Digital Cold War

(Bloomberg) -- Here’s one vision of the future: In half the world, driverless cars built by Baidu and connected by Huawei’s 5G wireless service carry residents who shop online with Alibaba and post selfies with WeChat. In the other half, those activities are dominated by companies like Amazon, Google, Facebook, Tesla and Ericsson. On one side, the internet is tightly controlled; on the other, it’s far freer. For some policy makers and academics, the escalating tensions between the U.S. and China are pointing toward a “Cold War 2.0,” one fought for technological, rather than nuclear or ideological, dominance. It’s a prospect fraught with danger, fueled by hawks on both sides. Yet it would require so complete a dismantling of the global supply chains and networks that have underpinned China’s astounding growth in particular, that many believe any new Cold War won’t end up looking like the last.    

The Situation 

Adding to the tensions in an escalating trade war, U.S. President Donald Trump barred companies deemed a national security threat from selling to the U.S. and blocked Huawei Technologies Co. from buying essential components. The move could cripple China’s largest technology company but also accelerate Beijing’s drive for technological self-sufficiency. The salvo came after months of efforts by the U.S. to convince other countries to avoid using Huawei for new 5G networks. In December, Canada arrested Meng Wanzhou, Huawei’s chief financial officer, on U.S. charges of violating sanctions limiting trade with Iran, triggering a retaliatory arrest. China already made it hard for foreign companies to operate there, but now the Trump administration has proposed a new, Cold War-reminiscent export control regime to restrict the transfer of cutting-edge U.S. technologies, from artificial intelligence, or AI, to quantum computing. Trump also signed an order giving priority to research on AI amid fears that the U.S. might fall behind in a technology with military as well as commercial significance. Meanwhile, decisions by Vietnam and Thailand to adopt tough cybersecurity laws modeled on China’s appeared to confirm a gradual division of the global internet into zones of governance.

Digital Cold War

The Background

According to the writer, AI scientist and former Google China head Kai-Fu Lee, Beijing had a “Sputnik moment’’ in 2017, when Google’s AlphaGo computer program defeated a champion of the 2,500-year-old Chinese game Go. As with the 1957 Soviet satellite launch that shocked the U.S. into a space race, AlphaGo’s victory triggered an all-out Chinese drive to become the world’s leading AI power by 2030. The state has mobilized huge sums in investment and subsidies for state-owned and private companies to achieve its goal. It has also forced Western companies doing business in China to share their intellectual property with local partners. For Americans, Huawei’s emergence as the global leader in 5G network equipment produced a similar shock. According to a leaked White House memo, the administration considered nationalizing the buildout of 5G to protect it from Chinese infiltration and compared the race for AI to the World War II Manhattan Project to build an atom bomb. The U.S.’s 2018 National Defense Strategy classified  China as a “strategic competitor,’’ and U.S. demands in the trade war include calls for China to address its perceived unfair advantages in the technology race, from market access restrictions to subsidies to intellectual property theft. 

The Argument

Former U.S. Treasury Secretary Hank Paulson predicts a new economic iron curtain,’’ while Wired magazine editor Nicholas Thompson and the political scientist Ian Bremmer picture a world where other countries could soon be forced to choose between technological ecospheres. Yet there’s reason for caution. For one thing, the U.S. has had limited success persuading allies to block Huawei from their 5G networks, largely because excluding it would mean higher costs and delays. And while the Soviet Union was economically isolated — banning private enterprise and even using different size train tracks — China is capitalist and deeply integrated. The Vietnam example may be misleading, too; Hanoi has authoritarian views on internet freedom, but it sees Beijing as its biggest security threat and has blocked Huawei from its 5G networks. So if a new digital curtain does emerge to divide the world, it may be so porous and meandering that it could hardly be called iron. For its part, China has rejected U.S. security claims over Huawei, calling them concocted and a pretext to hold back the country’s technological rise.

The Reference Shelf 

  • AI Superpowers: China, Silicon Valley and the New World Order, a book by Kai-Fu Lee.
  • Hank Paulson’s address on the risks of a U.S.-China Cold War at Bloomberg’s New Economy Forum.
  • 2019 annual report of the U.K.’s Huawei Cyber Security Evaluation Centre.
  • The AI Cold War that Threatens Us All,’’ a Wired magazine article by Nicholas Thompson and Ian Bremmer.
  • A QuickTake on how cybersovereignty splits the once world wide web and an explainer on 5G.

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