China’s protectionist policies in high-tech industries require U.S. response

Emerging technologies such as self-driving cars, personalized medicine, and military robots are all on cusp on transforming every aspect of how we conduct business, go to war, and live our lives. A country that leads the world in developing these cutting-edge technologies will gain a military edge and dominate the global economy in these new, fast-growing markets. The United States must decide whether it wants to remain a technological leader or cede its leadership to China. 

China has laid out an ambitious plan to supplant the United States as the global leader in emerging technologies, targeting pillars of U.S. economic competitiveness and future drivers of global growth such as next-generation information technology, aerospace, robotics, and biotechnology.

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While pursuing high-tech and higher-value-added sectors are common goals for all countries, China’s approach has raised concerns with governments, businesses, and observers around the world due to its protectionist policies. The U.S. Chamber of Commerce’s report “Made in China 2025: Global Ambitions Built on Local Protectionism” stressed that the Made in China 2025 initiative “aims to leverage the power of the state to alter competitive dynamics in global markets in industries core to economic competitiveness,” thus “skewing the decision-making process for companies that must decide where products are made and innovation takes place.” A report by European Chamber of Commerce expressed similar alarm.

The Chinese government is seeking to build domestic capacity with the goal of replacing foreign technology and products with domestic substitutes using preferential support for domestic firms, localization targets, technology transfer requirements, China-specific standards, and high market access barriers for foreign firms. These policies are slowly eliminating market opportunities for U.S. and other foreign firms in China, and creating new Chinese competitors that will be able to challenge U.S. companies both domestically and globally.

U.S. cloud computing firms are global leaders but in China, they face data localization requirements and cross-border data transfer restrictions, are barred from providing services to specific industries such as banking, and compelled to form a joint venture as the price of entry. These restrictions limit the economic opportunities for U.S. firms such as Amazon, Microsoft and Salesforce.com while protecting Chinese cloud computing firms such as Aliyun from competition.

The Chinese government is also providing significant financing for Chinese firms to acquire companies abroad in designated high-tech sectors, injecting state guidance into the investment process at a scale and volume of resources that dwarfs other countries’ support. In 2014, the Chinese government rolled out a $150 billion fund—equal to nearly half of the industry’s global sales that year—to support the creation of its own globally competitive semiconductor firms. This robust financing contributed to a surge of Chinese bids in the United States—where firms accounting for half of the global market are located—from six investments prior to 2013 to 27 investments from 2013 to November 2016, worth over $37 billion.

Losing this edge places U.S. high-paying, high-skill jobs, economic growth, and national security at risk.

Access to the most advanced computing capabilities has become indispensable for researchers, companies, and governments, and provides a competitive edge in technological and scientific innovation and research. In the last decade, China has used its state-directed approach to rapidly expand its high-performance computing capabilities, challenging U.S. leadership. China now has the world’s two fastest supercomputers and is tied with the United States for the largest number of supercomputers. In addition, China is expected to beat the United States in rolling out an exascale computer, which would be 10 times faster than the world’s current leading supercomputer. 

But China’s future dominance in these sectors is not a foregone conclusion. The United States remains home to the world’s leading experts and breakthroughs in cutting-edge technology and research. To maintain this lead, the U.S. government must support basic research and development with consistent and stable levels of funding and recruit the world’s best and brightest.

The U.S. government also needs to ensure U.S. firms are able to compete on a level playing field by decisively challenging China’s market-distorting practices through a whole-of-government approach.

Greater interagency cooperation can leverage existing authorities and personnel to identify important U.S. sectors and technologies threatened by China’s protectionist policies. This early identification will allow the U.S. government to quickly challenge China’s unfair trade policies, put in place additional safeguards on technology at risk of espionage or illicit acquisition, and increase scrutiny of Chinese acquisitions in such sectors by the Committee on Foreign Investment of the United States. The United States is not alone in confronting these challenges and should deepen its cooperation with other high-tech economies such as the European Union and Japan to collectively pressure China for greater market access and market-based reforms.

Remaining at the forefront of emerging technology is critical to U.S. long-term competitiveness, and the United States needs a strong, coordinated response.

Dr. Tobin and Mr. Slane are commissioners of the U.S.-China Economic and Security Review Commission. This article represents their views alone.


The views expressed by this author are their own and are not the views of The Hill.