Diplomacy & Crisis News

Pour sélectionner leurs étudiants, les universités américaines prennent en compte divers critères : les résultats scolaires, l'origine ethnique, le lieu de résidence ou encore le sexe. Les établissements les plus prestigieux considèrent également la filiation du candidat. Ils favorisent les enfants (...) / États-Unis, États-Unis (affaires intérieures), Éducation, Finance, Inégalités, Jeunes, Société, Université - 2018/06

Is economic war between the world’s two biggest economies inevitable?

A new history of Russia’s ruble highlights the reciprocal relationship between autocracy and monetary policy.

Washington’s search for a security model aimed at ensuring Russia’s “strategic defeat” in Ukraine continues in fits and starts.

In a CNN interview timed to reinforce the deliberations of NATO’s recent summit in Vilnius, President Joe Biden explained that “the United States would be ready to provide, while [Ukraine’s accession to NATO] was going on, to provide security a la the security we provide for Israel: to providing the weaponry they need, the capacity to defend themselves … If there is an agreement, if there is a ceasefire, if there is a peace agreement.”

The relevance of the Israel model embraced by Biden to Ukraine’s security is deeply flawed conceptually and practically. Biden’s interest in the concept suggests that either he has been poorly briefed about the history of U.S.-Israel security ties—an unlikely conclusion given Biden’s extensive experience on the Senate Foreign Affairs Committee—or the more likely explanation of continuing confusion in Washington about how to imagine a new security relationship with Kyiv during what is turning into a forever war against Russia.

In operational terms, the Israel model is barely relevant to the predicament that Ukraine finds itself in and hardly a good model upon which to build the desired security relationship between the United States, NATO, and Ukraine. In conceptual terms, there is little beyond a superficial comparison between Jerusalem and Kyiv to recommend the concept.

First a little history.

U.S.-Israel security ties were born out of three principal elements: (1) Cold War competition in the Middle East; (2) Israel’s overwhelming victory in June 1967; and (3) Israel’s surreptitious development of a nuclear weapons capability from the 1950s onward.

It is all but impossible that Ukraine will be able to exit its war with Russia with the kind of total territorial victory that provided the basis for U.S.-Israel ties after June 1967. Biden in his remarks appears to condition an enduring security relationship with Ukraine, let alone its invitation to NATO, upon a ceasefire and peace agreement with Moscow, a far cry from the unambiguous Israeli victory that provided the foundation for U.S.-Israel security ties.

The U.S. commitment to supply Israel with conventional weapons, principally aircraft, has always been at the heart of U.S.-Israel security ties, as it would be with Ukraine.

However, beginning with F-4 Phantoms in a deal brokered by Israeli prime minister Yitzhak Rabin and U.S. diplomat Paul Warnke, and continuing more recently with F-35 stealth aircraft—the supply of such weapons remains an explicit and vital element of a bargain in which Israel pledged to maintain ambiguity about its nuclear weapons arsenal, and subsequently declare that Israel would not be the first to “introduce” nuclear weapons to the Middle East.

In this context, there may well be those in Ukraine (but one hopes not in Washington) who see the Israel model—creating an integrated nuclear weapons option while maintaining nuclear ambiguity as long as the conventional weapons pipeline from Washington is open—as instructive.

But here too reality intrudes. The U.S. bargain with Israel aims explicitly at assuring Israel’s superiority in conventional weapons against any combination of Arab/Iranian enemies. To that end, through FY2020, the United States has provided Israel with $146 billion in military, economic, and missile defense funding—$236 billion in 2018 dollars.

In just the first year of the war, Ukraine received $77 billion from Washington, about one-half of its total military, economic, and humanitarian assistance.

At best, the U.S. military support at current historic levels has won Kyiv a military stalemate. Ukraine, certainly out of NATO and arguably even as a member, will never enjoy an Israeli-style Quality Military Edge (QME) over Moscow, or be able to command the region’s strategic or security agenda as Israel has done in the Middle East.

