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Looking Into the Report That Spurred Trump's Trade War With China
Image Credit: Flickr/ White House

Looking Into the Report That Spurred Trump's Trade War With China

 
 

A DiUX report may have helped enable the Trump administration to pursue harsh trade measures against China. According to Patrick Tucker of Defense One, the report was influential in the Trump administration’s decision to implement trade sanctions against China. The Pentagon fears that the PRC is using improper means to acquire U.S. technology and close the military and economic gaps between China and the United States.

Measures of technology acquisition discussed in the paper included industrial espionage, forced technology transfer in joint ventures, acquisitions of U.S. firms, and venture capital investment. The last has the added incentive of making technology startups unable to work with the U.S. Department of Defense. As the report notes, “export controls are effective at deterring exports of products to undesirable countries and can be used to prevent the loss of advanced technologies but controls were not designed to govern early-stage technologies or investment activity.”

The report includes a variety of recommendations, including the development of a whole-of-government approach that includes both defensive and proactive measures. The defensive measures include heavier investment in cybersecurity, better monitoring of the access that foreign students have to sensitive technologies while studying in the United States, more carefully calibrated export controls, and broader tools for monitoring and preventing foreign investment in critical technologies. Proactive policies include changes in contracting practice, higher research investment in critical technologies, and increased incentive for U.S. students to focus on STEM fields. The authors also note the need to coordinate with allies on limiting China’s access to technology; if Chinese firms can acquire the restricted technologies from Europe, then U.S. action serves little purpose.

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It’s worth wondering whether some of the policies advocated would harm U.S. innovation. Steps taken to restrict access to the technologies often restrict diffusion between U.S. firms, slowing innovation. Reducing the overall number of students available to research universities and other facilities (through limiting the issuance of visas) would undoubtedly slow research; it is unlikely that shortfalls could be recouped simply by encouraging more U.S. students into STEM. Finally, it’s difficult to imagine that the U.S. government could fully replace Chinese investment in startup firms in critical technology areas.

Notably, the report does not include a recommendation to undertake a broad-based trade war against China. And, of course, the confrontational approach to trade that the Trump administration has pursued with U.S. allies may make them less amenable to agreeing to harsh export controls. The success of the export control regime in the Cold War was built, to some extent, on the willingness of U.S. allies to surrender a degree of control of their high technology exports in return for reliable access to U.S. markets. The Trump administration must demand the former, while working to curtail the latter.

Nevertheless, the report is optimistic about the ability of the United States to identify critical dual-use technologies, and also to protect those technologies from Chinese appropriation. Underlying the study is the oft-assumed, rarely interrogated idea that the United States can retain its technological advantage if it can enforce a fair playing field on Chinese technology companies. This assumption, which was probably sound a decade ago and which worked out well enough during the Cold War, may not be sufficient given the growth of China’s economy. In the end, the core innovative capacity of the U.S. depends on a set of pillars (an open economy, strong system of higher education, reliable access to international markets, and investment) that are necessarily vulnerable to foreign exploitation. Steps taken to curtail that exploitation may also undermine those pillars.

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