US-China technological cold war — law of unintended consequences

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As the world continues to accelerate towards multipolarity, a technological cold war has emerged between the United States and China.

Given the fundamental role that technology has come to play in all facets of everyday life, not least in national security, the US has recently commenced restrictions against the transfer of key technologies to China. Concurrently, the US has committed to well-funded, ambitious programs to avoid being technologically leapfrogged.


To an extent, this situation is self-inflicted. This is epitomized by a story that recently came to light regarding the loss of innovative battery technology to China. In 2012, a team of scientists at a US government lab uncovered a breakthrough design for a vanadium redox flow battery. This was culmination of 6 years of work and 15 million USD in taxpayer funds. However, under the auspices of the US Department of Energy, the technology was passed via license transfers to China’s Dalian Rongke Power Co. Ltd. which has since become the world’s largest manufacturer of vanadium redox flow batteries.

To avoid this sort of situation, the bi-partisan Invent Here, Make Here for Homeland Security Act was introduced in September 2022. Senator Rob Portman – one of its co-authors – noted “… when the government spends American taxpayer money on inventing a product, it’s common sense that product should be made in America and not by our adversaries”. Its other co-author, Tammy Baldwin, added “… If American taxpayers funding the research that leads to an invention, American manufacturers should be making the products”.

Waging the tech war

A month later, the US introduced new export controls on semiconductor and artificial intelligence (AI) technologies to China. This is not only intended to slow down Chinese AI innovation, but also to degrade the ability of Chinese chipmakers to manufacture advanced chips by blocking access to chip design software, manufacturing equipment, and components.

Despite having invented the point-contact transistor and integrated circuits during the 1940s and 50s, the US finds itself today barely accounting for 10% of semiconductor production, relying instead on East Asia which produces more than three-quarter of the world’s supply, including most of the high-end chips. To counter this, the CHIPS and Science Act was signed into law in August 2022. The Act is aimed at bolstering American manufacturing, supply chains, and national security by directing investment and research and development efforts to the technologies of the future like quantum computing, AI, and nanotechnology.

Relentless progress

Meanwhile, the pace of technological progress in China has been relentless. In 2021, China committed 15 billion USD of public funding to quantum computing (eight times more than the US). China holds more than 50% of patents in quantum technologies – more than the US and the EU combined.

While the US has traditionally dominated in AI, China is rapidly catching up and will potentially overtake. In 2017, China surpassed the US in AI start-up funding for the first time. In 2018, over 50% of AI patents were held by the US and China (split almost equally), however, China has been filing them at a faster pace in the last five years, for instance, in 2017 China published five times as many AI patents than the US. Chinese researchers are publishing more papers on AI than any other country – their global share of research papers on AI increased from 4% in 1997 to 27% in 2017.

In December 2022, China announced 143 billion USD package to support its semiconductor industry. A few months before, it was announced that China’s largest semiconductor foundry Semiconductor Manufacturing International Corporation (SMIC) has developed the advanced 7 nm semiconductor, a capability that had until then been limited to only three companies: Intel, Samsung, and Taiwan Semiconductor Manufacturing Company. China also plays a formidable role in 5G technology, has become the second-largest market for cloud computing after the US despite a slow start, and Chinese bigtechs like Alibaba, Tencent, and Huawei, are increasingly dominant in countries in the Chinese sphere of influence.  

Strategic advantage and advances

Plus, China today accounts for over 60% of the world’s rare earth mining, over 85% of rare earth processing, and over 90% of rare earth magnet production. Rare earths are needed for various critical products including electrical vehicle engines, jet engines, missiles, radars, fibre optics, superconductors, and satellites. China’s disproportionate dominance of rare earth elements is both a strategic advantage for its own high-technology industries and as a geo-economic counter-parry.

The question that naturally follows is, is it too little too late for the US? Has US strategic myopia during the unipolar moment of the 1990s and 2000s handed America’s technological crown-jewels to China on a silver platter? Many observers, including a report released last month by the Australian Strategic Policy Institute (ASPI), see China continuing to race ahead. ASPI’s report revealed that China’s global lead now extends to 37 out of 44 critical technologies, including in defence, AI, quantum computing, and robotics.  

Unintended consequences

Moreover, what are the law of unintended consequences? To reduce the number of venomous cobras plaguing Delhi, the British Colonial Government began paying bounties for every dead cobra presented to officials. Though initially successful, enterprising Delhiites began breeding cobras to claim the bounty; when authorities cottoned on and subsequently scrapped the incentives, cobra breeders released their now worthless snakes thus exacerbating the original problem.

While export bans and similar measures may hurt China in the short-term, in the long-run they are likely to compel the Chinese to double-down on their technology investments, fill any gaps, increase self-sufficiency, and reinforce areas where they have a competitive advantage. Rather than reactive or tactical fixes, the US needs to fundamentally rethink the economic, educational, societal, and regulatory building blocks of a technology and innovation renaissance.

Giorgio Daher

Giorgio Daher is a Visiting Lecturer at EM Normandie Business School and a Member of the Advisory Board at Headline Bulletin.

He has worked at the intersection of technology and banking in various roles at Gartner, IBM, Thomson Reuters, and Bloomberg.

He holds a PhD from Université Paris Dauphine and is the author of the book Banking in the Age of the Platform Economy which is being published by De Gruyter.

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