How Trump is losing the high-tech fight with China

06 June 2018

By Andrew Kennedy

This article was originally published on East Asia Forum.

The high-tech rivalry between the United States and China is getting ugly. So far in 2018, the Trump administration has blocked high-tech acquisitions by Chinese firms, complained about Chinese technology licensing practices at the World Trade Organization and threatened tariffs on Chinese high-tech imports.The administration has also banned US companies from selling parts to Chinese phone maker ZTE, though the President has promised to revisit this decision. For its part, China has brandished its own tariffs while also making promises to protect foreign intellectual property and further open the Chinese economy. Bilateral talks remain underway.

Trump would like the world to believe the US government has finally taken the offensive against China. But it has not: China’s government is the one playing offence in the realm of high-tech innovation. With plenty of encouragement from Beijing, China has emerged as the world’s second-largest investor in research and development (R&D). It spent US$279 billion on R&D last year, with most of this investment coming from business. China is now poised to overtake the United States as the world’s top R&D spender within the next decade. China also makes great efforts to lure back high-tech talent from overseas. In recent years, the number of Chinese students returning to China from abroad has been around 80 per cent of those going overseas — up from 31 per cent in 2007.

As a result of all this activity, China is putting points on the board. China’s score in the prestigious ‘Nature Index’, which tracks article publication in the leading science journals, jumped from 24 per cent to 40 per cent of the US total from 2012 to 2016.  In the corporate world, 376 Chinese firms were among the world’s top 2500 R&D spenders in 2017. While China’s state-owned enterprises tend to be highly inefficient, other Chinese firms have emerged as leaders in areas from electric vehicles to e-commerce. China still has a long way to go, to be sure, and Chinese President Xi Jinping’s efforts to exercise greater control over businesses and society more generally are a step backwards in this regard. But China’s overall progress to date is striking.

In contrast, the US government is playing defence. The measures the Trump administration has taken this year essentially represent an effort to prevent the US technological lead over China from shrinking. This is a losing strategy. The United States and China are not playing a basketball game with one minute left on the clock. Instead, they are competing — and collaborating — in a relationship that will go on indefinitely. The United States cannot simply try to protect technologies it has already invented; it must work harder over the next several decades to extend its status as the world’s technological leader.

US political leaders should be much more focussed on this latter challenge than they are. In a clear statement of its priorities, the Trump administration has sought to slash federal science and technology spending despite a history of bipartisan support for such expenditures. As a result, the President was a fuming bystander as the US Congress chose to invest record sums in science and technology in the 2018 budget deal.

There is much more the United States could and should do. Perhaps most important, it could easily compete more effectively for the world’s top brainpower. The Trump administration claims to support merit-based immigration, as do many Congressional leaders. If so, it is time to make this a priority. The United States educates more foreign students than any other country in the world, offers foreign graduates some opportunity for temporary employment, but then imposes per country caps that make it hard for those from China and India to receive permanent residency — effectively encouraging them to go home.

Supporting high-tech start-ups is particularly important. Fortunately, the United States now has a start-up visa program to welcome promising foreign entrepreneurs who wish to found companies in the country: the international entrepreneur rule. Yet the Trump administration only implemented the rule because a federal judge ordered it to do so — and the administration is now preparing to rescind it. Even worse, the Trump administration’s repeal of net neutrality will make it harder for many start-ups to compete with more established firms. Congress can still overturn this decision, but whether it will do so remains unclear.

There is nothing wrong with playing defence. But it’s only half the game, and China is discovering more and more ways to put points on the board in any case. If US leaders truly wish to make America ‘great’, they need to make offence a priority as well.

Andrew Kennedy is senior lecturer at the Crawford School of Public Policy at the Australian National University. He is the author of The Conflicted Superpower: America’s Collaboration with China and India in Global Innovation(Columbia University Press, 2018). Follow him on Twitter at @andybkennedy.

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