President Biden often speaks about challenges to democracy from autocracies such as China and Russia, but there are ways that the U.S. form of democracy, capitalism and strategic investment could be improved without calling out other countries for violating humanitarian principles.
One way is for U.S. policymakers, CEOs and research institutions to get better organized and coordinated, especially to compete with China on the technology front. Recent Senate passage of the $250 billion U.S. Innovation and Competition Act USICA to help the supply chain and build more chip fabs is a good start.
Make no mistake, the Chinese are ahead technologically—and way ahead in some quarters. A space race seems to be underway. Recently, the country landed a rover on Mars without the need for decades of advance flights. Last week, China sent three astronauts into orbit to build a space station after being locked out of the International Space Station a decade ago over security concerns lodged by the U.S.
China is also pursuing research in artificial intelligence and quantum computing at a pace that is difficult to measure, but could render the U.S. and its allies anemic in cybersecurity wars in coming years. The EV and autonomous vehicle progress in China exceeds most nations.
Some senators who voted in favor of USICA brought up all the reasons to worry about China, including the proclivity of Chinese companies to steal intellectual property of U.S. firms. Their argument basically goes that the U.S. has the smart engineers and isn’t it a shame that the thieving Chinese are able to benefit from it. But that reasoning begs the question: Why was the coveted IP not commercialized in the U.S. as well, or ahead of the Chinese in the first place?
The richest companies in the U.S. are starting to increase investment in R&D, but there is also apparently a need to take new ideas and apply venture capital to bring products to the fore. The U.S. may have more padded investors than any other country and some of the greatest minds and inventions, but all that has not given the U.S. the edge, yet, in vital products that will fight the next pandemic or vastly improve clean energy production or face off threats from China, real or imaginary.
Publicly traded companies in the U.S. focus heavily on quarterly earnings, but relatively few have produced long-term plans for growth beyond five or 10 years with a few offering glib projections of zero carbon emissions by 2050. The federal government of the last 40 years has dropped the ball, frankly, on paying attention to vital supplies, allowing chip companies to find the lowest-cost supplier in countries where wages are lower and materials are closer at hand. It’s the American Way, of course, to keep costs down, but at what long-term expense?
Competition in the U.S. seems to make every technology company in Silicon Valley the opponent of its neighbor just across the highway, while the attitude in China seems to be one of cooperation by all with a set long-term agenda. Having such centralized coordination makes the entire U.S. enterprise—from Congress to the smallest chip designer—look in terrible disarray or at least unable to look beyond the bounds of a single company’s balance sheet.
Of course, it is easy to cite human rights abuses in China with reports of abuses of Hong Kong protesters or millions of Uighurs in Xinjiang. (China’s apparent interest in controlling the South China Sea makes the technology race more imperative.)
Our hearts go out to all the victims of humanitarian abuse. However, China’s humanitarian practices cannot offer an excuse for a seemingly brain-dead or half-awake institutional and governance approach in the U.S. to applying a strong focus on R&D and efforts to improve the efficiency of processes to bring ideas to full fruition. Years ago, it would have helped if there were more government coordination and private cooperation in fostering a strong RAN (Radio Access Network) technology provider based in the U.S. Meanwhile, Huawei in China became strong in that technology and others, and it is evident how much concern that has caused with U.S. companies losing out on sales to Huawei due to U.S. government prohibitions.
President Biden, thankfully, seems to understand how trade, tech innovation, China and foreign policy are all interwoven, but it is going to take years to meet the Chinese technology challenge at the present pace. Let’s face it: China will indeed become the largest economy in 2027 and it’s about time for top investors and CEOs to grapple with that reality. It may mean looking inside the U.S. and stretching to create new partnerships for better cooperation and financing.
The Biden administration pushed last week for the Group of Seven nations to adopt a Build Back Better World (B3W) initiative as an apparent challenge to the ambitious Beijing Belt and Road Initiative (BRI). But the B3W so far only sounds like a nice name. It is intended to prod the G7 and its allies to mobilize private sector capital in areas such as climate, health and health security, digital technology and gender equity and equality. While that plan is still in its infancy, China with its BRI has signed agreements with more than 100 countries to cooperate in 2,600 BRI projects worth $3.7 trillion, according to a Refinitiv database.
There are some concrete steps that can be taken, going beyond what USICA does, to enhance coordination for greater technology efficiency and production domestically. One might be the creation of a new federal agency (yes, more government!) to develop and implement advanced industry and technology strategy, as the Information Technology and Innovation Foundation recently proposed. It would be “explicitly focused on the commercial competitiveness of select sectors that are most critical to the economy,” ITIF said in a report.
Another reality must also be addressed, at least regarding chip production. With the overwhelming majority of advanced chips made in Taiwan, there needs to be a reality check that U.S. manufacturers can’t provide future chip production alone even with a big fab buildup contemplated in USICA’s $39 billion in grants. “No one should adopt the goal of decoupling from the global supply or reshoring or onshoring,” said Semiconductor Industry Association President John Neuffer in a recent forum.
The creation of a new system of chip production more centered in the U.S. is going to take years, requiring a degree of humility on the part of super-competitive companies and some keen organizational skills by federal bureaucrats. Hopefully, this massive amount of work happens before China sets up a human settlement on the Moon or Mars and all that implies.