U.S-China Trade Wars: The Fight for Digital Dominance

I.  COVID-19 And The Acceleration Of The Digital Economy

The deadly COVID-19 outbreak that started in Wuhan, China has brought about years of change in the adoption of digital technologies in just a few months’ time, creating new market anomalies. [1] According to a McKinsey global survey of executives, companies have accelerated the digitization of their customer and supply-chain interactions as well as of their internal operations by about three to four years. [2]The share of digital or digitally enabled products in their portfolios has also accelerated by a staggering seven years.[3] In what is now a “contactless” yet digitally integrated world, the impacts of the disease beyond morbidity and mortality have become apparent since the outbreak. [4] “Amidst the slowing down of the Chinese economy with interruptions to production, the functioning of global supply chains has been disrupted.” [5] Companies globally, regardless of size, that are dependent upon inputs from China have also started experiencing attenuation in production. [6] The COVID-19 pandemic has shown the true interconnectedness of nations in our integrated global economy, emphasizing the importance of global cooperation. Despite the U.S. and China depending on one another, the pandemic has exacerbated an already tense relationship, instigating trade wars for example, between the countries, resulting in a potential technological bifurcation.

II.  Trade Wars: The Fight for Digital Dominance

Large quantities of data, supercomputing and technological advances have created a globally pragmatic and innovative environment. [7] The U.S. desperately wants to maintain its current technological and economic edge over China, safeguarding select technologies because the U.S. is fearful that China is becoming digitally dominant. [8] In turn, the U.S. has instigated a trade war in an attempt to obstruct China’s progress, especially as it relates to semiconductors and cybersecurity. [9] Although the U.S. lead the globalization[10] movement after WWII, it has regressed to taking a more nationalistic approach under the current Trump administration.[11] As the U.S. moves forward in its obdurate, nationalistic ways, with withdrawals from multilateral trade agreements, rejection of the World Trade Organization, and retreats from free trade principles, China has stepped up to fill this void. [12]

The U.S. and China rely on one another as each country has its distinct strengths and weaknesses. [13] On the one hand, China has cheap manufacturing, an expeditiously developing consumer economy with a high demand for mobile phones and internet-related products and services and a large number of STEM[14] graduates. [15] The U.S. on the other hand, has leading technology, a mature consumer economy and excellent access to global financial markets. [16] In turn, both countries benefit significantly from cross-border trade as well as collaboration opportunities directly because of their different strengths and weaknesses, so much so that they have developed a degree of reliance on one another. [17] The U.S. relies on China for most low-cost manufacturing, and China relies on the U.S. for most advanced technology. [18] While some feel the continuation of this period of technological innovation was inevitable, the future of technology as a whole, hinges on the heightened tensions in the US-China trade wars. [19]

A.     U.S. Clean Network Program

On August 5, 2020, Secretary of State Mike Pompeo announced the Clean Network Program, a “comprehensive approach to safeguarding the nation’s assets including citizens’ privacy and companies’ most sensitive information from aggressive intrusions by malign actors, such as the Chinese Communist Party (CCP).” [20]The U.S. State Department created the program in response to China’s expanding capabilities in cyberspace. [21] The goal is to address “the long-term threat to data privacy, security, human rights and principled collaboration posed to the free world from authoritarian malign actors.” [22] Moreover, it represents the carrying out of a “multi-year, all-of-government, enduring strategy, built on a coalition of trusted partners, and based on rapidly changing technology and economics of global markets.” [23]

 In total there are five distinct Clean Network Programs: (1) Clean Carrier,[24] (2) Clean Store,[25] (3) Clean Apps,[26] (3) Clean Cloud,[27] (4) Clean Cable,[28] (5) Clean Path[29]. [30] Mr. Pompeo described the new initiative as an effort to “protect the privacy and data of American citizens and businesses from hostile groups like China’s Communist Party.” [31] He also encouraged foreign governments and companies to participate in securing their data from the CCP’s “surveillance state and other malign entities.” [32]  In May 2019, more than 30 government officials from around the world participated in discussions about the importance of national security, economic and commercial considerations that must be a part of each country’s evaluation of 5G vendors.[33]

