David Moschella is a nonresident senior fellow at the Information Technology and Innovation Foundation. His latest book is “Tech Fears and Scapegoats: 40 Myths About Privacy, Jobs, AI, and Today’s Innovation Technology,” coauthored with Robert Atkinson. This transcript has been edited for length and clarity.
Federal Newswire: How should the U.S. view China from the perspective of competition, including for technology?
Moschella: If you look at China today, there are four huge dimensions to what it's doing.
It's the world's largest market for a vast amount of products and services. It's the world's largest supplier of a great many products around the world. It's America's toughest competitor in all kinds of industries. It's a geopolitical and military rival.
Now, if you compare that to the Soviet Union, it was only the latter of those. It was not a major market for U.S. firms. It was not a significant supplier of really anything to America. In most industries, it was not a serious competitor. It was solely a military and geopolitical rival. [paragraph ends] Many American industries are dependent on China as a supplier. If you want to be a successful firm, you really do need to be in the world's largest market if you want to get the scale to compete, and from a competitive point of view, they're our main rival in many sectors. So that analogy takes people down a military and geopolitical path and a sort of tension escalating path that is not necessarily the ideal way that we should go.
In the same way, people also compare the China challenge to that of Japan. But Japan was never a huge market for U.S. firms. It was a supplier and competitor, but it was an ally. [paragraph ends] Only China has the four dimensional challenge to the United States. To think through what should be done or how to go about it, you need to factor in all four of those dimensions, which are often in conflict with one another.
Federal Newswire: Is there anything on the horizon that would jeopardize China’s position as the largest market for certain goods and services?
Moschella: Only India has a comparable population, and it has so much more development to go to catch up with China. The United States, Europe and China–they're all going to be really large. So China will be the single biggest country market.
But if you define the market as the West, that'll be a bigger market. So it all depends on how you want to define it. If you are a McDonald's, a Marriott, or a Starbucks, they really want to be in China, because that's a huge business for them. I think that dimension is not going away at all. Also to succeed in that market, you've got to be pretty good.
So, I don’t think so. I think that all these dimensions stay with us for quite a long time.
Federal Newswire: Did our appetite for cheap technology products affect our view of China?
Moschella: I always start with the basis that we made China into the success that it is today. When they joined the WTO back in 2001, particularly from the tech sector, all the companies basically looked at the manufacturing capacity of what was there, and they set up shop to make chips, displays, storage devices, PCs, smartphones, and everything else.
If we didn't do it in China, we would still probably be somewhere else in Asia. It's not like that stuff will necessarily come back to America, but we created that. We [also] created the belief that, “as they grow, they'll be more like us,” and that was always the theory.
This wasn't a bad thing. It was actually quite logical, because we saw that Korea, Taiwan, Japan, Singapore, all of them became more liberal as they became wealthier and more like us than they were when they were impoverished, like China was. That belief wasn't crazy, [but it] turned out to be wrong.
Federal Newswire: How did China’s technological development differ from that of other Asian nations?
Moschella: In the West we go down the path saying China is successful because of its oppression of its citizens, its censorship, its slave labor, its environmental problems and all of these things. I would say in many cases, they're actually really successful in spite of all of those things. What China really has done to grow is virtually identical to what Taiwan, Korea, Japan and Singapore did decades earlier when people talked about Asian Tigers and the Asian miracle.
They had a focus on commodity manufacturing, a disciplined skilled workforce, import protection policies, engagement by the state, and high savings rates. They had all of these basic ingredients. More than anything else, they had a commitment to move up the value chains in those industries over time. They all started off making things like keyboards, PC mice, and floppy disk drives. Now they make many of the world's most advanced displays, chips, storage devices and everything else.
That actually is the exact opposite of how America and the West did it. American companies like Apple and Microsoft focus on the top of the value chain, the customer experience software, and the data, and those are actually the most profitable segments.
That's why those companies have been so spectacularly successful financially. But they've essentially ceded all the commodity manufacturing below that. To me, that is the Asian Tiger model. Start low, work your way up over time, with a lot of support from the government. They did all that. But China hasn't tried to bring one additional piece of that, that the other ones didn't have.
Federal Newswire: How did the Chinese government’s role help China’s industries?China is such a big market that it could basically force or strongly encourage American companies to share technology as essentially the price for doing business in China. Taiwan and Korea were never big enough to really do that.
