The Technology War
The technology war is a much more serious war than the trade war because whoever wins the technology war
will probably also win the economic and military wars.
The US and China are now the dominant players in the world’s big tech sectors and these big tech sectors are the
industries of the future. The Chinese tech sector has rapidly developed domestically to serve the Chinese in China
and to become a competitor in world markets. At the same time China remains highly dependent on technologies
from the United States and other countries (e.g., semiconductor chips from Taiwan). That makes the United States
vulnerable to the increased development and competition of Chinese technologies and makes the Chinese
vulnerable to being cut off from American or non-American essential technologies.
The United States appears now to have greater technology abilities overall, though it varies by type of
technology and the US is losing its lead. For example, while the US is ahead in advanced AI development, it is
behind in 5G. As an imperfect reflection of this lead the market capitalizations of US tech companies in total are
about twice the size of China’s with China’s share rising faster than America’s share. This calculation understates
China’s relative strength because it doesn’t include some of the big private companies (like Huawei and Ant
Financial) and the non-company (i.e., government) technology developments, which are larger in China than they
are in the United States. Today the largest public Chinese tech companies (Alibaba and Tencent) are already the
fifth and seventh largest technology companies in the world, right behind some of the largest US “FAAMG”
stocks. Some of the most important technology areas are being led by the Chinese. For example, 40% of the
world’s largest civilian supercomputers are now in China, China is leading the 5G race, and it is leading in some
dimensions of the AI/big data race and some dimensions of the quantum computing/encryption/communications
race. Similar leads in other technologies exist, such as in fintech where the dollar volume of e-commerce
transactions and mobile-based payments in China is the highest in the world and well ahead of that in the US.
There are of course technologies that I, and even our most informed intelligence services, don’t know about that
are being developed in secret.
China will probably advance its technologies and the quality of its decision making that is enabled by them
faster than the US will. Big data + big AI + big computing = superior decision making. The Chinese are
collecting vastly more data per person than is collected in the US (and they have more than four times as many
people) and they are investing heavily in AI and big computing to make the most of it. The amounts of resources
that are being poured into these and other technology areas are far greater than in the US. As for providing money,
both venture capitalists and the government are providing virtually unlimited amounts to Chinese developers. As
for providing people, the numbers of science, technology, engineering, and math students that are coming out of
college and pursuing tech careers in China is about eight times that in the US. While the United States has an
overall technology lead (though it is behind in some areas) and of course has some big hubs for new innovations
especially in its top universities and its big tech companies, so the US isn’t out of the game, its relative position is
declining because China’s technological innovation abilities are improving at a faster pace. Remember that China
is a country whose leaders 36 years ago marveled at the handheld calculators I gave them, and imagine where they
might be 36 years from now, which is not far away.
To fight the technology threats the United States is responding by preventing Chinese companies (like
Huawei, TikTok, and WeChat) from being used in the United States, trying to undermine their usage
internationally, and possibly hurting their viability through sanctions that prevent them from getting items
needed for production. Is the United States doing that because a) China is using these companies to spy in the
United States and elsewhere, b) because the United States is worried about them and other Chinese technology
companies being more competitive, and/or c) as retaliation for the Chinese not allowing American tech companies
to have free access to the Chinese market? While that is debatable, there is no doubt that these and other Chinese
companies are becoming more competitive at a fast pace. In response to this competitive threat the United States is
moving to contain or kill threatening tech companies. Interestingly, while the United States is cutting off access to
intellectual property, it would have had a much greater power to do so not long ago because the United States had
so much more intellectual property relative to others. China has started to do the same to the United States, which
will increasingly hurt because Chinese IP is becoming better in many ways. They have come a long way in a short
time from marveling at cheap calculators.