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William Barr thinks China is stealing American technology. Can the U.S. halt the exchange of knowledge?

U.S. companies — and the scientific community — could lose out in the long term.

- February 14, 2020

The United States is pushing back on Chinese access to U.S. technology: On Thursday, federal prosecutors filed racketeering and conspiracy charges against Huawei, a Chinese company that has long been on the U.S. government’s radar. Last week, Attorney General William P. Barr said the Chinese “are attempting to capture the benefit of our free society by the outright stealing of our technology.”

On Feb. 6, FBI Director Christopher A. Wray said, “no country poses a greater threat than Communist China” as he announced close to a thousand investigations into possible Chinese theft of technology involving U.S. companies, universities and a number of research scientists.

Does this heated rhetoric capture what’s really happening between China and the United States? Here’s what you need to know.

Huawei is better positioned to spy on us than we think

Knowledge travels in different ways

It’s important to distinguish among three different ways in which technological knowledge moves between the United States and China. The first mode — as Barr’s statement emphasizes — involves direct theft of U.S. technology by Chinese firms or agents. This can include industrial espionage, or duplicating and using technology without legally licensing it. This is why many U.S. firms see the defense of intellectual property rights as vital — and central to U.S. trade policy.

The second tech transfer mode comes via a kind of hard-edge industrial policy. China has long required many of the foreign firms entering Chinese markets to form joint ventures or otherwise share their technology with Chinese subsidiaries.

On top of that, the Chinese government provides large subsidies for technological development that may give its firms global market advantages. Barr complains about Beijing’s Made in China 2025 plan, for instance, calling it “a sustained, highly coordinated campaign to replace the United States as the dominant technological superpower.”

What is ‘Made in China 2025’ — and why is it a threat to Trump’s trade goals?

But economists disagree about whether these are unfair trade practices. Some criticize such requirements as a new form of mercantilism that restricts free markets, while others see them as a reasonable economic development policy.

The third route involves knowledge or exchanges of personnel among universities, laboratories and firms in China and the United States — for the purpose of advancing scientific discovery. These exchanges are a common feature of the modern scientific and research community, which is international in scope.

Some argue that the U.S. should block knowledge transfers

Government officials like Barr — and U.S. politicians on both sides of the aisle — have stepped up their arguments against all three types of knowledge transfer on the grounds that any American know-how gives China an edge in global technological competition. It’s worth noting that other countries have deployed similar approaches before — against the United States. Britain exploited superior technology to become the global textile leader in the 19th century and expressly forbade the export of that technology. Francis Cabot Lowell of Boston managed to steal this mill technology in 1810, which helped fuel a flourishing American textile industry that within a century surpassed Britain in the production of cloth.

But much has changed since 1810. In our hyper-globalized world, it is important to consider the trade-offs involved if the U.S. government goes too far to inhibit flows of knowledge across national borders. In the short run, it’s possible that China and the Chinese innovation sector lose out — yet it may be that U.S. companies and the scientific community suffer in the longer term.

Here’s why: In many scientific realms, China has already joined the world’s tech leaders. Chinese companies file 40 percent of the world’s patent applications — twice as many as the United States. By cutting off relations, the United States may lose access to that research and the researchers producing it. One example: Four Chinese researchers working in Microsoft’s Beijing office wrote the most highly cited paper in artificial intelligence research over the past five years.

And it’s not clear that countries can actually monopolize access to their technology in the modern era. Contemporary firms depend on global value chains — which often source the components of a single product from suppliers in as many as 10 or 20 different countries. For high-tech products, in particular, the successful operation of these chains requires the continuous exchange of information, including scientific knowledge, between suppliers and assemblers in different countries. It is difficult to stem such flows of information without bringing modern business to a halt.

It’s not just Huawei. Trump’s new tech sector order could ripple through global supply chains.

The differences in how knowledge travels are key

A more precise understanding of the differences among these kinds of knowledge transfers helps clarify the trade-offs associated with inhibiting such flows of information. Direct industrial espionage poses a stark challenge to U.S. firms, which use their intellectual property to capture a lot of the value from global supply chains — although this may change as other countries become more sophisticated.

Limiting assertive industrial policy poses a different set of issues for the United States and China that turn on how we define fair trade. Government subsidies may give some Chinese companies unfair advantages, but one economist points out that those subsidies partly mirror U.S. subsidies to firms developing new defense technologies — innovations that often spill over to the civilian economy.

But perhaps the most poorly understood trade-offs involve ordinary exchanges of knowledge in the scientific and technological communities. Here, too, there are security risks to mitigate. But everyone may suffer if scientific progress stalls because researchers from different communities could not exchange scientific information or collaborate with each other.

Recent U.S. government actions may divert flows of the best Chinese research talent toward other countries or back to China. Although the data suggest that this is not yet happening, some Chinese scientists are concerned about the viability of their careers in the United States, and the result could be a significant brain drain.

The final choice of how to manage these trade-offs is a political one. U.S. firms legitimately seek legal protection and a level playing field. But if measures designed to achieve those objectives do not distinguish among the various ways in which knowledge travels within the multifaceted U.S.-China technology relationship, we may all end up worse off.

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Peter A. Hall is a professor of government at Harvard University.

Yeling Tan is assistant professor of political science at the University of Oregon.