As Fragile as China: The Tech Rivalry and Its Effect on Industrial Policy

Sarah Ouyang ’22

The relationship between China and the United States is fracturing in two distinct, arguably interrelated branches: the trade war and the technological rivalry. While the former results principally from an American wish to “sell more, buy less,” the latter is a more dangerous battle that might leave these two dominant countries indefinitely estranged.


In an attempt to compensate for the deficient growth strategies of the 1980’s, which focused on attracting and encouraging investment, China has turned to new methods to push, what Newsroom dubs, their “innovation imperative.” There are three parts to China’s goals: domestic, which includes protecting and improving the productivity of their own businesses; investment, or essentially encouraging Chinese tech companies to explore the technological development in other countries in order to bring efficient strategies and experience home; and finally, obtaining considerable shares in developing markets. [1]


Chinese officials have boldly laid out their objectives for the country. President Xi Jinping announced in his January keynote speech to provincial leaders that China must pursue self-sufficiency and “ingenious innovation.” This comprises of designing production strategies that would allow Chinese companies to expand their percentage of global production capacity while simultaneously reducing the reliance on imports to satisfy domestic demand. [2] If China manages to maintain the necessary flow of inputs and resources to its tech companies without compromising a reasonable balance of trade, it would have taken a huge step in the direction of technological independence and self-empowerment.


The semiconductor industry is one in which such economic targets would be relevant. The U.S. has exploited its influence in the micro-chip industry and prevented major semiconductor factories, such as Semiconductor Manufacturing International Corporation (SMIC), from supplying Huawei Technologies, a major Beijing smartphone and telecommunications company. Because of this sanction, domestic micro-chip demands in China and Taiwan have soared, surprising chipmakers in both countries and causing mayhem in several companies, including TSMC. Automakers, among them Fiat Chrysler, have shut down as the chip demands overwhelmed suppliers. [3] Facing threats of this nature from its tech rival, a country has no choice but to approach the situation with a new battle strategy: self-reliance.


But China might be taking it too far. Bloomberg Opinion criticizes the proliferation of Chinese geopolitical dominance and compares Beijing’s motivations to a “quest for spheres of influence” like those of the Soviet Union or 19th century Great Britain. In truth, the primary purposes of spheres of influence, derived from historical patterns, are consistent with the current goals voiced by Chinese leaders.


Greater countries use spheres of influence to reign over weaker ones and to fend off competitors. The reasons for which a nation would pursue this geopolitical strategy can be summarized in four, happily alliterating words: protection, projection (meaning a starting point for global influence), profit and prestige. [4] The last three are simple and intuitive, but the first sounds eerily familiar to those who have been listening to certain keynote speeches and reading articles from the Chinese Central Policy Research Office. Perhaps the trepidation that American reporters have expressed while analyzing China’s economic plan is not so unwarranted; protection encompasses the aim to ward off rivalry and, unsurprisingly, protect domestic interests. This could very well be the sign of a digital-age, contemporary-imperialist scheme.


Of course, to build a valid cause for fear, evidence of China’s technological frontrunning must be grounded in studies from experts in the field. A misconception, such as the notion that China’s enormous stock of people and data cements their superiority in A.I. development, could endanger the efficacy of American foreign and economic policy. [5] Rather than retreating into themselves and casting furtive glances over the wall at the other’s progress, the two countries would be better off cooperating and determining the best approach to technological advancement.


For the moment, an American consultancy team, the China Strategy Group (CSG), has sent tech companies into a frenzy with a report demanding policy changes that adhere to domestic needs and interests. The group urges a renewal of “American competitiveness” and the maintenance of important technological progress in the U.S. Their report emphasizes the advantages burrowed in the Chinese tech industry, including a supportive government that allegedly permits “corporate espionage, illiberal surveillance, and a blurry line between its public and private sectors.” [6]


What the U.S. must consider now, according to this group, is a “bifurcation,” or a separation into branches, between the tech scene of the two countries. It seems that American experts agree, in a sense, with Chinese officials: disentanglement is necessary for the independent operation and future benefit of each nation. With the help of the last administration, an economic relationship that has existed and allowed for mutual trade benefits since the 1980’s is splintering before our eyes as each country veers towards self-sufficiency and further from diplomacy.