INSIGHTS | No going back for US-China tech under Biden?

As the Biden administration takes office in the US, there’s a bipartisan, arguably multilateral, appetite to mess with China tech. 

The new president has promised to make a U-turn on many of Trump’s policies, but China isn’t on this list. Cabinet picks have said that they support an aggressive stance on China and have made it clear that technology is a key aspect of their foreign policy, but haven’t revealed details as to how they will be tough on tech. 

“The view that the two countries are competitors is now firmly held in both Beijing and Washington. In turn, there is little prospect for a meaningful improvement in US-China relations under the Biden administration,” Agathe Demarais, global forecasting director of The Economist Intelligence Unit, told TechNode.

“Biden will need to appease China hawks in both political parties in order to get support for his more ambitious domestic programs, such as building new infrastructure and healthcare,” Alex Capri, visiting senior fellow at the National University of Singapore, told TechNode. 

Bottom line: China’s tech companies have seen big changes in their relationship with the US during the past four years, and a new US administration probably won’t undo many of those changes. The Biden administration is likely to put a pause on surprise moves like app bans, and be less unpredictable, but there’s almost certainly no going back to 2015.

Trump era policies

‘Buy American’ initiative: Trump tried to encourage US federal agencies to buy homegrown products from the very beginning of his presidency. The American federal government is likely not a big client for Chinese companies, with some exceptions.

• An LA Times investigation found that from 2016 to 2019, direct federal procurement of foreign-made goods increased by 0.1%: from 3.5% of total federal spending to 3.6%. 
• Several federal agencies stopped buying drones from Shenzhen-based DJI between 2017 and 2020. 
• The initiative turned into a “Don’t Buy Chinese” policy in August 2020, when a law barred federal agencies from buying goods or services from companies that use equipment from Huawei, Hikvision, and Dahua Technology. While the US federal government is not a big direct client for these companies, contractors like Amazon are. 

The Entity List: More serious threats to China tech began in 2016 with the short-lived addition of telecoms manufacturer ZTE to a list that limits exports of US technology, a move that temporarily cut it off from crucial supplies of semiconductors. In 2019, ZTE peer Huawei was added to this list in a move called a potential “death blow.”

• ZTE was added after accusations that the firm sold equipment to North Korea. The telecoms equipment vendor paid a $1.19 billion fine the next year and pleaded guilty to violating US sanctions, and was removed from the list. 
• Surveillance equipment manufacturers Hikvision, Dahua Technologies, and AI companies Megvii and iFlytek were added to the list in October 2019. SMIC and drone maker DJI were added in December 2020. 
• In Aug 2020, the Commerce Department expanded the scope of export restrictions on trading with Huawei. In an explicit attempt to target Huawei’s semiconductor supply, the department effectively banned any chips that include US tech to be sold to the Chinese telecoms company. 

Transaction bans: Perhaps Trump’s most confusing tech policy, if anyone is keeping score. On Aug. 6, 2020, Trump signed an executive order to bar US companies from making transactions with TikTok and WeChat over alleged privacy violations. Both bans were suspended by courts before coming into effect.

• On Jan. 5, 2021, Trump banned transactions with another eight Chinese companies: Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office. 
• The new Commerce Secretary will have to decide which transactions fall under the ban. 

Investment bans: Trump banned investments in companies designated as affiliated with the Chinese military by the Department of Defense (DoD) including China Mobile, China Telecom, and China Unicom, starting Jan. 11, 2021. Shares of the three telcos in Hong Kong fell sharply on the announcement. The list also includes Huawei and Hikvision.

• Trump later added that US investors must divest from Chinese companies by Nov. 11, 2021. 
• On Dec. 3, 2020 the DoD added chipmaker SMIC to this list, and on Jan.14, Xiaomi. 

Delisting: Not a Trump policy per se, but a potentially major hassle for US-listed Chinese tech companies. US lawmakers voted unanimously to pass the Holding Foreign Companies Accountable Act, which threatens to force Chinese companies off US stock markets within three years.

CFIUS: The Committee on Foreign Investment in the US blocked Chinese investments on several occasions, and expanded its jurisdiction in 2018. 

• The committee blocked Ant Group’s acquisition of MoneyGram in 2018. 
• In 2019, CFIUS forced Chinese gaming company Beijing Kunlun Tech to sell gay dating app Grindr, which is popular in the US, citing privacy concerns. The sale finally went through in March 2020. 

Clean Network: First launched on April 29, 2020 as “Clean Path,” and later expanded in August 2020, the initiative seeks to rid US allies’ tech networks and infrastructure from Chinese technology. 

• Various countries have reportedly signed on, although it is unclear what commitments they had to make to be part of it. 

Tariffs: Trump slapped tariffs on several Chinese tech products, starting with solar panels in January 2018, and later on electronics, including laptops and phones. 

