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US-China Trade Talk Casts Pall Over Tech Industry

Merit E. Janow, Dean of the School of International and Public Affairs at Columbia University, at Techonomy NYC. (Photo: Rebecca Greenfield)

As China continues to bolster its capabilities in technology R&D, some fear that America is losing its edge as a global innovation hub. Yet rising competition does not have to be “zero sum,” Merit E. Janow, Dean of the School of International and Public Affairs at Columbia University, said last week at Techonomy NYC. If managed properly, the China-United States tech race could ultimately benefit everyone.

That’s a big if.

In an interview with Rebecca Fannin, a longtime China watcher and founder of Silicon Dragon, Janow said she was worried about “the escalation of tensions” in U.S. and China relations, which are driven by an ongoing sense that China is not playing fair on trade policy and fueled by the Trump administration’s willingness to negotiate aggressively with Chinese leaders.

Janow, who served as a deputy trade representative to China and Japan from 1989-1993, cited progress in China’s efforts to reform its economy and establish intellectual property controls since then, but noted that America firms “have continued serious concerns about market access and Chinese industrial policies,” including tariffs, joint venture requirements, mandatory licensing requirements, intellectual property protections, and security issues.

These concerns are not exclusive to the technology industry, but tech remains one of the fiercest policy battlegrounds, particularly as Chinese tech companies make significant investments in the United States. Baidu, Tencent, and Alibaba—three leading Chinese tech companies that are often collectively known as the BAT—have invested in 95 tech deals in the U.S. worth $27.6 billion in the last 5 years, Fannin wrote in an article in the Spring 2018 edition of Techonomy Magazine. This includes taking stakes in iconic American tech companies like Uber and Tesla that hold cutting-edge IP.

One area of particularly heavy competition is artificial intelligence (AI). Spurred by strong government support, Chinese companies are taking positions in AI companies and establishing R&D labs in the United States. They are also investing heavily at home. Nearly half of the $15.2 billion in global AI funding in 2017 went to China, according to Fannin. The country has even begun to outperform the U.S. on some measures of AI research productivity, according to a recent report by Autonomous Research, a financial research firm.

American authorities are growing increasingly wary of China’s tech ambitions, as evidenced by the recent sanctions against Chinese telecommunications giants ZTE and Huawei, which are driven by both security concerns and a more general sense of frustration that large portions of China’s technology markets remain off limits to foreign investors.

Despite the pushback from America, many predict that China will continue its rise as a global tech power. “If anybody in this room thinks China is inferior in technology, think again,” advertising pioneer Martin Sorrell said in an interview with Techonomy’s David Kirkpatrick. “It may be that the sanctions against ZTE and potentially Huawei will check them, but it’s only a matter of time.”

Still, the rising competition between the United States and China could spur technological innovations, improved trade policies, and market reforms. But it also risks devolving into retaliatory spats that diminish cooperation and stall technological progress.

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