The conversation was off the record, but in the room were pioneers of the internet browser, the search engine, the networks that connect us, and the venture capital firms that have provided innovative funding for growth. Also in the room were CEOs and senior executives from the brand-name companies that power the internet at every step of the chain: making the chips that fill the PCs that are connected by powerful routers into a worldwide web.
In other words, in the room were the very people and companies who invented the internet of today. And they took time to have dinner with our ambassador to China. The reason is obvious: Without betraying anything said over dinner (which I moderated), high-tech America is deeply concerned about China — and about the Trump administration’s reaction to China. Silicon Valley leaders are concerned because:
They want and need our government to protect them. China has stolen or extorted American technology for years. Our American tech giants have reported direct and persistent efforts by Chinese interests to penetrate their trade secrets. More recently, forced technology-transfer agreements have replaced outright theft. Examples abound, from high-speed rail to solar panels to electric vehicles to every corner of the internet.
Why do U.S. companies allow themselves to be treated this way? They feel compelled to participate in a Chinese market that promises hundreds of millions of consumers. They accept the risk of theft or extortion as the price of entry, betting that by innovating continuously they can stay ahead of the Chinese copycats using older technology.
Trump’s reaction to those thefts — a trade war with China — will damage their business by disrupting the supply chains that stretch across Asia and across the Pacific.
U.S. tariffs of 25 percent on $34 billion in Chinese tech exports began rolling on July 6. Chinese tit-for-tat retaliation on a wide range of sensitive products shipped from the United States to China began the same day. Just hours before our June dinner in Silicon Valley, President Trump had pre-emptively upped the ante by threatening new tariffs on $200 billion additional in Chinese goods. In all, the Trump administration has threatened tariffs on up to $450 billion in Chinese exports. The Chinese will surely match us billion for billion.
Of the nature of innovation itself. America has prospered technologically for 200 years because we absorbed the best ideas and best people from everywhere in the world. These ideas and people have been mixed by America’s unique alchemy of freedom to speak and share, of legal protections for the fruits of innovation, and of the vast but nimble capital markets, to put us at the head of the pack. Since the times of Eli Whitney and Eliphalet Remington, to Henry Ford and Thomas Edison, and throughout the entire 20th century, America has led the world in innovation.
But will the U.S. lead it in the 21st century?
China is becoming the most interesting innovation partner in the world. Its R&D spending next year is set to exceed ours for the first time. Its scientists are among the finest in the world. Silicon Valley’s leaders are concerned our trade war will lower a new Bamboo Curtain that will disrupt essential research partnerships between the United States and China today that are building the internet of tomorrow.
If a new Bamboo Curtain arises and American researchers and engineers are cut off from innovation in China — if Europeans and Indians can participate and share technology but we cannot — can we ensure that the United States will remain the world’s acknowledged tech leader?
If our universities cannot nurture and train the most brilliant Chinese students and professors, will our universities remain the most celebrated?
What if the next internet is built in China — and we aren’t in that room?
What would work better than a trade war and a Bamboo Curtain?
The most effective means of changing Chinese behavior is to change the global operating environment through coordinated multilateral action, such as the Trans-Pacific Partnership. And yet, Trump pulled us out of the TPP. Rather than coordinating with Asians and Europeans to unite in crafting new technologies and global standards that will become the framework for the 21st century, we are pushing our allies away and going it alone. Can we blame them if they find their own way to China?
We should increase U.S. public and private R&D spending, in addition to cooperating with our technologically-advanced allies in Europe and Asia, to develop the century’s new standards. That will ensure the United States remains at the forefront of innovation and commercialization.
We should absolutely control access to our most sensitive military and security-related technologies, but we should remain open to the need for prudent collaboration with the Chinese where necessary. The Chinese didn’t get to where they are today just by stealing technology; they also built mutually beneficial partnerships with leading American firms. We’re going to have to do the same, finding and nurturing the best Chinese ideas.
In that room last month in Menlo Park, the pioneers of today’s internet confronted the challenges posed by China — and by the United States’ reaction to China. When the pioneers of the internet of tomorrow meet in a room 20 years from now, where will that room be? And, what language will they be speaking?
Nelson W. Cunningham is president and co-founder of McLarty Associates, a global strategy firm based in Washington. He previously served as a special adviser to President Bill Clinton on western hemisphere and trade affairs and currently is a member of the U.S. State Department’s Advisory Committee on International Economic Policy. The views expressed here are his own.