Furthermore, unlike Ukraine, Israel has never aspired to win explicit and public alliance guarantees at the heart of Ukraine’s demand for formal participation in NATO. In contrast, Washington’s commitment to maintaining Israel’s QME is a key element of a policy designed to honor Israel’s (and Washington’s) preference to keep Israel out of NATO. Indeed, Israel has resolutely opposed any agreement with Washington that would constrain its “freedom of action” in a strategic perimeter once defined by Ariel Sharon to include any place between Morocco and Pakistan.

The Biden administration continues to search for a workable security assistance formula that promises Ukraine more than a tactical approach to incrementalism capable of achieving the strategic objective of imposing a “strategic defeat” on Russia. The Israel model is, at worst, a dangerous incentive for Kyiv to reinvigorate nuclear capabilities surrendered during the U.S.-Russia honeymoon a generation ago. At best, Biden’s interest is a reflection of the confusion that currently passes for strategic thinking on Pennsylvania Avenue.

Geoffrey Aronson is a non-resident fellow at the Middle East Institute and a former advisor to the EU and others on regional political and security issues.

Image: Shutterstock.

To remain competitive in the digital world, states, and the bureaucratic organizations that run them, must digitalize. This transformation requires several innovations such as the creation and maintenance of digital infrastructure, the collection and maintenance of large digital databases, the assignment of unique digital identities to citizens and businesses, the digital delivery of services, and new digital-friendly regulatory regimes.

For states that are able to successfully digitalize, several benefits will materialize, including improved economic performance, decreased administrative costs, and geopolitical or military advantages.

Yet, digitalization also poses significant risks, especially risks relating to the loss of privacy due to the creation of new opportunities for (digital) surveillance. These risks can be minimized if digitalization programs follow and respect democratic values and norms.

While the United States is well-positioned to lead the world in the development of digital states, it is currently falling significantly short of its potential. Instead, it is now other geopolitical actors, especially the European Union and China, that are leading the world.

The United States

The current digital shortcomings have not always been present. During the 1990s, it was the United States that was driving the world’s interest in the digitalization of the state. This is well captured by the 1993 report “Technology for America’s Economic Growth, A New Direction to Build Economic Strength” and the subsequent significant investments that were made in the development of America’s digital infrastructure.

These investments led the United States to consistently place as a leader in international rankings. Availability of internet access improved, opportunities to engage with the government (digitally) became available, and many of the internal operations of the government digitalized. Under the Obama administration, digitalization was made a priority and the chief technology officer of the United States was created to help drive and steer digitalization within the United States.

Yet, while the United States has made significant investments in its technical infrastructure, during the coronavirus pandemic it became increasingly clear that its digital infrastructure is antiquated and crumbling. In international digital government rankings, the United States has been on a consistently declining trajectory. Internet access is widely available, but there is still a problem with the digital divide.

Similarly, the United States continues to see significant failures with its digitalization projects, most notably the initial launch and failure of Healthcare.gov. While the United States has had a chief technology officer in office since 2009, under the Biden administration this role has been left vacant.

European Union

In contrast to the United States, the European Union (EU) has quickly become a world-leading digital superpower and is unlikely to fall from this position soon.

The EU has made one of its core focus areas the digitalization of its societies and governments, supported by the launch of the “digital decade” policy program. The program’s goals are ambitious but are being supported both politically and financially.

In the EU, public services and government data are being transformed so that they may be offered across state borders. Regulatory developments, such as eIDAS, have fostered the creation of interoperable and cross-border digital identity systems. To ensure that citizens and businesses thrive in the emerging digital society, numerous initiatives have been launched to bridge the digital divide.

The EU’s digital successes have led states around the world to adopt European approaches to digitalization—both technically and regulatorily. This process is what is known as the “Brussels Effect,” where international states and businesses adopt EU best practices while being based in a separate jurisdiction.

As states and businesses continue to adopt EU-supported digital innovations, they will only grow as a global digital leader.

China

Like the EU, China has made digitalization a significant priority and proposed a clear path for the creation of a “digital China” by 2035. To China, digitalization is essential for the long-term sustainability of the existing political regime; technology is a core component of their “social management” strategy.

