April 15, 2021, By Akinori Kahata
As explored in previous blog posts, competition over the production and sale of advanced technologies like semiconductors and 5G networking equipment has increasingly become a matter of national security. Technology competition itself is nothing new. During the Cold War, the United States was engaged in a similar competition with the Soviet Union. However, in contrast with that period, today’s competition places a greater emphasis on attaining economic leadership as opposed to military strength.
Success in this new environment will depend more on our ability to leverage private sector innovation than on government planning. Even though technology competition has become a national security issue, this does not mean that our policy response can ignore market-economy rules and the principle of international trade. We should respect market-driven competition, while acknowledging where the weaknesses of a purely market-based approach may demand a modified approach to address security concerns. Importantly, this modification should be coordinated with allies.
Around the world, nations are reacting to intensifying technological competition with new plans to bolster their domestic capacity for innovation and production. The European Commission’s 2030 Digital Compass report laid out a series of steps to help Europe achieve digital sovereignty, including goals like having 20% of global semiconductor production occur in Europe by 2030. In the United States, an executive order issued by President Biden directed federal efforts towards securing critical supply chains in sectors like semiconductor manufacturing, battery production, and rare earth mining. In March 2021, President Biden proposed a $2.3 trillion infrastructure plan, which includes $50 billion for supporting semiconductor manufacturing and research. Meanwhile, China’s 14th 5-year-plan proposes sweeping new goals meant to help China achieve technological self-reliance. Chinese investment in R&D has increased rapidly over the last 20 years. In particular, its government R&D spending as a percent of GDP has been growing steadily, in contrast to the United States where public R&D spending has been falling continuously since 2009.
Behind all of these measures is a growing awareness of the importance of technological leadership for national security, and of the fact that innovation and production capacity for many strategic sectors is concentrated in a small number of nations. These concerns are important, but it is necessary to consider why these issues have arisen in the context of our current market-based global innovation ecosystem, and what that means as policymakers consider how they should respond.
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