Why the fears of a U.S.-China tech cold war are overblown
Maybe President Trump's trade ban of telecommunications equipment giant Huawei signals the start of a long-term technological "cold war" between the United States and China. Anti-China hawks in Washington sure hope it does. As they see it, the tech leader of the 21st century will also be its leading economic and military superpower. And perhaps the most important way to make sure the world gets a second American Century is to completely disentangle America's tech sector — including manufacturing, investment capital, research, and workers — from China's. Step one: Kill Huawei, arguably that nation's most import tech firm.
This extreme vision is more grandiose than grand, however, and lacks even the basic elements to transform it beyond a catchphrase. Think about the Cold War in the second half of the last century. Tensions between America and Russia were first given that label in 1947 by financier Bernard Baruch, an economic adviser to President Wilson during World War I and President Roosevelt during World War II. President Kennedy characterized the conflict in his 1961 inaugural address as a "long twilight struggle" to defend freedom around the globe. And President Reagan said it would end with the consignment of Soviet communism "to the ash heap of history," which happened in 1991.
The Cold War was a multi-decade effort of economic, military, and ideological dimensions — given force and vitality by intellectuals and politicians across the political spectrum — where the benefits and costs were clearly spelled out to the American people. And America was not fighting alone: Global institutions, including NATO, were critical for victory, which the cold warriors always knew would be the case. The Reagan administration's famous 1982 national security strategy memo stressed the value in "strengthening existing alliances" and promoting "a well-functioning international economic system with minimal distortions to trade and investment and broadly agreed and respected rules."
Beyond its nostalgic moniker, the tech cold war lacks almost all the critical aspects of the successful original. For starters, it's unclear whether the current American president views the Huawei ban or follow-up restrictions on other Chinese firms as anything more than a short-term tactic to get a better trade deal with Beijing. The White House has already granted temporary exemptions to the export blacklist against Huawei. And back in July, the Trump administration lifted a similar ban on the Chinese telecommunications firm ZTE after just a few months once the firm paid a financial penalty. And while Trump may call himself "Tariff Man," he's also a "Stock Market Man" who desires re-election and may not have the stomach for Wall Street's anxiety over an escalating back-and-forth conflict over technology. Indeed, at the end of last week, Trump suggested the restrictions on Huawei might be lifted as part of trade deal with Beijing.
Even assuming Trump has signed on to fighting on this new front, any sort of sustained economic conflict requires serious explanation to the American public. They should understand the broad strategy, the clear goals, and the potential costs. The standoff with the Soviets meant a big price in both blood and treasure, as well as risking a nuclear exchange. A tech cold war in which Washington tried to disentangle America's tech ecosystem from China's would bring pain beyond just more expensive iPhones and other consumer items. U.S. businesses here and there would suffer lost profits and lost markets — both through U.S. restrictions and Beijing retaliation — as China accelerated its effort at tech independence. The theory of comparative advantage suggests less participation in global supply chains would almost certainly mean lower U.S. productivity and living standards than would otherwise be the case.
And while the U.S. attempts to work less with China, plenty of nations might deepen their ties. Germany, France, and the Netherlands have all said they will not block Huawei equipment from being used in the expansion of their national 5G networks. Scientists from other advanced economies will continue to collaborate with China's scientists. Have the tech cold warriors considered, say, the impact a decline in Chinese nationals working here, given they account for a significant share of advanced engineering jobs, such as in the semiconductor industry? America's economic competitors would also be happy to accept China's brightest students and most-skilled immigrants.
The more you look at the idea of a tech cold war — from the lack of serious planning to the problems in disentangling the two ecosystems, the more fanciful it seems. Not that America should do nothing. Washington should consider banning Chinese companies using stolen intellectual property or tech from involvement in U.S. markets or with American firms. Moreover, it is perfectly reasonable to limit Chinese access to critical military technologies or those used for internal repression. What isn't reasonable is a policy whose success depends on containing, even isolating, a technologically advanced mega-economy. Even Cold War 1.0 didn't have to contend with that.