Though there are many components to this, the most well-known digital component is the “social credit system,” which, to the surprise of many in the West, enjoys a high level of support from the general public. Infrastructurally, China is less hindered by legacy technologies like in the United States and is making quick progress in constructing state-of-the-art digital infrastructures—from 5G to quantum computing to data storage.

Drawing on this expertise, China has made a conscious effort to propagate its digital worldview internationally by exporting its digital technologies as part of the Digital Silk Road initiative. Though the West, and in particular the United States, is trying to push back against these initiatives, China is still seeing success in its digital development ambitions.

Coming Competition

To remain competitive in the emerging digital geopolitical competition, states must digitalize their governments and maintain cutting-edge digital infrastructure. As states begin to digitalize and develop such infrastructure, they will grow in strength and power.

However, this digital transformation does bring about real risks for the creation of a centralized or authoritarian future. These risks can only be confronted by the creation and development of digital infrastructure that is inscribed with democratic values.

Traditionally, this has been a role that the United States has willingly filled. Unfortunately, today, the United States is failing in this role, living within the shadow of the EU and an increasingly-digitalized China. 

If the United States wants to remain competitive in the world’s emergent digital future, it must invest in and modernize its crumbling digital infrastructure, making the digitalization of the state a priority. This will be hard to do and will require substantial transformations: funding must be made available, new regulations must be developed, new technologies must be built and implemented, and capacity within the public service must be developed.

Failing to develop itself as a digital state, the United States will quickly find itself a bystander between the EU and China as the world’s new digital powers. 

Dr. Keegan McBride is a lecturer in AI, Government, and Policy at the Oxford Internet Institute, University of Oxford. His research explores how new and emerging disruptive technologies are transforming our understanding of the state, government, and power.

Albi Nani is a research assistant at the Oxford Internet Institute, University of Oxford. His work focuses on the impact of digital transformation on industries, organizations, and wider society.

Image: Shutterstock.

Western media, for the most part, has ignored a remarkable array of Chinese pilot products in industrial automation, executed primarily by Huawei, the world’s largest maker of telecommunications infrastructure and the target of a global suppression campaign by the United States. Fully automated factories, mines, ports, and warehouses already are in operation, and the first commercial autonomous taxi service is starting up in Beijing. Huawei officials say the company has 10,000 contracts for private 5G networks in China, including 6,000 in factories. Huawei’s cloud division has just launched a software platform designed to help Chinese businesses build proprietary AI systems using their own data.

There’s no indication that the Biden administration’s restrictions on high-end chips and the software and machines that make them have slowed China’s drive for dominance in the so-called Fourth Industrial Revolution—the application of AI to manufacturing, mining, farming, and logistics. Although the fog of tech war makes it hard to evaluate China’s progress with precision, available information points to surprisingly rapid progress in China’s efforts to work around technology restrictions.

The Three Potential Outcomes

China’s single-minded goal is to lead the next wave of industrial technology. Former World Bank Chief Economist Justin Yifu Lin, now a professor at Peking University and a councilor of China’s State Council, wrote in a 2021 book:

China’s 5G technology has become the world leader in the new industrial revolution. In the past few years, the US has repeated its old tricks and suppressed Chinese companies with groundless accusations, using all of its national resources. If the US succeeds in suppressing China by means of a blockade in the new industrial revolution, China will not be able to achieve its second centennial goal. How can China break through the US blockade? It can only do this by working hard to lead the new industrial revolution.

China is leading in the application of AI and high-speed broadband to business productivity. This can have one of three outcomes:

1. The United States and its allies make a concerted effort to leapfrog China and reclaim technological leadership in industry;

2. America and Europe adopt Chinese industrial technology and become followers, as China was a follower of developed markets a generation ago;

3. America continues to lose market share in industry and increases its import dependency, following the United Kingdom’s path of industrial decline.

