Can America Fight Fair?

In our dealings with China, it has become unavoidably clear that we have to make not just tactical decisions but a fundamental strategic choice: Do we alter our practices so that they look more like those of our Chinese competitors or do we double down on our current principles—on the theory that our best bet, as writer James Fallows once put it, is to be “more like us?”

Despite some close calls, we haven’t really been forced to face this dilemma before. Just after the Soviet collapse, for example, there were U.S. observers who claimed that this country was threatened by the rise of Japan, then the world’s second-largest economy and destined, with its new model of capitalism, to surpass the United States. To prevent this outcome, America would have to make far-reaching changes to its own political economy.

The debate was robust; the choices seemed difficult. But in the end we never had to make them because, while the United States rose again on the back of the digital revolution, the Japanese economy faltered under the weight of its own rigidities.

We’re not likely to be so lucky this time around.

Today’s debate over how to meet Chinese competition has several elements. For one thing, it has reinvigorated our discussion of industrial policy. Once, the extraordinary success of America’s digital entrepreneurs fed a narrative of economic success fueled by solitary individuals toiling away in their garages, animated by grit, determination, and an unshakable faith in an idea, and finally achieving a world-changing—and very profitable—product.

More recently, people have come to understand the critical role of decades of U.S. government money, mostly Department of Defense money, in fertilizing the technological soil. As a recent analysis from the Center for Strategic and International Studies summarized, “Silicon Valley would not exist as it does today without the Cold War-era tsunami of federal defense contracts” that provided vast sums of money and, equally important, a guaranteed customer long before the commercial viability of the technologies involved.

Eric Schmidt, former chairman of Google, says that many Silicon Valley leaders, including him, “got their start with grants from the federal government;” Schmidt calls for more government funding for the next generation of research and development. This year’s U.S. Innovation and Competition Act reflects this rethinking of the country’s assumptions about the relationship between the public and private sectors.

We can also see the darker side of the changing terms of debate: Critics argue that the growth of the national security economy facilitates the creep of executive branch authority. President Donald Trump declared that “economic security is national security,” to the alarm of constitutional scholars who warn that declaring something “a national security concern” can serve, at the very least, as an invitation to the executive to challenge the Constitution’s grant to Congress of “exclusive and plenary” authority over commerce with foreign nations. Thus, Trump, citing authorities like the Trade Expansion Act of 1962, claimed expanded authority with respect to China and other countries he accused of being unfair traders.

Trump was quick to use tariffs for leverage in trade negotiations with Canada and Mexico and to pursue other foreign policy goals, as in talks about the release of Americans from Turkish prisons. President Biden, though promising a return to “regular practice,” has not rolled back Trump’s tariffs. There are no indications that he will.

Similarly, the new, more expansive definition of national security has affected the treatment of Chinese researchers in the United States. In November 2018, the Department of Justice (DOJ) launched the China Initiative to “confront Chinese malign misbehaviors,” especially the illicit or illegal acquisition of U.S. intellectual property, said to amount to as much as $600 billion a year. Some 80 percent of the prosecutions involve China, and there is some nexus to China in around 60 percent of all trade secrets theft cases. The DOJ effort has produced some 80 court cases, with a number of convictions; it has also generated controversy, because increasing numbers of charges involve the criminalization of arguably honest mistakes and a substantial number of cases have been dismissed for lack of evidence. A former prosecutor has expressed the fear that since all but a few of the defendants involved are of Chinese descent, this program, originally focused on the Chinese government, has become an initiative against “people of Chinese descent.”

It is not so surprising that this has happened: The term “China” can create an “amorphous threat,” as one scholar has put it, from a conflation of government, party, nationality, national origin, and ethnicity. Indeed, the crime of “researching while Chinese” is not unprecedented: Asian-Americans have been repeatedly scapegoated in moments of geopolitical tension, from the Chinese Exclusion Act of 1862 to the internment of Japanese-Americans during World War II.

This type of profiling has practical consequences. U.S. leadership in science and technology depends on our ability to attract and retain talent from around the world. One recent assessment notes that from 2000 to 2017, U.S. universities awarded 66,690 science and engineering doctoral degrees to Chinese students, who stay in this country at rates higher than those from any other country. The Silicon Valley Leadership Group reports that in 2018, 67 percent of Silicon Valley’s new tech talent aged twenty-five to forty-four were Asian, with the majority from China and India. We need them.

