Will Biden reboot US’ China strategy?

Paran Balakrishnan | Updated on November 10, 2020

Blocking tech access to the Chinese isn’t necessarily a smart strategy   -  REUTERS

To keep the US ahead of China technologically and economically, it is unlikely Biden will be any softer than Trump

Could there be a new world in the making outside our Covid-shut doors? Joe Biden’s stepping up to the plate as president-elect and drawing up his blueprint for America’s future. With perfect timing, Pfizer has people reaching for their lockdown champagne and sent stock markets globally soaring by announcing its coronavirus vaccine appears to be 90 per cent effective.

If Biden can pronounce early into his mandate that Covid-19 is being conclusively vanquished and that the virus-shaken economy is well on the mend, his first big battle will be behind him. But then comes the job of confronting China and setting a bold strategy which ensures the US stays so far ahead technologically, economically and militarily the Chinese can’t catch up. While Donald Trump billed himself as the “tough on China” candidate, it’s unlikely Biden will be any softer.

Has the US left it too late to step on the accelerator? Is it even possible to forestall China’s state-led capitalist advance? Arguably, the Americans should have awoken earlier to the challenge but lately they’ve been making moves. Take the key semiconductor and computer-chips area. Last September, Washington ruled US companies would require special permission to sell to China’s largest chip-manufacturer SMIC. The company squawked it had no military links and the US was breaking international trade rules, but Washington turned a deaf ear as it believed blocking sales to SMIC would throw a wrench in China’s efforts to strengthen its own chip-making skills.

Or look at Huawei, which makes everything from 5G telecom equipment to low-priced smartphones and is the most high-profile company to be banned by the US. Not only has the US prohibited use of Huawei telecom gear but it’s lobbied countries globally not to buy from the Chinese giant as part of a broader “Clean Network” drive to prevent China’s biggest companies from accessing private and, importantly, security data.

In the wake of the Ladakh standoff, India’s also taken a stronger stand against Chinese firms, banning TikTok, and ruling Huawei and ZTE can’t take part in India’s efforts to install 5G networks in this country even though it’s bound to push up costs for Indian telecom networks. India’s also taking part in plans with Australia and Japan to cooperate on supply chains to reduce economic dependence on Beijing.

Huge blow to Huawei

The US action’s been a huge blow to Huawei because at a stroke it meant Google couldn’t sell to the Chinese company and that meant no Android, YouTube and everything else under the Google umbrella. The UK (albeit reluctantly), Australia and Japan have already followed the US lead in banning Huawei from 5G networks. Then, a few weeks ago, Sweden gave thumbs-down to Huawei, resulting in furious protests from the Chinese.

Is it smart for the US to slap bans on everything from computer chips to companies like Huawei? There’s the counter-argument: the Chinese already have the know-how and will develop more complex semiconductors and computer chips even if they struggle initially. Says James Andrew Lewis at the Center for Strategic & International Studies: “The goal isn’t to prevent China from building its own semiconductor industry. The US can slow this, but it cannot stop it. The goal is to keep the US semiconductor industry strong.”

Even otherwise, keeping the Chinese on a tight commercial leash isn’t an easy proposition. They’ve built tech champions like Ant, Baidu and Alibaba on the back of their own vast domestic market and these firms have spread their tentacles to all global corners and are large enough to acquire or create the advanced technologies they need. China’s also proved its mettle in swiftly controlling the pandemic, leading to their rapid economic rebound.

Over and above these companies, Beijing has a clear gameplan. In 2015, the Chinese began planning for self-reliance which is the crux of their MIC 25 or Made in China 2025 programme. They aim to source up to 70 per cent of core-components domestically which could cushion them from foreign boycotts. In 2017, the Chinese began working on a game-plan to build a $150-billion AI industry. And by 2035, it wants to set global standards for key industrial sectors.

The Chinese government’s been working methodically towards these goals, offering incentives to companies to upgrade technology and use local intellectual property. It’s also picked industries where it needs to move forward such as aerospace where it’s planning to take on the two global giants, Boeing and Airbus. In pharmaceuticals, too, it’s aiming at self-reliance. Giants like Baidu are also attempting to steer far in front in areas like self-driving vehicles.

Already in segments like electric buses, the Chinese are streets ahead with 425,000 vehicles on the road compared to several hundred in the US. The Chinese have been catching up in other ways as well. In 2018, US venture capital investing totalled $111 billion, only marginally ahead of China’s VC investments of $105 billion.

Step back to the turn of the last decade when the Chinese were still in learning mode and setting up offices in the heart of Silicon Valley. As time went by, the Americans realised the Chinese were turning into sharp-elbowed competitors. That’s when the Committee on Foreign Investment in the US swung into action and President Barack Obama blocked two Chinese acquisitions of US firms that were about to go through. Trump has also blocked deals, including one to buy hi-tech giant Qualcomm.

Double-down on efforts

So far, the Americans have focussed on ways to keep the Chinese firmly in their number-two spot by blocking technology access. But that isn’t necessarily the smartest strategy. The winner will be the one who runs fastest, not the one who keeps looking over their shoulder. To stay ahead, the US must double-down on efforts to remain in the technological forefront and even then, its predominance is in no way a given.

The country has huge advantages with world-leading companies like Apple, Google, Amazon, Microsoft and Facebook. But it must ensure these giants don’t block new competitors from emerging. Also, it must ambitiously forge forward in sectors of the future like green energy. Crucially, Biden will also need to breathe life back into and retool the rustbelt states that powered him past the 270 Electoral College vote-mark to win the presidency. He’ll need to juggle the demands of moving to the furthest frontiers of high technology while bringing jobs back in Middle America. It will be an immensely difficult task.

Published on November 10, 2020

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