United States-China Technological Rivalry
32 Pages Posted: 23 Aug 2019
Date Written: August 22, 2019
Powerful technological platforms — artificial intelligence, gene editing, robotics — are driving a new wave of global innovation, with China and the United States emerging as the “G2” in these and other areas of technology. The United States is ahead overall, but its technology investments and human resources will be soon exceeded by those in China. Still, we project that Chinese innovation will not catch up in some technologies for decades, making some sectors dependent on critical foreign inputs.
Political differences between China and the United States, some zero-sum aspects of technological competition, the role of the state in Chinese innovation, and China’s technological vulnerabilities have led the United States to pursue aggressive, and by past standards illegal, interventions in trade. Some decoupling of the technological relationship is underway. Yet technological disengagement is likely to be slower and harder than commonly expected. Third countries — accounting for 60 percent of world GDP— have large stakes in preventing extensive decoupling; China could retain their business by pursuing open economic policies and reforms.
In sharp contrast with recent trends, academic research argues for an “open innovation” regime that emphasizes vigorous flows of ideas, researchers, and products, in order to enhance the pace and utilization of innovation everywhere. Yet in the current political setting the open model can lead to technology leakages, creating commercial and national security risks. These issues dominate current policy discussions and generate strong headwinds against open policies.
The policy challenges for China and the world are to reduce the scope of current decoupling and to build foundations for more open policies in the future. This requires resuming, to the extent possible, rules-based trade in advanced products and technologies, while establishing safeguards—narrowly-defined controls on trade and investment — that limit national security risks. Technological cooperation in the long run will depend on renewed collaboration among leaders and better tools for managing risks.
Keywords: trade, technology, international rivalry, China, United States
JEL Classification: F1, F5, O3, O4, P5
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