A new China Trade Policy for Tech?

With the election now over*, we have been getting asked by a lot of people what should the Biden Administration do with its China policy? We try to avoid politics on this site, but we see this as largely a trade and economics issue. So in regards to Technology policy and China, we have a list of things we would like to see.

Our overarching theme is that the US should not abandon its principles to counter China. And while China’s policies are unquestionably a threat to US industry, the US’s response should be double down on things it already does incredibly well and not abandon those to mimic China’s policies.

Thus the first thing we would like to see is a US commitment to investing in semiconductors. This does not mean handing out subsidies to favored firms. US chip companies are awash in profits and cheap capital. They do not need direct subsidies. We outlined some of these ideas in July: chief among them should be a US semis fund channeled through professional investors, a coordinated purchasing policy for semis across the US government, and research grants across US academic institutions.

Along side these we would like to see immigration policies which encourage talented researchers from around the world to move to the US. This time, these could come with commitments to stay in the US and work for US companies for several years to reverse the flow of talent to China that has taken place over the past decade.

Third, we would like to see continued pressure on China to remove its unfair trade practices. Notably, this has to include enforceable mechanisms to prevent forced IP transfer. This should also include opening China’s data center market. While asking China to open up to Twitter, Google and Facebook for consumers would be nice, it is likely impossible given China’s political environment today. That being said, AWS, Azure and GCP should be allowed to operate in China to serve enterprise customers.

The guiding principle in this should be reciprocity. If China is going to block US companies from operating in China, then the US has the right to block Chinese companies. Ideally, this would lead to more access on both sides. Practically, there are going to be off-limits areas under China’s government, but the goal should be to move towards as much parity as possible.

Fourth, the US should work alongside its allies and other interested parties (e.g. India) to maintain pressure on China. Technology – especially electronics and semis – are strategically important and the US should be willing to trade small concessions to these partners in other industries to ensure that China practices fair trade in technology. We have seen this is possible with Huawei, but our sense is it could be much more effectively and evenly applied if we were not bickering with our allies on a dozen other topics.

All of these things play to the US’s strengths. The US has 200+ years of policies of running an open economy and this should continue. The US government is a major consumer of semis and electronics and should be smarter in how it directs this spending. The US has the most advanced academic institutions in the world, and should double down on that to push its lead further. The US has some of the leading data center and software companies in the world, and these companies should not be hobbled by unfair trade practices. The US has led with its ideas of free markets and democracy, and should continue to persuade others of the benefits of these ideals.

This path gives China the room it needs to build its own economy and technological capabilities, it gives China a stake in a shared global economy. But it also protects the US and US companies from being subjugated to one-sided arrangements and crippling IP sacrifices.

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