Since the collapse of U.S.-China trade negotiations in early May, the public position of both sides has hardened. The inclusion of Chinese tech giant Huawei and its affiliates on the United States' Bureau of Industry and Security Entity List has also aggravated the trade tensions. The "blacklisting" of Huawei Technology effectively bars U.S. companies from selling or transferring technology to Huawei without a license issued by the BIS. Meanwhile, if the United States does follow through on its threat to impose 25 percent tariffs on all Chinese exports, not only would the losses to China escalate considerably, China would also become much less attractive as a global manufacturing base, costing it inflows of foreign investment and technology.
A China barred from selling and buying to the world's largest economy can hardly become the global center of technology and innovation dreamed of by its leaders. Indeed, technology competition lies at the heart of the Sino-U.S. trade conflict, with Beijing's "Made In China 2025" industrial policy being a focus of contention. The United States is worried about lavish government aid enabling China to overtake American technological leadership and threaten American national security. Meanwhile, China views Washington's pushback as hostile containment of its global ascent. Fears and misunderstandings about this conflict have aggravated its global disruptive impact and pose risks both to the United States and the world. In particular, a Cold War-style strategy toward China may backfire on the United States and hurt the world via a contractionary spiral in global trade and investments. But these disruptions do not have to go so badly, as better understanding of this Sino-U.S. tech competition can help governments make better-informed decisions.
IS "MADE IN CHINA 2025" FORMIDABLE?
China does have a thriving digital sector with formidable smartphone producers and giant internet companies leading a strong position in developing artificial intelligence. It now dominates the new fifth-generation mobile telephone technology, notably with Huawei working out the technical standards for 5G and developing commercial equipment to implement it at lower cost than available from U.S. firms.
Concerns about China's tech success so far are mostly focused on downstream consumer-oriented technologies. But the MIC 2025 policy is adding to concerns by boosting China's upstream sectors, such as semiconductor and mobile equipment, creating gigantic component suppliers to challenge the existing industry leaders. China's huge domestic customer base is creating a favorable backdrop for Chinese chipmakers to develop competitive technologies which they can export.
Add in the Chinese government's intervention, which is embedded in the MIC 2025 policy, in the form of subsidies and shutting out foreign competition, and Beijing is seen as playing foul by fostering Chinese technological advancement at the expense of foreign countries. For example, Beijing has...