• Apple dodged tariffs on its China-made products at the last minute, when the US and China agreed on the phase one trade deal. 
• Tariffs have not severely affected China tech companies, with US firms bearing the brunt of the duties. 

I could go on, but these are the most important. 

How China tech responded

Funding: Chinese VC activity in the US fell dramatically in 2019 and 2020, as Chris Udemans documented, when the techwar heated up. 

• Many market factors affected Chinese VC investments in US startups, but the drop is partly attributable to the changes to CFIUS rules in late 2018. 

By contrast, US funding is still flowing into China. Beijing-based VC Qiming Venture Partners closed a $1.2 billion round of financing in September, mainly led by US university endowments and pension funds. 

Semiconductors: Export controls have also inspired big efforts in China to achieve semiconductor independence, or at least limit reliance on US chipmaking technology. This is a very long road and several US companies guard key chokepoints, but there is probably no going back. 

• Stewart Randall has written about how the open-source RISC-V chip architecture is a promising avenue for Chinese chipmakers to free themselves from reliance on American companies, and is reportedly being used more frequently. 

Grand strategy

The Trump administration aimed to decouple the US and China in the tech sphere, Scott Kennedy, senior adviser at the Center for Strategic and International Studies in Washington, told TechNode.

Biden will be using similar policy tools, but his goal will likely be risk mitigation rather than complete separation, Kennedy said.

Biden’s team has begun to describe an approach that could lower the temperature without changing the basic fact of rivalry.

Kurt Campbell, Biden’s Indo-Pacific Advisor, and Jake Sullivan, Biden’s National Security Advisor, summarized an alternative approach in a 2019 Foreign Affairs article: 

Washington, for its part, will have to invest in the core sources of American economic strength, build a united front of like-minded partners to help establish reciprocity, and safeguard its technological leadership while avoiding self-inflicted wounds.

-Kurt Campbell and Jake Sullivan, “Competition Without Catastrophe,” Foreign Affairs

 Competition: Biden’s early appointees have said that his administration will continue competing with China on technology issues. However, Biden-style competition could mean more efforts to boost US innovation and fewer surprise app bans.

• Antony Blinken, Biden’s Secretary of State, said he approves of the direction of Trump’s tough China policy, but disagrees with the former president’s tactics, during his confirmation hearing. 
• Even the relatively cautious Campbell and Sullivan say the US should get comfortable with “considerable friction.”
• Biden is looking to strengthen the US’ domestically, boosting innovation and production capacity. Campbell and Sullivan wrote that this “domestic foundation” is what Washington needs to build on to deal with the China challenge. 
• Biden has promised to call up US allies trying to mend relations, so that they can exert united pressure on China at international institutions. 

Cooperation: The new administration doesn’t only want to ramp up competition with China. Cabinet picks including Antony Blinken have said they want to find ways to work with Beijing on global issues such as climate change. Biden’s Secretary of State said in September that a full decoupling is “unrealistic and ultimately counter-productive.”

• In Foreign Affairs, Campbell and Sullivan wrote that Washington should adopt a compete first, cooperate second approach. 

• Sullivan cautioned against making China an “existential threat” in the minds of American people and policymakers in a ChinaTalk podcast episode recorded in 2019.
• Other than the environment, one area of cooperation could be regulation to rein in big tech, Xue Lei, research fellow of the Institute for World Economic Studies at the Shanghai Institute of International Studies, said in an event on Jan. 20. 

Biden’s China team 

Biden’s cabinet picks have almost unanimously expressed a desire to be tough on China on issues ranging from trade to human rights. They have also stressed the rising importance of technology on geopolitics. 

President Biden and his incoming team have not detailed how they will deal with the US-China tech war. “I have not heard them whisper a word,” Kennedy said. 

Biden’s top cabinet picks have often dodged making specific comments on technology issues. Here’s some exceptions on what they have said on China tech:

• Laura Rosenberg, China senior director
  • Rosenberg is the head of the Alliance for Securing Democracy in Washington DC. She is expected to bring attention to China’s censorship and allegations of surveillance technology. 
  • In a Dec. 31, 2020 report, the advocacy group argued for an alliance of democratic countries to counter China’s influence over global internet governance. 
• Tarun Chhabra, senior director for Technology and National Security
  • Chhabra argues that American progressives should use rivalry to get Republicans to agree policies including increases in federal spending for R&D and education, as well as immigration policy changes to counter China’s Thousand Talents Program that attracts top tech talent from abroad. 
• Jessica Rosenworcel, chairwoman of the Federal Communications Committee 
  • Rosenworcel supported December 2020 decisions to revoke China Telecom’s US license and to reject an application from Huawei to review its designation as a national security threat. 
• Ely Ratner, top China advisor to the Pentagon chief 
  • A report co-authored by Ratner made several specific recommendations to the incoming administration on China tech, including expanding export controls based on end use of tech equipment, diversifying rare earth supply chains away from China, and coordinating with US allies on semiconductor export controls. 