The first option would require an industrial policy of some kind. America has turned towards such through the CHIPS Act, which has motivated $200 billion in projected investment in semiconductor production, according to the Semiconductor Industry Association. How effective the research and development (R&D) component of the CHIPS Act will be remains to be seen. Whatever the merits and flaws of the legislation, building chip fabs in the United States is justifiable on national security grounds but does not necessarily contribute to the productivity of other industries. On the contrary: the same quality (and even better) chips can be imported at a lower cost from Taiwan and South Korea; TSMC reportedly will sell chips made in the United States at a price 30 percent higher than the same product made in Taiwan. And beyond chips, the United States has not begun to consider a broader industrial policy, let alone begin to put such a policy into place.

To some extent, the second option—adopting Chinese technology—already is taking hold in increments. As noted below, only American companies that already have large-scale manufacturing operations in China have adopted AI/5G applications, entirely in the auto and related sectors.

The third alternative, continued deindustrialization, is unacceptable.

China’s Chip Dominance and the Failure of U.S. Tech Controls

Western analysts have overestimated the impact of technology controls on China, and underestimated China’s ability to work around them. There is a great deal of confusion about the importance of the latest generation of computer chips, whose narrow gate width allows more transistors to be packed into a single chip. The newest iPhones run on chips with 13 billion transistors; for reference, the computer that took the Apollo capsule to the moon in 1969 had about 64,000. The faster speed and energy efficiency of the newest chips are indispensable for 5G handsets. The graphics processing units (GPUs) produced by Nvidia and AMD make tractable the enormous datasets required for large language models (LLMs), like ChatGPT. But older chips, alone or working in parallel, can handle most business AI applications. More important than raw chip speed is the availability of the right data, the ability to transmit it quickly and conveniently, and the overall system architecture.

After the Trump administration banned sales of high-end U.S. semiconductors to Huawei in 2020, Western media predicted that China’s 5G rollout would grind to a halt. The Nikkei Asian Review wrote, for example: “Huawei Technologies and ZTE, China’s two largest telecoms equipment providers, have slowed down their 5G base station installation in the country, the Nikkei Asian Review has learned, a sign that Washington’s escalating efforts to curb Beijing's tech ambitions are having an effect.”

On the contrary: the number of 5G base stations in China doubled in 2021 to 1.43 million, and rose to 2.31 million in 2022, out of a world total of 3 million. Huawei simply built the 5G base stations with mature chips (with a 28-nanometer gate width rather than the 7-nanometer chips banned by Washington). Energy consumption was higher than optimal, but the system worked. Without access to the newer chips, Huawei’s handset business, the world’s largest in the second quarter of 2020, shrank drastically, because 5G handsets need powerful, energy-efficient processors.

Now it appears that Huawei can design its own high-end chips and manufacture them in China. Chinese research firms report that Huawei will reenter the 5G handset market in the second half of 2023. Reuters reported on July 12 that, “Huawei should be able to procure 5G chips domestically using its own advances in semiconductor design tools along with chipmaking from Semiconductor Manufacturing International Co (SMIC), three third-party technology research firms covering China’s smartphone sector told Reuters.” Caixin Global Daily reported in March that Huawei had co-developed Electronic Design Automation software with local firms for older 14-nanometer chips. It isn't clear whether SMIC can make enough 7-nanometer chips to meet Huawei's requirements, or whether the reported new 5G chips use another technology, for example, “stacking” two 14-nanometer chips in a “chiplet” to achieve 7-nanometer performance.

Consumer technology like handsets, though, is a subplot. The decisive issue is business productivity. Huawei and other Chinese companies now offer cloud-based AI services along with training and consulting to propagate the new technology to thousands of firms.

Huawei Cloud CEO Zhang Pingan July 7 rolled out a business-centered AI system before the 6th World Artificial Intelligence Conference in Shanghai, with a dismissive nod to ChatGPT: “The Pangu model does not compose poetry, nor does it have time to compose poetry, because its job is to go deep into all walks of life, and help AI add value to all walks of life.” Unlike OpenAI’s LLM, Huawei’s entry will train AI systems for customers in manufacturing, pharmaceutical R&D, mining, railways, finance, and other industries, Zhang said. The platform is powered by Huawei’s own Kunpeng and Ascend AI accelerator chips. Like the American LLMs, Pangu writes computer code, according to Huawei. But “it was designed for industry, and will be dedicated to industry,” Zhang added.