Meeting this need is complicated by the disinformation campaigns waged against democracies by authoritarian governments like Russia and China. For various reasons, democracies have been slow to respond. First, there was a belief that new technologies like social media could not be controlled or exploited by repressive governments and would be liberating. Not only did we discover that wasn’t true but we soon found that they have created new vulnerabilities. It can be difficult to identify dangers and attribute causes in this area. More, the contest is asymmetrical: Controlling information is second nature for authoritarians, while democracies value the unfettered flow of information.

In addition, the United States confronts businesses that operate not through market forces but according to the logic of state capitalism. Chinese businesses are deeply intertwined with the ruling Chinese Communist Party (CCP). The state wields virtually unchecked power through its extensive regulatory apparatus, an entrenched and protected set of state-owned enterprises that control significant swaths of the economy and privileged access to resources, and a domestic legal system that puts party interests above all others.

This state power extends to private business as well. The corporation law of the People’s Republic of China establishes Communist Party cells in private companies; there is no transparency regarding the roles they play in management and operations. The result—a “dizzying mix,” says one expert, “of public, private, and hybrid-ownership firms,” makes it “almost impossible” to say “with any precision where CCP influence ends and where firm autonomy begins.” Even ostensibly private firms, as the U.S. Trade Representative has concluded, can be considered extensions of the party and instruments of its strategic calculus.

Decisions by Chinese companies are governed not by a need to maximize profit or shareholder value but by the state’s strategic imperatives. This contrast transforms the bargains at the heart of business deals. Should executives on the other side of these deals ignore their potential value in the geopolitical competition and stick to financial calculations? Should capitalists sell Chinese companies the hanging rope? The pressures are no less for governments that try to stay out of these transactions.

This shift in companies’ calculus affects the supply chain resilience now gaining attention. Increasingly, says the chief global strategist for the British investment management firm Charles Stanley, authorities “do not just ask which is the cheapest and easiest solution” but want to know “which solution will reduce foreign and potentially hostile leverage over the home economy.” In the early days of Covid-19, for example, governments did not just stop exporting personal protective equipment but dispatched purchasing agents to the world’s airport tarmacs to buy and redirect shipments.

Such changes have led the United States to reconsider the goals of its economic competition with China. The Cold War basis for restricting access to technology, for example, was the goal of stopping the proliferation of technologies that could be used for weapons of mass destruction. The Trump Administration sought instead to kneecap Chinese companies working on the frontiers of high technology, and the Biden Administration shows no sign of abandoning that objective. This summer, Secretary of Commerce Gina Raimondo spoke about the need to “slow China’s innovation.” In the past, the West tried to establish a level competitive playing field; but the United States now aims to tilt the pitch, ensuring that China remains five to ten years behind it. That is a new world order.

When Raimondo made this remark, she was inviting Europe to make common cause with us against China; but in the same conversation, she acknowledged the need to protect U.S. steel producers against foreign threats, including those from European steel companies. The discordance must be unnerving to our allies and partners. The risk of becoming a U.S. target may well prevent them from signing up for America’s anti-China program.

Some argue that the West should adopt Chinese tactics, like treating our companies differently, as the Chinese do, in foreign legal systems. Such treatment, however, risks undermining the defining characteristics of the legal systems that we value, like neutrality and equal treatment under law.

Instinctively, many of us would prefer, like James Fallows, to find solutions and counters that don’t violate our basic principles and values—to compete by being “more like us.” Many of our recent actions, however, betray less than complete confidence in this strategy. The Trump presidency repudiated many of the liberal norms and principles that have guided the United States over the last half-century; a growing number of American conservatives have professed respect and admiration for authoritarian leaders overseas who are not bothered by abstract principles of democracy and equality and instead focus solely on outcomes. The Biden Administration, for all its talk of a return to normalcy and the old order, has continued many Trump policies. It claims that the reason is political expediency, but the fact that such continuity is expedient says a lot about the nation we have become.

Brad Glosserman is deputy director of and visiting professor at the Center for Rule Making Strategies at Tama University. He is author of Peak Japan: The End of Great Ambitions (2019). This essay is drawn from his forthcoming book on technology and strategic competition.