Techno-nationalism

Advent of techno-nationalism

Global politics and the economy have moved into a new phase, one of “techno-nationalism”, centred on US/China tech competition, writes Alex Capri in his recent book, “Techno‐Nationalism: How It's Reshaping Trade, Geopolitics and Society”. This has taken over from the earlier period of neoliberal globalisation (1990 to 2010).

What do we mean by techno-nationalism? It is based on the belief that technology policy should be concerned with national security as much as with economic prosperity. It is also relevant to society in the context of hybrid warfare, notably disinformation and narrative wars. It is incumbent on policymakers to seek a technological edge on competitors. Capri regards technology as a “power multiplier”.

Techno-nationalism has long been with us. Securing access to British technologies, by stealing if necessary, was a priority of the US Founding Father and the first US Secretary of the Treasury, Alexander Hamilton. And restricting Soviet access to US technologies was one factor underpinning US victory in the Cold War.

Capri, an academic at the National University of Singapore and former partner at KPMG, argues that the battle for technological supremacy is being shaped by the Fourth Industrial Revolution or Industry 4.0. In this regard, he cites a number of power-multiplier technologies, namely, semiconductors, artificial intelligence, quantum, hypersonic, biotech, advanced materials, advanced manufacturing technologies, and aerospace.

A number of fundamental factors underpin the rise of techno-nationalism. The end of the Cold War, with the fall of the Berlin Wall in 1989 and the dissolution of the Soviet Union in 1991, seemingly ushered in a new era of globalisation, open markets and democracy. The 1990s also saw the takeoff of the Internet as a technology dominating the economy, politics and social relations. China’s membership of the World Trade Organisation in 2001 which underpinned a boom in foreign investment in China.

As an insecure authoritarian state, China sees technology as key to its national security, its control of the Chinese population, and its influence operations and hybrid warfare against other countries.

From globalisation to techno-nationalism

How is it that the US finds itself in a virtual tech war with China? After all, the US GDP per capita of around $90,000 is more than six times higher than that of China, with its GDP per capita of close to $14,000.

First, during the period of neoliberal globalisation (1990 to 2010), the US and other advanced countries offshored large amounts of their manufacturing sectors, many rich in technologies, to China and other emerging economies. While the objective was cost minimisation, it also became an opportunity for China to absorb Western technologies and to invest in their technology economy.

China has progressively made a greater and greater contribution to the manufacture of products like the iPhone, and developed its own smartphones from companies like Huawei, Xiaomi and OPPO. And building on this tech foundation, China has become a leader in many Fourth Industrial Revolution technologies, with companies like Huawei becoming a global powerhouse – even if the inland regions of China remain relatively poor.

In the heady days of neoliberal globalisation it was imagined that new intricate supply chains for technology products would engender economic interdependence and peace between emerging economies and the West. There was little concern given to the implications of the progressive hollowing out of the US manufacturing sector, and in particular the possible security implications of close economic relationship with an authoritarian country like China. Indeed, it was even imagined that globalisation would foster political openness in China, something which disappeared with the arrival of Xi Jinping to Chinese leadership.

China’s efforts at technological leadership

A major turning point in the shift from co-operative globalisation towards techno-nationalism was the global financial crisis of 2008/09. Until that time, Chinese security policy was guided by Deng Xiaoping’s maxim of “hide your strength, bide your time”. But the Chinese leadership interpreted the financial crisis as a sign of American weakness, and the moment for China to adopt a more aggressive approach. In more recent years, Chinese leader Xi Jinping has taken to saying that "East is rising and West is declining”.

In sum, America’s strategic engagement with China has been replaced by strategic competition with China, which has become an adversary. In retrospect, the past 3-4 decades of neoliberal globalisation seems like an historical anomaly.

It now seems clear that Western governments and companies did not take China's five-year plans very seriously, and failed to appreciate China’s capacity for long term strategic planning. All along China had an aggressive approach to technological development through licensing US technology, massive investments in research and development, industry policy which protects and supports national champions like Huawei, and rampant intellectual property theft. A major strategic objective of China was to reduce its dependence on US technology. In retrospect, it was just a matter of time before China jettisoned its “hide and bide” narrative.

