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The U.S. Strategy to Hinder China’s Critical Technologies Emerging technologies are increasingly vital in warfare. U.S. Navy photo by John F. Williams

The U.S. Strategy to Hinder China’s Critical Technologies

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United States Secretary of State Antony Blinken’s recent diplomatic mission to China, comprising 11 hours of “candid, substantive, and constructive” talks, revealed a stark difference in perspectives between the U.S. and China regarding their geopolitical rivalry. Beijing’s denial of the relationship as competitive is unlikely to convince the Biden administration, which has named China the most serious challenge to global order over its capacity and intent to usurp U.S. hegemony. As the Biden administration finalizes new legislation restricting investment in Chinese dual-use technologies, it is worth determining whether export controls and trade restrictions are sufficient tools to counter China’s whole nation approach to civil-military modernization.

China’s incorporation of commercial technologies into its state military and intelligence apparatus is central to its campaign for global power and influence. As part of its Five Year Plan to integrate its civil and military infrastructure abroad, the Chinese Communist Party (CCP) has exported intrusive mass surveillance systems to Africa, set up underwater monitoring systems near Guam, and built naval installations in ports throughout Southeast Asia. Recently, the PRC has been accused of planting micro surveillance systems in American naval ports and running police stations in New York City.

To restrict the tools enabling this behavior, the Biden Administration has levied a string of export and investment controls targeting critical technology in China. The most recent is an upcoming executive order restricting U.S. investment in Chinese semiconductors, artificial intelligence, biotech, and quantum computing chips. Once finalized, this will follow measures to levy targeted sanctions on Beijing’s second-largest tech company, ban exports of advanced computer chips, and expand national security considerations for the U.S. Committee on Foreign Investment (CFIUS). The strategy is clear: maintain “strangleholds” on China’s civil-military infrastructure by using defensive economic policies to reduce access to the critical technologies needed to develop it.

While restricting access to trade and investment can put pressure on belligerent states when imposed multilaterally, export controls are only a partial dam against the flood of Chinese technology transfer. The U.S. private sector invests about $11 billion in China annually, with investments in information and communications technology comprising about $500 million. However, China’s “whole nation” approach sanctions illicit and grey-zone activities, including cyber operations, technology transfer programs, poaching technical experts from U.S. firms, and economic espionage. All commercial data stored in China is subject to state review, and once obtained, its Ministry of State Security (MSS) disseminates U.S. trade secrets to government agencies, public universities, and state-linked enterprises. The cost of economic espionage to the U.S. economy has been conservatively estimated at $320 billion annually.

Reducing access to open markets may divert Beijing’s resources towards activities that are harder for the U.S. to monitor and counteract. Since the escalation of U.S.-China tensions during the Trump administration, CCP General Secretary Xi Jinping has prioritized alternative avenues to free trade, shifting Beijing’s chip strategy away from imports and towards stockpiling and protectionism. In response to the 2022 expansion of CFIUS authority, The Standing Committee of the National People’s Congress of China amended its own Counter-Espionage Law to criminalize “espionage against the people’s interests,” allowing the PRC to investigate and penalize U.S. firms without a clear threat to national security.

Finally, broad economic monitoring and enforcement mechanisms have domestic downsides. China leverages its expansive bureaucracy to enforce foreign ownership restrictions, adverse licensing requirements, forced IP transfers, and discriminatory preference towards state-owned enterprises at the expense of slowing its innovation and trade. Conversely, the U.S. Bureau of Industry and Security (BIS) at the Department of Commerce was not designed to enforce unilateral and simultaneous controls against Tehran, Moscow, and Beijing, and a report by CSIS suggests it lacks the capacity to do so. As the number of sanctioned entities climbs from 900 in 2019 to over 2,500 in 2022, skewing toward technological protectionism could prove to be a costly decision that undermines the benefits of the U.S. free trade system.

In times of escalating geopolitical tension, investment and trade restrictions are a rapid means for Washington to curb China’s access to critical technologies. In the long term, however, the U.S. needs a holistic view of technology transfer to China that includes better tools to identify and prevent the spread of surveillance technology, invest in its own advanced technology development, and investigate and prosecute economic espionage. If not, the CCP’s continuing encroachments on U.S. national security will persist long after China has been sufficiently “punished,” with significant ramifications on U.S. economic growth and global influence in the long run.