The basic economic development model was written long ago by Singapore President Lee Kuan Yew. All of those places were not Democratic in their early years. They were all one-party states with a very strong military, and they didn't really become democratic in Korea and Taiwan states until the late 80s and 90s, but they all did.
There was the hope that China might, too. I wouldn't rule out that someday, maybe it will, but there's no sign of that now. That's been the big surprise, the downside.
Federal Newswire: What do you think are myths that most apply to the China challenge?
Moschella: The first thing that comes to my mind is the main thing we need to do with China: compete effectively against them. If the government and policymakers and others start turning against tech in terms of its alleged impact on American society, that's not going to be good for the dynamics of those companies over time.
You look at antitrust stuff and other things that are being knocked about. But the ability to compete remains the most important thing. You see that today with Nvidia and OpenAI. The ability to do that is still very strong, with the one exception being that we can't make any of this stuff.
Federal Newswire: Is this something structural that we can't really change?
Moschella: [We could], but it took about 20 years to get into the mess we're in, and it's going to take more than five years to get out of it. Ten might be a decent number. Mexico, India, Vietnam, Indonesia, and South Korea are places you can start to make [this] stuff. But the catch up process is very difficult because [of the cost of] competition with China. At the very high end, other than Taiwan, nobody seems to be able to really keep up with what they're doing.
I don't see a quick solution. All those things can move to other countries eventually, or rely more on Japan and South Korea because they have such high quality advanced manufacturing. But in America, it still takes so long to set up these plants and get them going. So it’s a hard slog and there is not going to be a quick solution.
Federal Newswire: Where should America focus to gain technological advantage?
Moschella: I would start with the most obvious one today, which is AI. You need a government, a media and a policy community that really believes that this is the path we need to get on to remain competitive, and that we need to automate things. We're going to have all kinds of problems [like] caring for the elderly, educating people, labor shortages and cost challenges coping with India and China. We need all kinds of automation and robotics, and AI is by far the most likely path to go there.
Federal Newswire: Is there a bigger role for trust and safeguards?
Moschella: When you look at trust and accountability and transparency, it stresses that when any company brings something to market in the United States, they are responsible for that product being reasonably safe. Existing laws provide a lot of protection against products that are unsafe or somehow harm people, so you don't always need a whole set of new laws. You may need to tweak them a little bit, but the basic standards of consumer protection don't fundamentally change. [paragraph ends] When we get to China, I would think less about just software and data, but think about the intelligence that will go into robots, cars, machinery and all of the things that they have strong positions in.
Look at electric vehicles and the combination of AI and EV—they're dominating the EV. It's a pretty easy step to throw AI on top of that. It's applying it to strategic sectors that is probably the biggest challenge you see from them. No one country is going to own AI.
The principles are well understood of how it works. The scale of what you need, the processing power, and who has the data to run it is an interesting issue in each country, but it's not that China is going to own AI. If they apply it to drones, airplanes, cars, military equipment, and they do a better job of that then those are big things.
We can't afford to cede any more strategic industries. We’ve seen quite a few in recent years, and you see that with cars coming right down and staring us in the face. They [have] enormous advantages in EVs versus the cost in Europe or America trying to make similar products, because the supply chain is out there.
Federal Newswire: How do you see the principle of reciprocal access in China applied to tech?
Moschella: We have a case right in front of us now where reciprocity is the answer, and that is the whole thing with TikTok. We raise all this stuff about TikTok, security, data and AI, and that's all fine. The more compelling point is why should we let a Chinese social media company do business in America when X, Google and Facebook can't do anything in China?
How is that fair? How does that make any sense? How is the easy story to say, “Well, let TikTok [in and] in the future let us in.” The fact that we don't do that, in some ways, makes us look so dumb. [paragraph ends] It may seem Pollyannaish, but it's more of a balanced negotiation rather than escalating trade war that's happening today, which is very hard to see having a very positive outcome.
Federal Newswire: Where can people go to follow your work?
Moschella: Go to Amazon and buy a copy of the book “Technology Fears and Scapegoats.” The Information Technology Innovation Foundation looks at all of these initiatives and conducts in-depth research. Just about all the content there is public domain and a great deal of opinions and recommendations in all of these cases can be found there. My Twitter is @dmoschella.
The China Desk podcast is hosted by Steve Yates, a former president of Radio Free Asia and White House national security advisor.
