During the era of the Cold War, the United States and Europe cooperated militarily, but competed economically. At the time, the Soviet Union posed a military, not an economic, threat to the West.
Today, in what could become a second Cold War, this time with China, the U.S. and Europe need to put great emphasis on cooperating economically.
The reason for this is straightforward: From the vantage point of each of the transatlantic partners, China poses a threat to our economic competitiveness.
More transatlantic technology cooperation needed
As such, it is incumbent upon the U.S. and the EU to build upon the initial steps of the new US-EU Trade and Technology Council (TTC). The goal must be, first, to reduce economic tensions between the two regions and second, to foster formal cooperation.
This is especially true with regard to supporting advanced and emerging technology development and production.
China: Unfair, state-directed capitalism
As Barry Naughton notes in The Rise of China’s Industrial Policy: 1978 to 2020, China has not only become the world’s manufacturing workshop.
It is also seeking to be the world leader in emerging technologies such as biotechnology, robotics, artificial intelligence and others.
What’s more, China is not only seeking absolute advantage on a host of technologies. It is seeking that advantage largely through unfair, state-directed capitalism.
To be sure, both the EU and the United States have industrial policies – but these policies mostly support foundational elements like workforce training, infrastructure and R&D.
China looking for dominance
In contrast, China’s predatory regime, especially subsidies to industry, goes way beyond what is considered acceptable industrial policy.
On top of that, the Chinese Communist Party compels technology transfer for market access, encourages intellectual property theft and operates tax and regulatory policies that discriminate against EU and U.S. firms.
That, combined with real strengths of the Chinese economy – a massive domestic market that lures in foreign investment, a massive technical and scientific labor force and improving research universities – mean that China is gaining rapidly technologically.
At the expense of EU and U.S.
That gain has and will come at the expense of the EU’s and U.S.’s global market shares in advanced technologies.
The result of that shift cannot be underestimated. Initially, China systematically assembled the components needed to be the manufacturing workshop of the world.
This systematic approach has made it hard, even with the Trump tariffs and measures by Japan and other countries, to move production out of China.
Now, China is seeking to establish the same robust innovation ecosystem that will give it strong reinforcing strengths. China wants to be not Silicon Valley, but Silicon China – and not just for IT, but for every advanced technology.
The list of tech sectors China seeks to dominate is long. It ranges from aviation, battery technology, biotech, materials, clean energy, transportation, machinery and, of course, advanced IT.
If China were to achieve this leadership position, its lead will become self-reinforcing as competitors weaken and China’s advantages (e.g., capital, STEM workers, patents, tacit knowledge) improve.
Not another Asian tiger
If China were simply following the path of the Asian Tigers (Hong Kong, Singapore, South Korea and Taiwan), there would be less to worry about.
All of these countries, as well as Japan, only sought comparative advantage in some industries – as opposed to absolute advantage in most industries.
More crucially, they were (or quickly became) democracies that did not seek to challenge long-standing principles of the rule of law and human rights.
A Maoist global hegemon?
China not only seeks absolute advantage in most if not all advanced and emerging industries. Under the leadership of President Xi, it has become clear that China is reverting to its Leninist and Maoist authoritarian origins.
If China becomes the global technology leader, it reinforces China’s efforts to be militarily superior and a global hegemon. That would give China the ability to hold the West hostage for key products and supplies.
What to do? Three steps
There are three key steps the United States and Europe should take. First, stop fighting each other economically. Resolving the long-standing Boeing-Airbus feud and focusing on the real challenger – China’s Comac – was a good first step.
The United States eliminating its steel and aluminum tariffs on EU imports was a good second step. For its part, Europe, including member states like Germany and France, needs to dial back its “digital sovereignty” agenda which is targeted at the United States and U.S. companies.
Second, both regions need to ramp up cooperation against unfair Chinese economic practices, including cooperation on cybersecurity, investment screening, bringing trade cases before the WTO and cooperative export controls.
Time for more formal EU-US technology policy cooperation
Finally, and most ambitiously, it is time for more formal EU-US technology policy cooperation.
In a world where the development of technology has become much more technologically complex, neither region is large enough to specialize in all major technologies.
Therefore, each region should allow the other region’s companies to participate in government-funded industry research programs, like the EU’s Horizon 2020 program and similar U.S. programs that agencies like the National Science Foundation operate.
Moreover, as the governments roll out or expand specialized technology programs in technologies like 6G, energy storage, battery technology, autonomous systems, quantum computing and semiconductors, there should be joint collaboration between US and EU firms, universities and governments.
Finally, governments should review and minimize or eliminate regulatory barriers to science and technology cooperation, including enabling easier cross-border work of scientists and engineers.
The sooner the EU and the U.S. can stop seeing each other as the competition and work to address the real technology competitiveness challenge – China – the more likely both regions can ensure their economic futures, while upholding critical values.