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CvT: Two Acts to Heat Up US-China Strategic Competition

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In April and May of this year, two bipartisan bills designed to counter China’s increasing global influence were introduced by key Senate committees.

On April 21, the US Senate Foreign Relations Committee voted 21-1 to approve the Strategic Competition Act, sending the bill to the Senate for further consideration. This 281-page bipartisan bill, introduced by the Foreign Relations Committee Chairman, Senator Robert Menendez, and the Committee’s Republican ranking member, Senator Jim Risch, delivers comprehensive policy objectives to counter China’s strategic policies in key areas.

The other notable bill is the Endless Frontier Act. This bill was originally introduced by Senate Majority Leader Chuck Schumer and Republican Senator Todd Young in 2020, and it urged the government to increase investment in basic and advanced technologies research. On May 12, the Senate Committee on Commerce, Science, and Transportation approved the Act with a 24-4 vote.

Bipartisan support for these two bills indicates that it is quite possible that they will pass through Congress and that a hard line stance on China has crossed the aisle.

The dual pillars of US competitiveness: global leadership & tech dominance

The overarching objective of these two bills is to give the US a leg up in its “strategic competition” with China. The Strategic Competition Act aims at enhancing US competitiveness and global leadership to confront that which Congress views as China’s “malign influence” on the international order; meanwhile, the Endless Frontier Act earmarks more than US$110 billion for accelerating basic and advanced technologies research over the next five years.

Together, these bills represent a shift away from an “engagement policy” with China and seeks to re-establish the US’ traditional position as global leader, which many argue was undermined by the Trump administration. However, there has been little discussion on the potential consequences of passing these new bills. Once the concept of strategic competition has been formulated into concrete law, the US may find the Acts’ combined implementation costs to be steeper than anticipated, particularly given the unlikelihood of China allowing this challenge against its growing global influence to remain unanswered, steering the two sides towards spiraling confrontation. It also remains unclear the degree to which the United States can rely on its strategic partners and traditional allies to counter China’s growing influence and territorial claims, which may present obstacles that hinder the US fully realizing the potential of these policies.

Major policy measures of the Strategic Competition Act

The proposed Strategic Competition Act establishes new policies and provides significant funding aimed at enabling the United States to counter Chinese policies and initiatives across the following areas:

Decoupling

The bill pledges an annual investment of US$15 million over next five years to assist US persons and companies in exiting China or diversifying their businesses outside of China.

A BRI Alternative

The bill authorizes the creation of a new “Infrastructure Transaction and Assistance Network” aimed at countering China’s Belt and Road Initiative. Funding for this includes US$75 million to promote sustainable, transparent, and high-quality infrastructure in the Indo-Pacific region.

Anti-Propaganda Measures

Significant funding has been set aside for supporting free press institutions and the establishment of government bodies to counter Chinese propaganda and cultural influence. The policy will oversee the establishment of a “Countering Chinese Influence Fund” to the tune of US$300 million.

Hong Kong

The bill appropriates US$10 million for the Bureau of Democracy, Human Rights, and Labor of the Department of State for the fiscal year 2022 in order to promote democracy in Hong Kong.

Xinjiang

The bill proposes to further amend the Uyghur Human Rights Policy Act of 2020 and impose additional sanctions on forced labor action and other declared human rights violations.

The Indo-Pacific

In addition to emphasizing the importance of targeted US foreign policy and military strategy in the Indo-Pacific region, the Strategic Competition Bill proposes measures to strengthen support for Japanese defenses, increase support for US-Japan-Australia trilateral intelligence sharing, and assist with Taiwanese asymmetrical defense capabilities.

Military Funding

The proposed bill seeks to support cooperative military and strategic efforts with financing for foreign militaries at a total appropriation of US$655 million and an additional US$450 million for the Indo-Pacific Maritime Security Initiative.

Strategic Competition Act Funding Allocations

Major policy measures of the Endless Frontier Act

While the Strategic Competition Act focuses on countering Chinese power and influence abroad, the Endless Frontier Act can be understood as its domestic counterpart, instead focusing on fostering advantages in the US-China competition at home. For example, the Endless Frontier Act aims to establish a new Directorate for Technology and Innovation in the National Science Foundation in order to address technology challenges and enhance the US’ competitiveness in key areas. An appropriation for the directorate with a total amount of US$100 billion over next five years will be used to progress basic and advanced technologies research, commercialization, and education or training programs. The bill also authorizes the appropriation of an additional US$10 billion to create 10 to 15 regional technology hubs, with the objective of re-establishing the US as a global center for the research, innovation, and manufacturing of cutting-edge technologies. Other notable measures include establishing a supply chain resiliency program and a strategy and report on national security matters.

The key areas of focus outlined within the Act cover artificial intelligence, high performance computing and semiconductors, quantum information science, robotics and automated manufacturing, disaster prevention, advanced communications technologies, biotechnology, data storage and cybersecurity, advanced energy and batteries (including nuclear power technologies), and advanced materials science.