B.      China’s Global Initiative on Data Security

In response to President Trump’s Clean Network announcement, China also announced[34], a Global Data Initiative on Data Security. [35] Unlike the Clean Network, the Data Initiative on Data Security takes a more globalized approach. [36] The initiative is composed of eight[37] key points.[38] Foreign Ministry spokesperson, Zhao Lijian, suggested states handle data security in a “comprehensive, objective and evidence-based manner, and maintain an open, secure and stable supply chain of global information and communications technology products and services.” [39] Chinese diplomats have already approached several foreign governments to ask for their support in the initiative. [40] In the words of Foreign Ministry spokesperson Zhao Lijian, the new initiative is an attempt at “contributing Chinese wisdom to international rules-making” on data governance. [41]

[1] Laura LaBerge., How COVID019 Has Pushed Companies Over the Technology Tipping Point- And Transformed business forever, (June 12, 2020), https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-covid-19-has-pushed-companies-over-the-technology-tipping-point-and-transformed-business-forever#

[2] Id.

[3] “The online survey was in the field from July 7 to July 31, 2020, and gathered responses from 899 C-level executives and senior managers representing the full range of regions, industries, company sizes, and functional specialties. The survey looked at the past results for the degree of digital adoption reported in each of these areas of business operations. Based on the average percentage of adoption in each survey, a trendline to represent the average rate of adoption in 2017, 2018 was calculated, and just before the crisis, which respondents were asked about in the 2020 survey. The acceleration time frame was calculated from the amount of time it would have taken to reach the current level of digital adoption respondents report if the precrisis pace of change had continued.” Id.

[4] Sophia Chen, Deniz Igan, Nicola Pierri, Andrea Presbitero, The Economic Impact of COVID-19 in Eurpose and the US: Outbreaks and Individual Behaviour matter a great deal, non-pharmeceutical interventions matter less, (May 11, 2020), https://voxeu.org/article/economic-impact-covid-19-europe-and-us

[5] Id.

[6] Id.

[7] Kimberley A. Houser, The Innovation Winter is Coming: How the U.S. China Trade War endangers the world, (November 18, 2020), https://digital.sandiego.edu/cgi/viewcontent.cgi?article=3383&context=sdlr

[8] Jackson Barkstrom, Implications of the Technology Race: What is the Technology Race; Why is it Important, (May 24, 2020), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7244942/pdf/978-3-030-39204-8_Chapter_4.pdf

[9] Id. 

[10] Globalization is defined as the “interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information.” Id.

[11] Melina Kolb, What Is Globalization?, PETERSON INST. FOR INT’L ECON. (Feb 4, 2019), https://piie.com/microsites/globalization/what-is-globalization.html.

[12] See Office of Mgmt. & Budget, Exec. Office of the President, Analytical Perspectives: Budget of the U.S. Government Fiscal Year 2020, at 268 (2019), https:// www.govinfo.gov/content/pkg/BUDGET-2020-per/pdf/budget-2020-per.pdf

[13]  Jackson Barkstrom, Implications of the Technology Race: What is the Technology Race; Why is it Important, (May 24, 2020),  https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7244942/pdf/978-3-030-39204-8_Chapter_4.pdf

[14] STEM stands for science, technology, engineering and mathematics, but a far wider range of academic disciplines fall under this description.

[15] Jackson Barkstrom, Implications of the Technology Race: What is the Technology Race; Why is it Important, (May 24, 2020), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7244942/pdf/978-3-030-39204-8_Chapter_4.pdf

[16] Id.

[17] Id.

[18] Id.

[19] Kimberley A. Houser, The Innovation Winter is Coming: How the U.S. China Trade War endangers the world, (November 18, 2020), https://digital.sandiego.edu/cgi/viewcontent.cgi?article=3383&context=sdlr

[20] U.S. Department of State, The Clean Network, (2020) https://www.state.gov/the-clean-network/

[21] David P. Fidler, The Clean Network Program: Digital Age Echose of the “Long Telegram”?, (Oct. 5, 2020) https://www.cfr.org/blog/clean-network-program-digital-age-echoes-long-telegram

[22]  Id.

[23] U.S. Department of State, The Clean Network, (2020) https://www.state.gov/the-clean-network/

[24] “To ensure that People’s Republic of China (PRC) carriers are not connected with U.S. telecommunications networks. Such companies pose a danger to U.S. national security and should not provide international telecommunications services to and from the United States.”  Id.

