Technology is now centre stage in the great power struggle between the United States and China. As the trash talk and limelight of this fight captures American voters and legislators and emboldens Chinese tech-nationalists’ calls for self-reliance, critical policy issues for both countries and the world are deferred at great cost to global prosperity and security.
Financial valuations show that digital technology has already transformed the world economy. Between 2009 and 2019, the largest 100 companies in the world increased their total market capitalisation by $US12.7 trillion ($17.4 trillion).
Seven companies: Facebook, Amazon, Apple, Alphabet, Microsoft, Tencent and Alibaba accounted for one third of that increase ($US4.2 trillion). The aggressive rally of stocks and sky-high public offerings for tech companies during the COVID-19 pandemic demonstrates widespread recognition of an entirely new model of value creation enabled by digital technology.
The special sauce of this new model is what technology expert Azeem Azhar calls the “AI lock in loop”. As tech companies deploy products and services, they also collect data about their consumers’ use of them. Machine learning performed on that data informs the development of better products and services. Returns no longer diminish as businesses scale, they increase exponentially.
Governments of all creeds are making use of crude national tools to regulate this poorly understood economic and social activity.
But digital transformation is taking place on the volatile frontiers of a largely unregulated information ecosystem. Technology companies are fundamentally altering human society before regulators have laid down road rules for a safe, ethical or equitable business-consumer compact.
Digital technologies have disrupted the integrity of institutions and communication tools upon which civil society functions, compelling governments, companies and individuals to improve digital literacy, counter misinformation and increase cybersecurity.
The Trump administration and others have diverted attention away from these critical policy issues and towards the threat that Chinese tech companies pose to US national security.
The dominant narrative holds that Chinese tech companies cannot be trusted to provide critical infrastructure (Huawei) or social media platforms (TikTok, WeChat) because civil liberties, human rights and personal freedoms will run second to the strategic interests of Beijing without oversight from any independent Chinese judiciary. Tech-enabled human rights abuses in Xinjiang and Hong Kong, and now fresh revelations about international intelligence gathering by Chinese military contractor Zhenhua Data are offered as evidence of these risks. This pictures China on an irreversible path to a tech-enabled authoritarian dystopia with nefarious global intentions.
Such a narrative conceals many important facts about the state of the world’s digital transformation and urgent policy issues.
Less understood is that in 2018, US tech companies became subject to the same law (CLOUD Act) as China’s 2017 National Security Law. Nor has it been widely publicised that the EU–US data transfer agreement is effectively dead in the water because of a lack of data protection assurances in US surveillance law.
While much is made of China’s 2017 Cyber Security Law and its potential to impinge upon consumer freedoms, there’s scant acknowledgement of concurrent development of data protections for Chinese consumers, who have shown a lack of appetite for exchanging privacy for safety, convenience or efficiency.
Protections for personal information and privacy in China’s 2018 e-commerce law and new civil code are similar to elements of the EU’s General Data Protection Regulation and will help develop a legal framework governing individual data privacy.
Actions against Huawei and TikTok appear motivated as much by a US desire to maintain unilateral control and oversight over the world’s digital assets as by a sense of responsibility and protection of the free world. While Huawei is perhaps more strategically important to Beijing, TikTok is uniquely valuable for its unprecedented penetration into international markets and the ingenuity of its proprietary recommendation algorithms — currently the envy of US tech giants like Facebook and Twitter.
Microsoft and Walmart, the original frontrunners in the bid to acquire TikTok, saw an opportunity to leverage TikTok’s assets for a range of possible products and revenue streams, from e-commerce to e-learning. But China’s timely update of export controls to include AI technologies has potentially gutted TikTok of its commercial value and made its direct sale to US bidders unpalatable to Bytedance and its key investors.
The latest compromise deal, now backed by Trump, will have Oracle manage and audit the data systems and software of a new US-based (but ByteDance owned) TikTok subsidiary, with board members and a security director to be approved and appointed by the US government.
The eerie symmetry between these terms and those that China imposes on foreign tech companies is a glitch in the dominant narrative that reveals what is really at stake. Without adequate, collectively agreed policies to deal with the world’s digital revolution, governments of all creeds are making use of crude national tools (security, legislative, financial controls) to maintain some semblance of regulation over this unprecedented and poorly understood paradigm of economic and social activity.
The key issue is that a Trump-led US appears willing to trade off its position as arbiter of the world’s information ecosystem for an America-First agenda, whatever the cost to economic growth, innovation or security of anyone else, including of its allies. For Australia and other partners, a US-China divide in tech infrastructure poses a fundamental threat to economic integration in Asia – the world’s most viable source of future economic dynamism.
Is there an alternative route to avoid a fracturing of the Internet? That would require agreement on ground rules for digital transformation — needing US and Chinese political will and proactive leadership from their technology companies.
The Trump administration’s latest moves against Chinese tech companies signal a lack of confidence in America’s ability to lead anything other than a self-protective race to the bottom.
Dr Jacob Taylor is a Research Associate in the East Asian Bureau of Economic Research at the Crawford School of Public Policy in the ANU’s College of As