Furthermore, the Senate Commerce, Science, and Transportation Committee approved a draft of the Endless Frontier Act on May 12 which had more than doubled in length from the original version. A salient addition to the bill proposed by Senator Gary Peters was an amendment to provide financial support for manufacturing semiconductor chips used by automakers in an attempt to boost the US auto industry, while other amendments focused on preventing core technology from leaking to China or affiliated entities and limiting governmental cooperation between the two countries if risks to the US’ national security exist.

R&D as a key driver of future competitiveness

The Strategic Competition Act and Endless Frontier Act together provide a potential roadmap for the US-China competition. In addition to reducing economic reliance on China, these bills also underscore the importance of strengthening the US’ own competitiveness while recovering traditional ties with its allies.

Technological dominance will be a defining factor for establishing the global leadership of tomorrow, and the race is heating up. According to OECD, the gap of gross domestic expenditures on research and design (R&D) between the US and China has narrowed year-by-year. In 2014, the difference was US$145 billion, and it further narrowed to approximately US$98 billion in 2019. Poignantly, China has also called for 7% annual growth in R&D expenditure in its governing 14th Five-Year Plan. As such, placing extra emphasis on R&D spending will be pivotal for the US to maintain its competitiveness over coming years.

However, the US also faces a potential dilemma—how can it ensure that US research capabilities will prevail over China? According to the latest whitepaper from AmCham China, 85% of US companies in China do not plan to move their businesses out of China. As long as the Chinese market remains attractive to US companies, the most advanced US technologies and products will eventually flow into China for a fraction of the cost of development; after all, China is still the major consumer of semiconductor chips and other advanced technologies in the world. Therefore, US efforts to spur R&D could instead become a net mid-term boon through which China can remedy its own market shortages for a bargain—a potential opportunity that Chinese policymakers are incentivizing through preferential tariffs on core technologies and components imports.

Strength in numbers

It is also critical for the US to rebuild its global leadership, regain its allies’ trust, and abandon the isolationist mentality that defined the Trump administration. Over the past four years, China has been extremely successful in its efforts to export the “China model” of governance and consolidate its global influence through a variety of channels, which both directly and indirectly exclude US presence. The US has failed to conduct effective countermeasures, which has not only undermined its own long-standing multilateral initiatives but also impaired ally confidence in the stability of US global leadership. Should these bills pass, the US would have the means to counter China’s advances through media and international infrastructure cooperation, while building a model on which other democracies can confront China’s so-called “malign influence” in the global order. In the most idealistic of outcomes, China could eventually be incentivized to rethink how to better assimilate into the existing international order instead of creating an alternative system.

However, these two bills could also intensify the US-China strategic competition. Not only do they seek to consolidate the US’ global position, but they also inherently suggest a general strategy of containment toward China by framing China’s growing influence in zero-sum terms vis-à-vis US international influence. In response to highly restrictive containment efforts or interference with its key policy objectives, China would be likely to double down on its efforts to revise the international status quo through campaigns such as leveraging economic interests to weaken US alliances, strengthening regional military deployment, and expanding BRI investment to accelerate the exclusion of US presence across the region. The US could therefore find itself in an increasingly difficult and expensive strategic competition with China over the coming years, all within the backdrop of a ticking domestic economic time bomb. Congress just passed the US$1.9 billion bailout bill (American Rescue Plan), and Biden is also planning to launch a US$2 trillion infrastructure investment plan (Build Back Better). The massive price tags associated with these initiatives will place significant pressure on the US economy, and it is unclear if the US will have the same economic toolbox with which to maintain its strong standing should the bilateral competition intensify in the near future.

Lastly, although cooperation with allies is a key pillar of success for these two bills, it is uncertain as to what degree strong economic ties between China and US allies can be leveraged to weaken traditional western alliances. ASEAN has become China’s largest trading partner; China is Japan’s largest export nation; Taiwanese exports to China have reached historical highs at 43.8% of total exports; even India, which still has a tense relationship with China due to border disputes, looks to China as its largest trading partner. These simple realities indicate that traditional alliances may need to begin accounting for both economic as well as ideological interests, and that US allies are increasingly more exposed to any potential economic fallout of an intensified US-China competition. In short, the strength of these two bills could become marginalized by factors outside of direct US control.

Looking forward: the US still lacks a comprehensive China strategy

Although “strategic competition” has become the key principle of the US’ approach to China, Washington still lacks a comprehensive strategy to effectively counter China’s advance. The Strategic Competition Act and the Endless Frontier Act excellently provide the new administration with a substantial plan for this grand competition, yet there remain many uncertainties. Can these Acts gain widespread bipartisan support? If so, can an ailing US afford the economic cost of escalating US-China strategic competition? How far are traditional allies willing to go to support US interests? For these purposes alone, it may be more pragmatic to focus more on growing core US strengths rather than purely adopting a strategy of containment. Meanwhile, it will be imperative for the US to strengthen sustainable relationships with its allies that extend past shared ideological interests to provide counterbalance to the weight of China’s immense economic ties.

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