Most of these are embryonic, but with the Pangu system, Huawei Cloud offers its customers “large-scale industry development kits. Through secondary training on customer-owned data, customers can have their own exclusive industry large models,” the company said.

Zhang Pingan added that Huawei has built an AI cloud platform based on its own Kunpeng and Ascend processors, supporting a suite of AI software. Although “Nvidia’s V100 and A100 GPUs remain the most popular GPUs for training Chinese large-scale models,” a recent study notes, “Huawei used its own Ascend 910 processors” to train the Pangu model. Second, China appears able to produce proprietary AI chips like Ascend, although U.S. sanctions continue to prevent it from fabricating its Kirin smartphone chipset in Taiwan. Chinese chipmakers are keeping their cards close to their vests about fabrication capability.

The overriding issue is that industrial systems rarely require the complexity and computing power that ChatGPT applies to composing school essays and Valentine’s Day poems. China can’t import the fastest and most efficient chips with gateways of 7 nanometers or less, let alone the equipment to manufacture them. But it can make 7-nanometer chips with a costlier process, or approximate the performance of the fastest chip by stacking older chips into so-called chiplets, or jerry-rig older chips to approximate the performance of newer ones through clever system architecture.

Think of the railroad in the nineteenth century, which made it profitable to grow large crops far from water transport. This unleashed ripple effects that made the U.S. economy the world’s largest. Whether the train traveled at 40 or 80 miles an hour made a small difference to its impact on the broader economy—what mattered is that the distance could be crossed. The combination of AI and high-speed broadband creates a data highway that will transform the way most businesses run.

China Is Pushing Ahead on Tech, and It Shows

The United States and China approach AI differently. The trillion-dollar valuations of the great American technology companies mainly come from consumer entertainment. China, as Huawei’s Zhang said, has no time for poetry. Rather than guess when the machines will become sentient or when AI will replace human beings, China has focused on the automation of drudge work: inspecting parts on a factory conveyor belt, checking the bins near the coal face for foreign objects, detecting anomalies in machines, picking containers out of ships and placing them on autonomous trucks, and so forth.

China’s plan to assert leadership in the Fourth Industrial Revolution—the application of AI to production, logistics, and services—appears to be on track.

Except for large manufacturers who already maintain large-scale operations in China, American manufacturers have shown little commitment to Fourth Industrial Revolution technology. To my knowledge, the only U.S. manufacturing firms that have installed private 5G networks to support factory automation are General Motors (which made 2.3 million cars in China in 2022), Ford (which made 500,000 cars in China in 2022), and John Deere (which rolled its 70,000th Chinese-made tractor in February). These firms have joint ventures with Chinese manufacturers and can be considered auxiliaries of Chinese industry.

The trouble is that what is left of American manufacturing after the great decline of the 2000s often does not have the scale to realize the benefits of AI applications. The installation of private 5G networks does not coincide completely with AI applications; wifi and fiber optic cables can transmit information just as well in certain factory environments. But 5G has obvious advantages over cable-based communications in environments with fast-moving heavy machinery, especially in robot-intensive manufacturing, mines, ports, and warehouses.

According to a count by the European 5G Observatory, about sixty factories, ports, and airports have built private 5G networks, prominently including automakers like Volkswagen, Porsche, Saab, and Toyota. Again, most of the manufacturing and transport firms applying this Industry 4.0 technology have a major presence in China.

As a Western consumer technology, 5G has been a disappointment. As the Wall Street Journal headlined a January 2023 report: “It’s Not Just You: 5G is a Big Letdown.” With download speeds of about 150 mbps per second, moreover, American 5G networks are half as fast as China’s. And some U.S. 5G networks have higher latency than the 4G networks that preceded them, making them less useful for applications like autonomous vehicles. Reduced spending on 5G infrastructure pushed Ericsson into a loss during the second quarter of 2023.

