Techlash will hurt the United States in competition with China
The United States and China are on course for a decades-long geopolitical and geoeconomic competition for power and influence in the 21st century. A primary goal for both Washington and Beijing is to set standards and dominate cutting-edge technologies of the future. At the same time, policymakers in the United States seem intent on cracking down on America’s most innovative and globally competitive firms—the very firms pushing the envelope on the technologies at the core of the competition with China. Simply put, that’s not a recipe for outcompeting Beijing.
For years, the United States has led the way in creating the type of environment necessary to cultivate technological innovation. As the World Economic Forum noted in July, 59 of the top 100 global firms by market capitalization are American firms. Of the total market capitalization for the top 100 firms, 65 percent is U.S.-based. China is second with 14 of the top 100 firms based on market capitalization, including Tencent and Alibaba. Four of the top five global firms based on market capitalization are American tech firms—Apple, Microsoft, Amazon and Alphabet (parent company of Google). How did this happen? For starters, the United States maintains the best research universities in the world, which draw talent from all over the globe. Likewise, the United States has a relatively free market and a light-touch regulatory environment with predictable rules, which allowed for investment to flow to its most productive uses—ultimately allowing technological innovation to flourish.
Today, Beijing is trying to supplant the United States as the global leader for the commanding heights of technology. Healthy competition should be welcomed, but Beijing’s methods are unsavory. As the United States Trade Representative documented in its Section 301 report—the legal basis for the trade war—China uses a mixture of foreign discrimination, trade secret theft, abuse of intellectual property and forced technology transfer to bolster its own domestic industry. The United States correctly argues this burdens American firms, including many technology firms. The Trump administration’s answer to the China challenge was to levy ill-advised tariffs on imports, which raised prices for consumers—firms and individuals—and triggered predictable retaliation. Needless to say, these policies failed to change Beijing’s commercial practices.
So how should the United States respond to legitimately concerning practices emanating from Beijing? The goal should be to outcompete China on the cutting edge of technology.
First, the United States needs to welcome and retain immigrants. It is lagging internationally in science, technology, engineering and math (STEM) at the K-12 level. Immigrants are a key source of American strength, particularly in technology. The evidence is crystal clear: between 1990 and 2010, “inflows of foreign [science, technology, engineering, and math] workers explain between 30 [percent] and 50 [percent] of the aggregate productivity growth” in the United States. Likewise, a 2010 study found that skilled immigrants are about twice as likely to be granted patents as non-immigrants because they disproportionately have degrees in science and engineering. That same study found positive innovation spillover effects from skilled immigration; it notes: “A 1 percentage point rise in the share of immigrant college graduates in the population increases patents per capita by 9-18 percent.” In other words, skilled immigrants provide a direct benefit to the United States, and they also spur innovation among non-immigrants. A new report from the Center for Strategic & International studies notes, “The most powerful—and perhaps only—lasting and asymmetric American advantage is its ability to attract and retain international talent, a feat China has not been able to replicate despite extensive efforts. But the U.S. government risks squandering that advantage through poor immigration policy. Without significant reforms to STEM immigration, the United States will struggle to maintain long-term competitiveness and achieve near-term technology priorities (…).” Indeed, some of America’s most globally competitive and innovative firms were started by immigrants, including Google, Uber, Qualcomm, Tesla, e-Bay, Yahoo and Pfizer.
In addition to increasing immigration, if the United States is going to outcompete China at the forefront of technological innovation in the coming years, policymakers need to rethink their hostility to the tech industry. A recent spate of bipartisan, bicameral bills proposed in Congress take aim at a number of America’s most innovative and competitive technology firms. These efforts would upend a century of predictable antitrust rules. But hamstringing America’s most successful firms would run counter to the goal of outcompeting Beijing since the largest American tech firms are driving large scale investment into the types of research and development necessary to ensure continued U.S. technological dominance. Indeed, this type of heavy-handed regulation would almost certainly benefit foreign competitors since the firms targeted by the legislation lead the world in current and next-generation technologies.
Not only would these efforts hurt the United States economically, they also potentially jeopardize national security. A recent letter to Congress from a bipartisan group of former high ranking national security officials warns, “Recent congressional antitrust proposals that target specific American technology firms would degrade critical R&D priorities, allow foreign competitors to displace leaders in the U.S. tech sector both at home and abroad, and potentially put sensitive U.S. data and IP in the hands of Beijing.” The letter goes on to state, “Provisions in these bills that target a narrow group of U.S. companies without requiring oversight of Chinese tech giants such as Huawei, Tencent, Baidu, and Alibaba would place these already formidable competitors in a better position to assume global preeminence.”
Beijing poses very legitimate challenges to the international economic and security order. Policymakers must consider how various actions they take with respect to the domestic economy will impact U.S. competitiveness vis-a-vis China. A less dynamic and less efficient tech sector would undermine broader strategic goals of outcompeting Beijing in the years to come.
Image credit: Steven