21st Century’s New ‚Cold War‘: The US-China Trade-Tech Stand-Off

Written by | Tuesday, October 15th, 2019
@Eubulletin

As the great power rivalry and (technological) trade conflict between the United States and China intensifies, calls for an export control regime tailored to so-called emerging technologies are growing. In August 2018, the US government announced the Export Control Reform Act (ECRA), seeking to limit the release of emerging technologies to end uses, end users and destinations of concern.
The contest is on for the leader in the development and use of emerging technologies, but also for shaping norms and writing the rules for their use. This requires the European Union – in coordination with key stakeholders from business and academia – also to redouble their efforts and recraft their own approach to export controls of so-called ‘omni-use’ emerging technologies. The EU shares the United States’ concerns about the proliferation of non- Western norms and standards through emerging technologies. They do not, however, wish to use export control as an instrument to curb China’s rise as a technological power.
Set against this context of the United States’ push for reform, while continued bilateral dialogue with the US is important, now is the time to engage actively on the EU level to create a truly efficient EU-wide export control system for emerging technologies. Next to a coordinated response to the US shift, adoption of the proposed EU autonomous dimension and introduction of electronic licensing are crucial steps. These steps are required to uphold European norms for the use of certain technologies challenged by China, and to shield against US extraterritorial jurisdiction, which could well result in broad sanctions against European companies and disruption of the value-chains that businesses depend upon to innovate and competitively sell their products.
This deepening geopolitical contest is on for the leader in the development and (global) use of emerging technologies, and thereby the writing of norms and the rules for their use. In this context, the (screening of) foreign investments and the question of how to deal with China’s telecom giant Huawei keep hitting the headlines, but few are aware that the issue of export control is equally, if not more, challenging.
Foreign direct investment (FDI) screening and export control may be considered as two sides of the same coin, as screening checks investments into a country against national or economic security standards, while export control does the same for exports that leave a country. Today’s discussion in these fields is shaped by concerns that technologies being developed indigenously by China may undermine the national or economic security of Western countries.
Responding to this challenge, the US government today seeks to protect the technological advantage that the United States still has over China in high-tech and intellectual property (IP)-sensitive industries. Some US officials seem determined to contain China, or at least to slow its rise significantly until the US believes it has guaranteed its own technological superiority. Next to tariffs and investment screening, Washington now seems intent to use export controls as a tool to curb China’s technological rise.
In a fashion reminiscent of traditional dual-use export control, Washington is pushing through expansive domestic regulations governing the export of emerging technologies. The proposed reforms to control the export of US technologies and products, outlined in the Export Control Reform Act (ECRA), largely mirror the intelligent manufacturing sectors identified in the Made in China 2025 (MIC2025) industrial policy. In all this, Washington seeks to ensure not only its competitive advantage but also its power to design the standards and norms of the future. Importantly, the US demands support from its (alliance) partners in its trade–tech stand-off with China, as illustrated by the call to ban Huawei from providing 5G infrastructure.
Even though this unilateral move is aimed at China, the EU countries will also be impacted by US export control reforms, which will require action on their part. While European countries, including share the United States’ concerns regarding the application of certain emerging technologies by the Chinese government and the proliferation of Chinese norms and standards through the (re-)export of these technologies, they do not support US attempts to contain China’s technological rise in this absolute way. The proposed measures have the potential to restrict significantly operations of companies working in and with the US and, as an extension, to fragment global value-chains and research and innovation networks.
These reforms will impact trading nations with a strong focus on high-technology sectors most drastically, including some EU member states, which are home to leading companies in emerging technologies, including semiconductors, photonics and quantum technology. In charting a path forward, the EU must now decide how and to what extent to engage actively with the US on its push for export control for emerging technologies. Similar to the EU, also Japan – with its strong high-tech sector – will be heavily affected by the (extraterritorial) effects of US policies.
Generally seen as a like-minded country with shared concerns and an approach similar to that of EU member states, Japan stands out as a valuable partner in dealing with the push for reform in Washington, even if this is complicated by economic competition in the high-tech sector. Japan’s imposition in July 2019 of export controls on South Korea, set against a context of continued political tension between the two neighbours, is seen by some as a sign that the politicization of export controls goes beyond the US alone. Although worrying, the fact that Tokyo’s controls appear to be compliant with World Trade Organisation (WTO) rules suggests that for the EU and its member states the benefits of cooperating with Japanese stakeholders should still prevail.
Just as the EU has cooperated with the US on investment screening, through information exchange, regular consultation and cooperative action, the same must occur now regarding export control. Next to the bilateral and multilateral/multi-stakeholder tracks, improved coordination and EU-level action are thus particularly important to uphold European norms and to shield against US extraterritorial jurisdiction. The global reach of US export control laws could well result in broad sanctions against European companies and disruption of the value-chains that businesses depend upon to innovate and competitively sell their products.
‚The US-China Trade-Tech Stand-Off‘ – Report by Brigitte Dekker and Maaike Okano-Heijmans – Clingendael / The Netherlands Institute of International Relations.
The Report can be downloaded here

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