[25] “To remove untrusted applications from U.S. mobile app stores. PRC apps threaten our privacy, proliferate viruses, censor content, and spread propaganda and disinformation. Americans’ most sensitive personal and business information must be protected on their mobile phones from exploitation and theft for the CCP’s benefit.” Id.

[26] “To prevent untrusted PRC smartphone manufacturers from pre-installing—or otherwise making available for download—trusted apps on their apps store. Huawei, an arm of the PRC surveillance state, is trading on the innovations and reputations of leading U.S. and foreign companies. These companies should remove their apps from Huawei’s app store to ensure they are not partnering with a human rights abuser.” Id.

[27] “To prevent U.S. citizens’ most sensitive personal information and our businesses’ most valuable intellectual property, including COVID-19 vaccine research, from being stored and processed on cloud-based systems accessible to our foreign adversaries through companies such as Alibaba, Baidu, China Mobile, China Telecom, and Tencent.” Id.

[28] “To ensure the undersea cables connecting our country to the global internet are not subverted for intelligence gathering by the PRC at hyper scale. We will also work with foreign partners to ensure that undersea cables around the world aren’t similarly subject to compromise.” Id.

[29] “The 5G Clean Path is an end-to-end communication path that does not use any transmission, control, computing, or storage equipment from untrusted IT vendors, such as Huawei and ZTE, which are required to comply with directives of the Chinese Communist Party. The 5G Clean Path embodies the highest standards of security against untrusted, high-risk vendors’ ability to disrupt, manipulate or deny services to private citizens, financial institutions, or critical infrastructure.” Id.

[30] Id.

[31] Chung Han Wong, China Launches Initiative to Set Global Data-Security Rules, (Sep. 8, 2020), https://www.wsj.com/articles/china-to-launch-initiative-to-set-global-data-security-rules-11599502974

[32] Id.

[33]  Robert D. Atkinson, Why Limiting U.S. Tech Exports to Chinese Companies Like Huawei Is a Risky Strategy, INFORMATION TECHNOLOGY & INNOVATION FOUNDATION (May 23, 2019), https://itif.org/publications/2019/05/23/why-limiting-us-tech-exports-chinese-companies-huawei-risky-strategy

[34] In September 2020

[35] Chun Han Wong, China Launches Initiative To Set Global Data-Security Rules, (Sep. 8, 2020)   https://www.wsj.com/articles/china-to-launch-initiative-to-set-global-data-security-rules-11599502974

[36] Id.

[37] The initiative as outlined by Wang, involves eight key points:
               (1) Approach data security with an objective and rational attitude, and maintain an open, secure and stable
                     global supply chain.

               (2) Oppose using ICT activities to impair other States’ critical infrastructure or steal important data.

               (3) Take actions to prevent and put an end to activities that infringe upon personal information, oppose abusing ICT to
                     conduct mass surveillance against other States or engage in unauthorized collection of personal information of other
                     States.

               (4) Ask companies to respect the laws of host countries, desist from coercing domestic companies into storing data generated
                     and obtained overseas in one’s own territory.

               (5) Respect the sovereignty, jurisdiction and governance of data of other States, avoid asking companies or individuals to
                     provide data located in other States without the latter’s permission.

               (6) Meet law enforcement needs for overseas data through judicial assistance or other appropriate channels.

               (7) ICT products and services providers should not install backdoors in their products and services to illegally obtain user
                     data.

                (8) ICT companies should not seek illegitimate interests by taking advantage of users’ dependence on their products.

Shannon Tiezzi, China’s Bid to Write the Global Rules on Data Security, (Sep. 10, 2020) https://thediplomat.com/2020/09/chinas-bid-to-write-the-global-rules-on-data-security/

[38] China Daily/ANN, China Proposes Global Initiative on Data Security,  (Sep. 9, 2020), https://www.nationthailand.com/news/30394226?utm_source=category&utm_medium=internal_referral

[39] Id.

[40] Robert Chesney, Will TikTok Win Its Lawsuit Against Trump, LAWFARE, (August 25, 2929, 9:17PM), https://www.lawfareblog.com/will-tiktok-win-its-lawsuit-against-trump

[41] Shannon Tiezzi, China’s Bid to Write the Global Rules on Data Security, (Sep. 10, 2020) https://thediplomat.com/2020/09/chinas-bid-to-write-the-global-rules-on-data-security/