How to Win a Tech Cold War

(Bloomberg Opinion) -- If a digital Iron Curtain is falling between the U.S. and China, America seems increasingly eager to yank its side down. A hasty and excessive response, however, runs the risk of undermining its own technological advantage.

The most visible assault is the one the U.S. has launched against Huawei Technologies Co. Ltd., the world’s leading telecommunications equipment business. American officials have pressured Western allies to ban Huawei technology from forthcoming 5G wireless networks, which will connect everything from mobile phones to autonomous cars. The Justice Department has indicted Huawei for corporate espionage and wants to prosecute Chief Financial Officer Meng Wanzhou for allegedly misleading banks about Huawei’s business dealings in Iran. 

The larger U.S. campaign extends well beyond Huawei. American trade negotiators are pushing China to scale back massive government subsidies to its high-tech industries and stop forcing foreign companies to hand over technical secrets if they want to do business on the mainland. The U.S. has tightened restrictions on inbound Chinese investment in critical technologies, many of which have potential military uses, and is considering more stringent controls on the export of other emerging technologies to China. The White House is reportedly planning to ban U.S. companies from using Chinese equipment in 5G networks, possibly as soon as this week. Some hawks want to end altogether U.S. dependence on mainland-based supply chains and slow, if not halt, the growth of Chinese tech giants such as Huawei.

All of these actions have costs. America’s intensified scrutiny is one reason that Chinese investment into the U.S. has virtually collapsed, squeezing a rich source of funding for startups. Threats to cut off sales of U.S. components only encourage Beijing to develop homegrown alternatives. New export controls may well stifle U.S.-Chinese collaboration in artificial intelligence and other scientific fields. And if new restrictions make it harder for American companies to employ foreign nationals, they will drive some of China’s best and brightest back home.

Trying to protect U.S. technology without stumbling into a full break with China would be difficult under any circumstances. The challenge has been compounded by the rapid expansion of technologies that have both civilian and potential military uses — from facial-recognition software to semiconductors for artificial intelligence. It’s getting harder and harder to draw a clear line between harmless exports and potentially dangerous ones.

Yet that’s precisely what the U.S. government needs to do: define its concerns as clearly and as narrowly as possible, with a focus on maintaining America’s qualitative military edge, then address them vigorously. In the process, officials should keep certain principles in mind. The Commerce Department itself has articulated a couple of them: New export curbs shouldn’t undermine U.S. innovation or involve technologies that China can procure elsewhere. In addition, all deliberations over possible new rules or controls should be as transparent as possible, so that both U.S. and Chinese businesses clearly understand areas of concern. New technologies emerge and become obsolete too quickly for a fixed list of controls to remain relevant for long.

Wherever possible, the U.S. should seek to enforce existing rules rather than create new ones — for instance, by challenging China’s corporate subsidies at the World Trade Organization. Legal actions against Chinese companies, including the U.S. case against Huawei, should be kept separate from trade negotiations and security actions. And the U.S. should seek support from its allies to prevent leakage.

Finally, American and Chinese policymakers alike should keep in mind the enormous benefits of research collaboration on everything from medicine to renewable energy. Such joint efforts serve to remind both China and the U.S. of the many interests they share, which becomes even more important as tensions rise. The U.S. has every reason to safeguard its technological edge. But it should be possible to do that well without undermining the productive aspects of its relationship with China.

Editorials are written by the Bloomberg Opinion editorial board.

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