Xi Jinping has used the trade dispute to double down on calls for self-reliance, telling a meeting of top Communist Party officials that China must fast-track the development of AI and “control” the technology and make sure it is “securely kept in our hands.” While the United States has tended to default to a commercial sector driven technology policy, some members of Congress are looking for a more interventionist strategy, calling, for example, for a national initiative on quantum. 

It is too early to know whether the costs of eliminating the vulnerabilities created by interdependence outweigh the potential innovation gains of competition. It is possible, however, to think about what factors may determine where the outcome falls on the cost-benefit ledger.

Nature of specific technologies: Are some technologies more dependent on openness and collaboration to drive innovation? How quickly do new technologies or techniques diffuse? Is AI, for example, a more collaborative scientific endeavor than quantum computing?
Firm strategy: How does the private sector see the future of innovation? What is the relationship between technology companies and home governments? And between tech companies and foreign governments?

Domestic politics and capabilities: Are some governments better positioned to respond to the de-globalization of science and technology? At first glance, the long term risks of dismantling the globalized system of innovation appear higher for Washington than Beijing. China already has the policy tools in place for mercantilist competition. Given the current political environment, the United States will struggle to find new policy instruments, and the consensus on traditional U.S. science and technology policy—i.e., support for federal R&D and public universities—is shaky. 

International competition and capabilities: The question is not only can one side prevent the other from accessing critical technologies through multilateral export control laws, but also can they mobilize new collaborative agreements. In effect, will Beijing and Washington be able to organize “like-minded” countries into new technology alliances?

This list may overplay the political and neglect structural and economic factors. But as a first attempt it seems right. The de-globalization of science and technology is a political choice, and getting it right will require new political relations.

Adam Segal is the Ira A. Lipman chair in emerging technologies and national security and director of the Digital and Cyberspace Policy Program at the Council on Foreign Relations. He is a participant in the Initiative for U.S.-China Dialogue on Global Issues faculty research group on business and trade.

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