China, by contrast, views 5G as an industrial technology, and expects 5G2B (5G to business) to drive sales. The relative stock price performance of Western vs. Chinese companies contains some forward-looking information. Huawei, the largest provider of telecom infrastructure, is a private (employee-owned company) and has no listed stock price, so no insight can be gleaned there. But China’s number two telecom company, ZTE, provides a rough proxy for Huawei. Its stock price has doubled over the past five years, while the second and third-ranked global firms, Ericsson and Nokia, have lost about 30 percent of their market value (price performance calculated in U.S. dollars). That is noteworthy considering that the broad European market rose 23 percent between July 2018 and July 2023 while the Chinese market (CSI 300) is almost unchanged. American pressure has excluded the Chinese firms from the U.S. market and many European markets as well, but the Chinese firms dominate their home market and most of the Global South.

China thus has a distinct advantage in 5G broadband, a critical element in business automation. Transmitting large amounts of data (for example, thousands of photos of a factory conveyor belt per minute or real-time video of underground mining operations) is more of a bottleneck than chip speed. Last month, China was the first country to allocate spectrum in the 6GHZ band to 5G and 6G services, to promote “global or regional division of 5G/6G spectrum resources” and provide the groundwork to “promote mobile communications and industrial developments at home.”

U.S. spectrum allocation favors wifi over mobile broadband, allocating virtually all of the 6GHz band to “unlicensed use,” that is, Wi-Fi. As the industry website Lightreading observed, “the ruling represented a win for the cable industry and other Wi-Fi proponents ranging from Apple to Cisco. But for 5G network operators – which continue to argue they don’t have enough spectrum for high-bandwidth services like fixed wireless – the FCC’s ruling came as a setback.”

In other words, U.S. policies continue to favor consumer-oriented Big Tech over industry applications.

Telecom infrastructure and related applications have also buoyed China’s exports to the Global South, which have risen 50 percent since 2019 in ASEAN, nearly 100 percent in Brazil, and 250 percent in Turkey. Broadband has a transformational impact on countries with a high proportion of informal employment. It puts payment systems onto smartphones and opens banking and credit to previously marginalized people, and provides information and sales opportunities to entrepreneurs. It reduces the cost of delivery of services, including education and healthcare, and fosters new industries.

Because of all of these efforts, China in 2023 became the world’s leader in the largest manufacturing industry, automobiles, with $3 billion in global sales. High-tech manufacturing and economies of scale are likely to increase China’s edge. In 1908, Henry Ford defined an era of mass ownership of personal cars by pricing the Model T at $800, then America’s per capita GDP. China now produces electric vehicles with adequate range and power at around $11,000, just below China’s per capita GDP. China’s cheap but full-featured electric cars may dominate the low end of Europe’s auto market. Once China’s best-selling brand, Volkswagen’s market share has fallen, with annual sales down to 3.2 million units in 2022 from 4.2 million before the coronavirus pandemic. The benefits of 5G2B and artificial intelligence are thus tangible and visible: Cheaper industrial products, more efficient ports, deployment of automated vehicles, and so forth.

Meanwhile, in the West, how LLMs will drive profitability is less clear. Generative AI may find more lucrative uses in the future, especially in the automation of software, but how the existing technology justifies the trillions of dollars of additional equity valuation inspired by ChatGPT remains something of a mystery. OpenAI’s ChatGPT model meanwhile appears to have peaked as an object of popular curiosity, with a 10 percent decline in website visits in June.

As for present usage and estimates, the picture is sanguine. An Asia Times study noted that replacing every help desk employee in the United States with a chatbot would save a mere $1.6 billion a year, while replacing the bottom 25 percent of computer programmers by earnings would save just $2.5 billion.

Why Have U.S. Tech Sanctions Failed?

For several reasons, U.S. sanctions are ineffective in constraining AI development in China.