Tactics

“Democracies must employ scalpels rather than sledgehammers,” Rosenberg said. CSIS analyst Kennedy said he expects the administration to “carry out a top-bottom review of China policy and the entire foreign policy of their tactics and strategy.”

There’s some policy areas where experts expect to see movement from the new administration, albeit further down the line. 

Made in America: Biden signed an executive order on Jan. 25 that will narrow the definition of American-made products and make it harder for federal agencies to justify buying foreign-made goods. 

Backseat for tariffs: Experts expect tariffs on imported goods to take a backseat in Biden’s administration, giving way to strategic tools that confront China’s tech companies in different ways, like sanctions. “Rather than tariffs, the Biden administration will increasingly shift to sanctions and export controls to confront China’s rise in the technological sector and to try to re-assert the US global dominance in this area,” Demarais told TechNode. 

Export controls: Campbell expressed support for “enhanced restrictions on the flow of technology investment and trade in both directions,” but not in a wholesale manner to avoid the Balkanization of the internet. 

• In the same op-ed, he identified the Huawei ban as a “cautionary tale” and called for creative policymaking, such as “establishing a multilateral lending initiative to subsidize the purchase of alternatives to Huawei’s equipment.”
• China is “too big” to be steered with “traditional” financial sanctions, said Demarais. The new White House is likely to rely more heavily on export controls, and “this trend is likely to be a long-term one that will outlive the Biden administration,” she said. 
• “Biden is not likely to walk away from chip restrictions that are fueling China’s technology ambitions. Nor is Biden likely to walk away from blacklisting Chinese tech companies that have ties with the” People’s Liberation Army, Abishur Prakash, futurist at the Center for Innovating the Future in Toronto, told TechNode.
• At the same time, Biden could finally give US firms “an audience,” a chance to “air their grievances regarding the suffering of collateral damage from Huawei restrictions,” Capri said. 
• A US semiconductor industry group wrote to the Commerce Department asking a review of the export restrictions to Huawei, Reuters reported on Jan. 26. 

Standards setting: Some Biden advisors have said that they want the US to play a stronger role in international standard settings institutions to curb China’s influence in global tech standards. 

• At her Senate Confirmation hearing, Commerce Secretary nominee Gina Raimondo said Washington should “play offense” when it comes to standards setting. 
• In a Dec. 22, 2020 op-ed Laura Rosenberg, China senior director for the Biden administration, said Huawei’s “New IP” standard proposed at the International Telecommunication Union and the company’s 6G proposals are an attempt to “redesign the underlying architecture of the Internet to allow nation-states to exert greater control over Internet traffic and access.” Democracies have been “too passive” in international institutions, and they should work together to counter states like China, she wrote. 

China tech in suspense

At this point, the broad strokes of the Biden team’s China approach are fairly clear. But tech companies and investors have a lot riding on the specifics. US policy won’t be going back to the rosier times of 2015, but China tech companies will have to wait to see how their access to US markets and stock exchanges will shape up in the next four years. 

Kennedy said that US presidents usually don’t make decisions on foreign policy until the summer after they take office. 

In the meantime, several of Trump’s policies will remain intact, chiefly entity lists. If you are Huawei or Hikvision, you will have to continue living with US export controls for the foreseeable future. If you are WeChat or Alipay, you can take a breather and expect to hear an update on whether you can operate in the US in a few months’ time.

Unfinished business: Analysts don’t expect any new moves any time soon, but the new administration has some homework due within the next two months. 

• The new Commerce Secretary has to define the scope of the Jan. 5 transaction ban on eight Chinese bans, including Alipay and WeChat Pay, by Feb. 19. 
• CFIUS has put its review of the TikTok deal on hold. Oracle and Walmart are reportedly still committed to buying the short video app, as they said four months ago.
•  “I fully expect CFIUS to continue blocking tech acquisitions in the US and to keep lobbying its allies to choose firms from America,” Capri said. 
• According to one of Trump’s last executive orders, by November 2021, US companies must have divested from 35 Chinese companies considered to have ties to the Chinese army, including chipmaker SMIC. 

Stalling: Kennedy says Biden might try to hit the pause button on these actions until he has finished his policy review. 

• On Jan. 27, the Treasury Department extended the deadline by which US investors would be barred from investing in Chinese military companies by five months.

“In terms of the larger arc in figuring out how to manage the relationship with China, I am fairly optimistic,” Kennedy said. “The Trump administration highlighted the concerns of a Xi Jinping-led China. I think Biden will show more care in the tools to get effective action,” he said.

Update: This article has been updated to include the full name and title of Abishur Prakash, futurist at the Center for Innovating the Future, Toronto.