In many ways, the current U.S. trade and technology confrontation with China resembles the U.S.–Japanese debate of the late 1980s, which both of us participated in. But there’s one major difference: The Japanese government and industries collaborated to keep American companies completely out of many of its markets. This meant that U.S. business leaders were strongly allied with the U.S. government and worked closely with its negotiators to respond to unfair Japanese trade, technology transfer, and investment practices. There was unity of purpose.
China, on the other hand, has enticed U.S. technology corporations such as Apple, major manufacturers such as General Motors, and Wall Street titans such as Goldman Sachs into making major investments in China. Other large retailers such as Home Depot and Walmart depend on sourcing cheap products there. Hundreds of billions of dollars are at stake.
Even though the Biden administration has designated China as its No. 1 geopolitical rival, American business does not want to see governmental action that would hurt its ability to make money in China. Critics say some American CEOs have become hostages of the Chinese Communist Party, which may be overly harsh. But the fact remains that they are caught in the middle of an emerging geopolitical confrontation and are being used as policy tools by Beijing. Xi’s government is openly appealing to American CEOs to lobby the Biden administration to go softly on the China policy his administration is developing.
Unless the administration can narrow the gap between America’s public and private sectors, any response to the global and technological ambitions of President Xi Jinping is likely to be piecemeal and therefore ineffective. In effect, Xi is taking advantage of the pluralistic American system in which CEOs believe they have a responsibility to make money and increase their share prices while leaving national-security concerns to the government.
In contrast, Xi has inserted the Communist Party into every aspect of China’s society and economy. He has cracked down on the ambitions of Alibaba’s Jack Ma and sent a clear signal to Chinese enterprises and “private” companies that they must serve the wishes of the Communist Party. The party has become a monolith.
There are three crucial arenas where cooperation between the American government and business must be enhanced:
— Slowing China’s technology development, if that is still possible. Right now, American semiconductors are flowing into China’s military, which is expanding into the South China Sea, into a surveillance state equipped with facial-recognition cameras and into an ambitious space program, which represents a direct challenge to U.S. technological leadership. Other U.S. companies in China have conducted research and development that has benefited Chinese entities. Microsoft, for example, has helped train the leadership of China’s artificial-intelligence industry. Surely, there needs to be greater coordination between the U.S. private sector and defense and intelligence agencies to blunt the rapid advances China is making.
— Stanching the penetration of America’s computing systems. American companies with operations in China are required by a new law to open their data centers and entire computer systems to inspection and de facto control by Chinese authorities. That opens the possibility that Chinese authorities can penetrate the global information-technology systems operated by the companies. American companies also have chosen to share highly sensitive information — Microsoft said it suspected that the hack against its Exchange email system was made possible by a Chinese partner with which it had shared trade secrets.
Moreover, CEOs have not been willing to spend the money to patch their software vulnerabilities. As a result, China’s Ministry of State Security, the country’s top spying agency, uses open-source tools to locate known vulnerabilities in American software systems, the Cybersecurity and Infrastructure Security Agency reported last year, in cooperation with the Federal Bureau of Investigation. And China and Russia have reached new levels of sophistication in penetrating software supply chains, as occurred in the SolarWinds case.
Surely, America’s private sector must find ways to achieve greater collaboration and information-sharing with the government entities seeking to protect U.S. national security.
— Developing new technologies. With a $250 billion package moving through Congress, the Biden administration is poised to ramp up spending on semiconductors and other leading-edge technologies, but government spending alone cannot do the job. The traditional problem in American scientific efforts has been the question of how to quickly commercialize new technologies. Entrepreneurs typically have to struggle through multiple rounds of venture-capital funding. The failure rate is high. If large companies such as Google, Amazon, Microsoft, and Apple took an active hand in helping to commercialize these technologies in the United States, it could represent a game-changer — and boost their own profits.
We argue that the Biden team should start by appealing to the higher long-term interests of American CEOs. Their technologies are being drained from them, and many of their systems have been penetrated. Xi’s long-term goal is to use them until they are no longer useful. Rather than maintaining critical distance from his government, they are being forced to toe Beijing’s line. If persuasion does not work, the government could start to dial up the pressure through export controls, antitrust pressures, and other mechanisms.
Ultimately, the government has the power of the big stick. If the White House and the entire intelligence and security community were to publicly allege that Company X was violating national security, the company’s share price would tank. Customers would flee. Even if the government did not prevail in federal courts, the short-term damage to offending companies would be severe. If this possibility were explained quietly to even a handful of recalcitrant CEOs, they would recognize they cannot simply defy the power of the U.S. government.
What the Chinese are attempting to accomplish today dwarfs any Japanese ambitions of the late 1980s. Japan wanted to catch up with and surpass the West, but China is seeking to create a new global empire. We advocate not a decoupling of the U.S. and Chinese economies but rather a careful recalibration. American companies whose technologies, investments, and trading relationships have strategic implications must gradually become part of Team America.
William J. Holstein, a business journalist and author, has written a new book, A Grand Strategy: Countering China, Taming Technology, and Restoring the Media. Clyde Prestowitz, a veteran trade negotiator, is the author, most recently, of The World Turned Upside Down: America, China, and The Struggle for Global Leadership.