More recently, China launched the “Made in China 2025”, an initiative to secure China’s leadership in a range of high technologies and reduce China’s reliance on foreign technologies – and above all it is a direct challenge to the US’s technological leadership. And for many years, leading US tech companies (like Facebook, Microsoft, Amazon and Apple) have suffered from restrictions on access to the Chinese market creating a protected domestic market where companies like Alibaba, Tencent, and Huawei could grow into powerful, innovative firms.

An example of China’s strategic thinking was when paramount Chinese leader Deng Xiaoping, a few decades ago, identified the importance for China of critical minerals and rare earths, and emphasised the development of these sectors, long before they achieved the geopolitical importance of today. At the same time, the US allowed its production and refining capacities for critical minerals and rare earths to wither on the vine, notably by outsourcing their refining and processing to China. Hence today it finds itself uncomfortably dependent on China. This also applies to 5G wireless cellular technology, where China stole a march on the US, which does not have a player.

It is ironic that as China has reduced its technological dependence on the US, as the US itself has become dependent on China. Despite President Trump’s ambitions, the US has a very limited capacity to assemble iPhones or semiconductors, and finds itself virtually at the mercy of China and Taiwan respectively. To paraphrase Ernest Hemingway, the US lost its manufacturing first slowly and then quickly.

Key facets of techno-nationalism

Capri sees a number of facets in techno-nationalism. In sum, China’s motivation is to maximise its access to US strategic technologies, while the US tries to restrict China’s access to these technologies.

First, there is the weaponisation of supply chains whereby states try to stem the flow of strategic technologies to adversaries through the use of export controls, sanctions, and increased scrutiny of outbound direct investment and acquisitions. Both the US and China are active in weaponising supply chains, with the US trying to restrict Chinese access to US technology and China sometimes controlling access to critical minerals and rare earths.

Second, there is strategic decoupling and derisking against China, especially around strategic power multiplier technologies.

Third is reshoring, nearshoring, friend shoring and ring fencing – meaning moving supply chains home, closer to home or aligning them with trusted partners. This is leading to a “great reorganisation” and fragmentation of trade, and the bifurcation of trade around two nodes, a China and a US-led Western node for strategic technologies – these two nodes representing two different spheres of influence.

Fourth is innovation mercantilism meaning innovation driven industrial policy to promote local technology ecosystems and to promote and protect or ring fence specific strategic technologies.

Fifth tech diplomacy, meaning government-to-government strategic alliance building around strategic technologies for supply chains. The US Trump administration’s transactional approach to partners is not serving the US well. Despite what President Trump might think, no one country can master the supply chain from end to end for semiconductors and some other technologies.

Finally, the sixth element is the new Cold War environment where governments and companies are more exposed to cyber warfare and intrusion, and disinformation, all linked to techno-nationalism.

Future of techno-nationalism contest?

The US and China are locked in a techno-nationalism contest whose outcome is far from certain.

The US is still a leader in many of the technologies of the Fourth Industrial Revolution. Its defence establishment is a technology leader. It has the world’s best university system. But the Trump administration is undermining these advantages as it cuts funding for research and universities.

The US needs to reshore the most strategic technologies like the most advanced semiconductors. But not even the US can go it alone. It still needs to rely on partners by friendshoring. In particular, the US needs partners like Taiwan’s TSMC for semiconductor manufacture, the Netherlands’ ASML for lithography equipment, Korea for shipbuilding, Canada and Mexico for manufacturing, and Europe as a technology partner.

Capri emphasises the importance of friendshoring for the US in the techno-nationalist contest. If the US cannot maximise the potential of friendshoring, it will be difficult for the US to maintain its edge over China. But the Trump administration’s transactional approach to allies and partners undermines the potential of friendshoring.

For its part, China is investing massively in the technologies, and has achieved great progress in power multiplier technologies, notably AI. China may be decades behind for “leading edge” semiconductors, but it is already a major player for trailing edge semiconductors.

Moreover, it is expanding its influence along the “digital silk road”. As the infrastructure-driven China’s Belt and Road Initiative struggles in the face of financial problems, China has turned its focus to building digital infrastructure in the geopolitical and techno-nationist context. It is not nearly as expensive, and offers more bang for your buck in terms of extending influence.