Commentary: Many businesses are not ready for US-China decoupling

Commentary: Many businesses are not ready for US-China decoupling

One of the most important things the US could do right now is to work with allies on global standards for emerging technologies like 5G and artificial intelligence, says the Financial Times' Rana Foroohar.

Flags of U.S. and China are displayed at AICC's booth during China International Fair for Trad
Flags of US and China are displayed at the China International Fair for Trade in Services in Beijing, May 28, 2019. (Photo: REUTERS/Jason Lee)

NEW YORK CITY: Anyone who still doubts that the US is economically decoupling from the rest of the world should take a look at a proposal the commerce department put forward last week.

This would allow its secretary Wilbur Ross to prevent imports of any new technology deemed a “national security threat”. The broad language could apply not only to Huawei chips or Chinese dot-coms, but to European hardware, software and data services, too, if they are deemed to be linked to a “foreign adversary”.

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Such a link is very possible now Europe is being pulled into China’s technology orbit via the 5G standards and technologies that make up part of the Belt and Road Initiative.

I spoke recently to a senior executive at a strategically important US technology company who told me it is becoming legally tricky for him even to speak to his counterparts in Europe, because of the various restrictions that the Trump administration has put in place.

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That’s scary, because one of the most important things the US could do right now to ensure both national security and its own position in the 21st-century digital economy would be to work with allies on transatlantic standards for emerging technologies like 5G, artificial intelligence and so on.

In fact, that was a key recommendation in a recent Council on Foreign Relations (CFR) task force report entitled Innovation and National Security: Keeping Our Edge.

DECOUPLING IS NOW MAINSTREAM

The title indicates that decoupling is no longer a fringe idea.

The CFR has traditionally been the seat of neoliberal economic thinking; most of its members are older, wealthy, business and policy types who have shaped and benefited from globalisation – in particular the free movement of capital across borders – over the past four decades.

The fact that the CFR is now admitting that we are in a more fragmented world — one that won’t reset to the 1990s – and advocating what amounts to a US industrial policy, is a major shift in thinking.​​​​​​​

Wilbur Ross has been a keen booster of the private sector in space
The US Commerce Department's latest proposal allows Secretary Wilbur Ross to prevent imports of any new technology deemed a "national threat". (Photo: AFP/Adem ALTAN)

They aren’t alone. When I first wrote that elites were missing the prospect of deglobalisation, the idea of the US and China decoupling economically was talked about mainly in eccentric company.

Now, it’s become mainstream, advocated by politicians as seemingly ideologically opposed as Democratic presidential hopeful Elizabeth Warren and Republican Senator Marco Rubio.

A bipartisan congressional committee is investigating the relationship between national security and technology, with an eye to helping the defence department maintain its technical edge against China and Russia.

The Coalition for a Prosperous America, a group that wants to rebuild the US industrial base and secure supply chains, recently won a prestigious award from the National Association of Business Economics, for a paper showing that a permanent tariff on China would benefit the US economy.

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One can argue about the efficacy of tariffs. But it is becoming a given that the US needs a more coherent national economic strategy in a world in which state capitalism is in the ascendant.

The question is how to get there. And that’s where the internal contradictions in America’s laissez-faire, free-market system start to become a problem.

GROWING DIVIDE BETWEEN PRIVATE AND PUBLIC SECTORS

The CFR committee that drafted the report on a national innovation strategy is made up mostly of private sector folks from the finance, technology and consulting sectors, as well as academic participants.

But there are no public-sector members.

Jerome Powell
Federal Reserve Chair Jerome Powell speaks on the economy outlook and monetary policy review at the Council on Foreign Relations, in New York. (AP Photo/Richard Drew)

Yet the report is mostly about what government should do — recommendations include more federal support for research and development, shifts in immigration policy to attract skilled migrants, and a greater percentage of federal agency and military spending allocated to technology integration.

This reflects more than the ineptitude of our current administration. It reflects the divide between what the private sector wants from government, and what it is willing to give to support the public sector.

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Will Apple, Alphabet and Facebook stop offshoring profits or put whatever they bring back to the US into something aside from share buybacks? Will Silicon Valley and Wall Street volunteer to retrain the millions of underemployed millennials? 

How can we move from 40 years of supply-side thinking that has benefited multinational companies, towards something that better supports local economies and workers?

These are the big, unanswered questions.

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To be fair, some businesses and trade groups have given resources to joining the dots between the public and private sector, and in particular educators and job creators (IBM’s P-tech schools and the Business Roundtable’s efforts on vocational training stand out).

But if America is going to compete with a state-run economy like China in the digital era – one that seems to support a winner-takes-all dynamic – we are going to need bigger, public-sector directed shifts.

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To achieve those, we will also need changes in tax policy that allow the government to capture and deploy more of the wealth created by the private sector.

That’s a message that business doesn’t like to hear. But like decoupling itself, it is coming.

Source: Financial Times/el(sl)

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