China and US tech crackdowns set the stage for the next phase of competition

China and US tech crackdowns set the stage for the next phase of competition
Scott BadeContributorScott Bade is special series editor of the TechCrunch Global Affairs Project and a regular contributor on foreign affairs. He's a former speechwriter for Mike Bloomberg and co-author of "More Human: Designing a World Where People Come First."More posts by this contributor

The TechCrunch Global Affairs Project examines the increasingly intertwined relationship between the tech sector and global politics.

This is the first in a pair of articles comparing the impact of the U.S. and Chinese tech crackdowns. This piece, by Special Series Editor Scott Bade, considers the geopolitical consequences of each country’s respective approaches. Nathan Picarsic and Emily de La Bruyère examine how China’s “techlash” is driven by domestic politics.

It’s not a good time to be a tech giant. In China, high-flying tech firms were once some of the few able to operate with relative independence. Tech leaders like Alibaba’s Jack Ma and Didi’s Jean Liu were mainstays of Davos and became global symbols of Chinese innovation. No longer.

After Ma gave a speech critical of Chinese regulators last year, his company’s record IPO was suspended and he was effectively “disappeared” for months. Tencent was then hit with numerous fines for antitrust violations; since last year both firms have lost about 20% of their respective value — a combined total reaching over $300 billion. Meanwhile Didi’s shares tumbled 40% after they were ordered off of the country’s app stores. More recently, Chinese regulators have imposed new restrictions on edtech and gaming — and banned cryptocurrency altogether.

America’s tech tycoons may have their freedom, but they and their businesses are also coming under government scrutiny. Leading antitrust advocates like Lina Khan, Tim Wu and Jonathan Kanter have all landed senior roles in the Biden administration. Meanwhile Congress is considering new legislation that would regulate tech on issues ranging from privacy to age restrictions.

In both Beijing and Washington (not to mention Brussels, which has been battling tech giants for years), the consensus is increasingly clear: Big Tech has grown too powerful and too unaccountable. Government, politicians across the global ideological divide believe, must now exert some measure of control in the name of the public good. For founders, executives and investors, political risk has never been higher.

But while on the surface both crackdowns look similar, the implications of the two countries’ antitrust strategies couldn’t be more different. In China, antitrust enforcement is being wielded as the sharp end of the stick of the ruling Communist party. The goals of the U.S. antitrust movement, however, are far from uniform.

Yes, China is taking decisive action where the U.S. is just getting started. But Chinese government paeans to data privacy and limiting kids’ screen time are fig leaves to its real agenda: complete political and economic control. In a country with effectively no independent civil society, the tech sector has been one of the few places where power has accrued outside the ruling Communist Party. In the ever-more repressive regime of Xi Jinping, such independent sources of power are unacceptable (see: Hong Kong). The message is clear: Toe the party line or face the might of the Chinese state.

Better yet, project Chinese power. China has long aimed to control the next generation of technology and has aggressively moved to set standards for a host of critical industries and sectors, from 5G and AI, to renewable energy and advanced manufacturing as part of its China Standards 2035 project. While a key part of this strategy has been to quietly dominate international standard-setting bodies, Beijing recognizes that controlling companies developing these technologies are just as critical. Huawei, Xiaomi and TikTok might not actively spy on Westerners, as many Western politicians fear, but the more widespread their usage, the more Chinese standards become global default.

China and US tech crackdowns set the stage for the next phase of competition

Thus contrast the fate of Jack Ma with that of the founding family of Huawei, China’s 5G leader. Ma might be a Communist Party member, but Huawei’s success making Chinese technology the default 5G kit in much of the world burnishes Chinese technological credibility. Huawei has of course traded on its closeness to Beijing — choosing Huawei has become synonymous with a vote of confidence in China — but been willing to endure the risks. Concern over its ties to Chinese security services has made it the target of an American campaign against it that culminated in the arrest in Canada of CFO Meng Wanzhou, daughter of the company’s founder, over accusations that Huawei violated U.S. sanctions against Iran.

But loyalty doesn’t go unrewarded. Beijing arrested two Canadians and successfully leveraged their detention to cut a deal for Meng’s release. If Huawei wasn’t beholden to Beijing before, it certainly is now. The lesson for China’s other tech moguls? The party takes care of its own.

China’s crackdown has chilled investment, squandered talent and perhaps killed the entrepreneurial spirit that has built its formidable tech sector. But it has unequivocally succeeded in bringing its tech giants to heel in the service of Chinese power.

If Beijing is chastening its tech giants to serve the national interest, the U.S. is rebuking its own to do what, exactly? U.S. trustbusters might be concerned with overweening tech power, but they hardly have a strategic vision for what a more competitive sector would look like. While American tech giants have occasionally made the (credulous) argument that their size is essential to American competitiveness, neither they nor the government see them as agents of American power. Indeed, you’d be hard-pressed to determine whether Congress sees tech giants or China as the greater adversary.

The hope of antitrust supporters is that breaking up or at least regulating the likes of Google and Apple will allow greater competition, which would in turn benefit the body politic and the U.S. tech sector more broadly. But while splitting off AWS from Amazon or Instagram from Facebook might benefit consumers, would it help the U.S. maintain technological primacy? It is entirely unclear.

Until now America’s hands-off, capitalist system — open, flat, democratic — has produced the best innovators in the history of the world. It has benefited from government-supported research but the industry has succeeded despite its government associations not because of it. And that has been a good thing — U.S. firms are (mostly) trusted worldwide because they are known to adhere to the rule of law and not the vicissitudes of whichever administration holds power.

The U.S.-China tech race promises to fundamentally test this premise: Can a decentralized, uncoordinated industry operating independently of government maintain its edge against an industry being marshaled by a superpower?

I remain optimistic that American (and allied) innovation will succeed where it always has. Openness breeds ingenuity. Our research and startups are second to none. And a proper focus on competition suggests a boom to come.

But that doesn’t mean there isn’t room for at least a limited national strategy. I’m not saying the U.S. needs an industrial policy like China’s; after all, China’s top-down model has produced epic waste that could well weigh down its economy for decades. And a blunt “break them up” mentality would likely do more harm than good.

Instead, American lawmakers — now that they are coming around to the European view on antitrust — should work across the Atlantic to develop a sensible framework for global competition standards. The new U.S.-EU Trade and Technology Council and Quad technology working group can lay the groundwork to create a bona fide democratic technology bloc that both fosters cooperation and preserves fair play.

This middle way — provide government support without dictating commercial outcomes — has precedence (see: the Cold War origins of Silicon Valley). It’s also the best policy to provide guardrails for America’s tech industry without smothering its entrepreneurial spirit.

As Congress and the administration consider how to handle tech competition now, they should keep in mind that it’s not just about rectifying current harms but about charting the future of American technology itself. Nothing less than American economic leadership is at stake.