First, as noted, China’s home designs are competitive in industry applications, which typically require less computing power than LLMs and may already offer performance equivalent to the Nvidia and AMD offerings

Second, China’s SMIC can produce 7-nanometer chips, albeit with much higher costs and lower efficiency. It can certainly meet the requirements of China's military for 7-nanometer chips. These are probably quite small; existing military systems overwhelmingly use older chips, which are more robust and easier to harden, as the RAND Corporation explained in a 2022 study.

Third, Nvidia’s fastest AI chips are readily available in China through third-party sellers although at higher prices. Slower versions designed by Nvidia to stay within U.S. guidelines are still sold to China, although Washington reportedly may ban these as well.

Stopping Chinese firms from using American AI computing power via cloud services won’t accomplish much, according to US industry leaders. Amazon CEO Andy Jassy was asked by CNBC July 6: “One of the things the administration has floated is the idea that Chinese companies wouldn’t have access to kind of AI-grade cloud computing resources through hyper scalers, through cloud providers, like Amazon. Do you have a sense of how that would affect Amazon if Chinese companies couldn’t access AI scale computing on [Amazon Web Services]?” Jassy replied: “Well, the reality is that there are some very strong cloud providers who are Chinese cloud providers in China. So Chinese companies in China are going to have access to AI capabilities, whether they come from U.S. companies, European companies, or Chinese companies.”

Compete Seriously or Perish

U.S. limits on technology exports to China do not appear to have stopped or even slowed the rollout of the AI applications that have the greatest strategic impact. At the same time, restrictions on sales to China reduce the revenues of U.S. semiconductor companies and endanger their R&D budgets. In December 2019, the Defense Department vetoed a Trump administration plan to ban the export of high-end chips to Huawei on the grounds that the loss of Huawei as a customer would impinge on chipmakers’ ability to sustain R&D. President Donald Trump initially backed the Pentagon position, but reversed this later in 2020 after the coronavirus epidemic hit with full force.

The semiconductor industry is unique in the scale of its R&D requirements. It budgeted $200 billion for R&D on $600 billion in 2021 sales (the actual total will be $160 billion or less due to market softness). No other industry devotes a third of revenue to R&D. The world’s largest industry, automobiles, spends about one-fourteenth of its revenue in R&D. For companies like Qualcomm, which earns a third of its revenue in China, or Nvidia, which earns one-fifth of revenue, the support available under the CHIPS act will not compensate for revenues lost due to federal regulation. These companies are lobbying the Biden administration to relax controls on China, and they have a good case—in fact, the same case the Pentagon made in December 2019.

Restrictions on technology exports to China at best are a stopgap. Eventually, China, which graduates more engineers each year than the rest of the world combined, will develop its own substitutes, as ASML, the world’s premier maker of chip lithography equipment, avers. Even as a stopgap, though, the controls are failing. They impose high costs on China in several ways but have not impeded the Fourth Industrial Revolution. On the contrary: the limited adoption of Fourth Industrial Revolution technologies by American industry is concentrated in firms that have major commitments to China.

Whatever its merits, the CHIPS Act is not a substitute for the kind of effort the United States made under the Apollo program, or during the late 1970s and early 1980s, when DARPA funded the invention of the digital economy. In 1983 the United States devoted 1.2 percent of GDP and 5 percent of the U.S. budget to federal R&D. Today we spend only 0.6 percent of GDP on federal R&D and barely 2 percent of the federal budget.

To maintain a technological edge over China, we will have to spend an additional several hundred billions of dollars, train a highly-skilled workforce, educate or import more scientists and engineers, and provide broader incentives to manufacturing. It is simply too late to try to suppress China. That is no longer within our power. What remains within our power is to restore American pre-eminence.

David P. Goldman is Deputy Editor of Asia Times and a Washington Fellow of the Claremont Institute. He is the author of You Will Be Assimilated: China’s Plan to Sino-Form the World, How America Can Lose the Fourth Industrial Revolution, and Restoring American Manufacturing: A Practical Guide.

Image: Shutterstock.

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