How the US should handle China’s high-tech ambition

President Donald Trump’s handling of the trade relationship with China poses a threat both to the US and to the world economy — but even his harshest critics agree with him on one thing. China’s bid to dominate the high-tech industries of the future often bends or breaks the rules of liberal international commerce, and needs to be checked.
What’s important, and what this administration finds so difficult, is to be smart about it. Through its “Made in China 2025” blueprint and assorted plans and directives, China’s government aims to move the country up the manufacturing value chain and dominate advanced technologies such as robotics, artificial intelligence, semiconductors and biomedicine. In this effort, China has advantages — an enormous (and relatively closed) domestic market, a capacious budget for supporting preferred industries, and a technocratic government facing no organized domestic opposition. To be clear, China isn’t wrong to harbor such ambitions. And, so far as the basic economics goes, its success needn’t disadvantage the US or any other country. The US didn’t get rich in the last century at Europe’s expense: Its innovations raised living standards everywhere. That’s what trade and commerce do. In a well-functioning global system, successful economies prosper together.
In many ways, this is still happening. Take just one instance of China’s emerging technological prowess: Its success as a manufacturer of solar panels has lowered the cost of clean energy worldwide. But the US and its partners have two pressing and legitimate concerns. First, China is seeking technological superiority in fields that will be crucial for military, not just civil, innovation.
Second, China isn’t playing by the rules. It wants access to other countries’ markets and technologies but is slow to grant access to its own. And its technological push has often relied on questionable or outright illegal methods — from rampant cyber-theft of commercial and military secrets, to subtler violations of the spirit if not always the letter of the country’s obligations as a member of the World Trade Organization (WTO).
Where foreign technology isn’t required or desired, China has closed key sectors to outside competition. Foreign cloud-service providers have to share technology with and market their services through Chinese partners. Firms such as Google and Facebook remain banned on the mainland, and foreign technology companies can’t bid for government IT contracts.
China isn’t the first country to bend or break the rules of liberal trade — but the sheer scale of its economy makes the consequences for other countries harder to overlook. A measured response is justified. Tariffs, though, are the wrong instrument. They punish American consumers, workers and businesses as much as they hurt China. And they’re a threat to global growth, especially if they provoke a cycle of action and retaliation. The Trump administration should tailor its responses more carefully.
It should address security concerns by expanding the remit and resources of the Committee on Foreign Investment in the United States, so that the panel screens a broader range of deals involving Chinese investors. The US needs to spend more on commercial and government cyber-defenses, and on coordinating them effectively.
It should also join with partners in urging China to pursue its legitimate technological ambitions under the same rules as everyone else. The US needs to enlist allies in Europe, Japan, Canada, South Korea and elsewhere to demand a common set of concrete reforms that would hold China to its WTO commitments. If further leverage is required, the US and its partners could threaten to enforce reciprocal curbs on Chinese businesses until barriers are lifted on the mainland.
At the same time, they should acknowledge that WTO rules, written before many of these technologies were even envisioned, aren’t adequate for regulating, say, digital trade. Rather than expressing disgust with the WTO, Trump should want America to lead it, as it has before. If that can’t be done, there are other multilateral ways to move forward. US leadership of the Trans-Pacific Partnership was such a way — a means of both raising international standards and persuading China to change its policies. Trump foolishly stepped away from that initiative, but it isn’t too late to go back.
Competition with China need not be a problem. Approached in the right spirit, it’s an enticing opportunity. If both sides follow the rules, both will gain.

—Bloomberg