Why US efforts to counter China’s tech advancements matter to the rest of the world

If the controversy goes down the track where third nations and their corporations must choose between Chinese and US suppliers of technology

  
Flags of U.S. and China are displayed at American International Chamber of Commerce (AICC)'s booth during China International Fair for Trade in Services in Beijing, China, May 28, 2019. Image used for illustrative purpose

Flags of U.S. and China are displayed at American International Chamber of Commerce (AICC)'s booth during China International Fair for Trade in Services in Beijing, China, May 28, 2019. Image used for illustrative purpose

REUTERS/Jason Lee

Nothing unites enemies more than a common foe. The US Senate proved that when it overwhelmingly passed a bill aimed to bolster technological and industrial capacity in the technology and innovation space by 68-32 votes. The sum allotted comes in just shy of a quarter of a trillion dollars.

It is particularly noteworthy that the bill was passed on the same day as President Joe Biden ended his charm offensive aimed at convincing Republicans to consent to a $1 trillion+ infrastructure and public works’ program — proving that apprehensiveness towards China’s economic and geopolitical ascent is one of the very few issues that Republicans and Democrats can agree on.

The bill has essentially two components: $190 billion will go toward research and development at universities and research institutions, and $52 billion is earmarked toward emergency support to enable domestic chip producers to expand production. It doubtlessly helped the passage of the bill that the pandemic exacerbated the global semiconductor shortage and brought to the fore dependence on China by manufacturers in the US and elsewhere.

While the bill is intended to address the issue of US competitiveness vis-a-vis China — particularly where it targets artificial intelligence and quantum computing, which are the core focus of China’s next five-year plan — it is also in line with Biden’s stated goal to bolster federal government spending on research and development.

This makes sense looking at how China and other governments have for decades supported their research and development, compared to the US approach, which primarily focused on the private sector. According to Bloomberg, the US federal government spent 2.2 percent of GDP on research and development in 1964, and this had dwindled to 0.7 percent by 2020. At the same time, and in dollar terms, research and development contributions by China have increased steadily.

The bill will still have to pass the House of Representatives, where political analysts expect stronger opposition from Republicans.

Former President Donald Trump started the collision course with China on the trade front, and Biden carries the baton with more targeted and nuanced methods.

The Chinese government reacted vociferously to the bill. According to the Xinhua news agency, the National People’s Congress commented on the bill, inferring that it “interfered in China’s internal affairs under the banner of innovation and competition.” This is no surprise as there are political undercurrents to the legislation, such as human rights violations against the Uyghur population.

Expect the tone between China and the US to become increasingly more belligerent. This matters to the world at large, as it does to Gulf Cooperation Council nations, which invest in technology and innovation and whose companies are clients to both US and Chinese tech companies. In a report released earlier on Wednesday, the Dubai Multi Commodities Center highlighted that the US-China relationship will be central to global trade going forward. It also identified protectionism as a key risk to trade.

If the controversy goes down the track where third nations and their corporations must choose between Chinese and US suppliers of technology, it will have major ramifications on how those suppliers will be chosen.

• Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.

Twitter: @MeyerResources

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