The Challenges China Presents to U.S. Technological Capabilities, With Matt Turpin

China’s rapid technological development has put tremendous pressure on the United States to remain competitive in strategically important industries. Rob and Jackie sat down with Matt Turpin to discuss what the United States has done so far to face the China challenge and what future policies should look like. Turpin is a visiting fellow at the Hoover Institution and has served as the National Security Council’s director for China and as the senior advisor on China to the Secretary of Commerce.

Mentioned:

• James Fallows, “China’s Great Leap Backward,” The Atlantic, December 2016.
• Rob Atkinson, “Weaving Strategic-Industry Competitiveness Into the Fabric of U.S. Economic Policy” (ITIF, February 2022).

Related:

• David Moschella and Rob Atkinson, “Competing With China: A Strategic Framework” (ITIF, August 2020).
• Rob Atkinson, “The Case for Legislation to Out-Compete China” (ITIF, March 2021).
•  “How China’s Role in Technology Development Affects the United States and the World, With Sam Olsen,” ITIF Innovation Files podcast, February 2022.

Transcript

Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, founder and president of the Information Technology and Innovation Foundation. We’re a DC based think tank that works on technology policy.

Jackie Whisman: And I’m Jackie Whisman. I lead development at ITIF, which I’m proud to say is the world’s top ranked think tank for science and technology policy.

Rob Atkinson: This podcast is about the kinds of issues we cover at ITIF, from the broad economics of innovation to specific policy and regulatory questions about new technologies. And today, as we have a few times in the past, we’re going to talk about China and the challenges it presents to American technological capabilities.

Jackie Whisman: Our guest is Matt Turpin. He’s a visiting fellow at the Hoover Institution specializing in US policy towards the people’s Republic of China, economic state craft and technology innovation. He’s also a senior advisor at Palantir Technologies. From 2018 to 2019, he served as the US National Security Council’s director for China and the senior advisor on China to the secretary of commerce. In those roles, he was responsible for managing the inter-agency effort to develop and implement US government policies on China. Welcome, Matt. Thanks for being here.

Matt Turpin: Well, Jackie, Rob, thank you so much for having me.

Jackie Whisman: And as I said, you served in the Trump White House working on these issues. Why do you think this was really the first administration to take the technology competitiveness threat from China seriously? And also how much was Trump himself and how much was it that the issue had just evolved to where people were taking it seriously?

Matt Turpin: Well, first of all, I would say that I started personally working on it in the Obama administration. At the time, I had been in the Department of Defense as an army officer working on the joint staff in the China shop, working on China strategy for the chairman and vice chairman of the Joint Chief of Staff and working in coordination with the Deputy Secretary of Defense, Bob Work, as they were thinking about the defense innovation initiative, thinking about the rising challenges of great power competition. If you’ll take yourself back to 2015 and 2016, there are open debates about both Moscow and Beijing presenting new challenges to the United States and really challenging the underlying liberal international system. And the Department of Defense was at the forefront of thinking about that.

And Deputy Secretary Bob Work’s efforts around the third offset were about maintaining a qualitative military advantage over peer competitors that were presenting real challenges to the United States. And so that’s really where this all began and certainly that’s where I started working on it. And as the Trump administration came in, they adopted much of that stuff to a certain degree, sort of whole cloth into the administration. And many of the things that we had been working on were things that were continued on in that administration. And often it portrayed this deep division in between December of 2016 and January of 2017 in which there’s this massive change. Really in China policy, you have a continuation of what was going on.

Rob Atkinson: I agree with that, Matt, but on the other hand, I always remember... I probably shouldn’t say who it was, but I was at a dinner over in DOD World on the other side of the river. And it was a pretty high-level dinner. The secretary of one of the services was there and I was sitting there talking to this person’s chief of staff, a general at the dinner and I said, “Look, this is a little bit like that old EF Hutton commercial. When EF Hutton talks, people listen.” I said, “When you guys talk, people listen.” I said, “Why aren’t you more forceful in getting your views into the Obama administration?” And he said to me, “Well, look, at the end of the day, we can only say so much. And we have to take our lead from the administration, which at that time wasn’t prioritizing it in the way that I think that Trump had.” So clearly, DOD was feeding it, but you need to have a willing customer as well.

Matt Turpin: Yeah. You look at November 2nd, 2016, three days or four days before the election, you’ve got secretary, Penny Pritzker, secretary of commerce in the Obama administration giving a speech at CSIS about the industrial the threatening industrial policies of the Chinese communist party, what it’s doing to semiconductors. And really lays out a rationale for why the United States would need to adopt a more proactive effort there. And so you’re absolutely right that it wasn’t settled policy, but what you had were the ways in which Washington works, which is you’ve got deep debates going on. There’s a realization that our expectations of our policy, economic engagement, and economic development will lead to political liberalization. We’re not working out, that’s clear by 2015, and you have deep debate across the administration about what to do about that.

And you’ve got division, I think, within the administration within the last 18 months of the Obama administration about what they should do about that. And you could see different aspects of that starting to come forward. I think it’s very clear that that’s a very difficult thing to change in the last year of an administration, but it seemed very clear to me that both Trump administration or a potential Clinton administration were going to be adopting new approaches. And that’s what was set up as we were coming to the end of 2016. James Fallows writes, I think a great article in the Atlantic that’s published the first week of December of 2016 about China’s great leap backwards. Essentially that the expectations of what we had, this strategy of engaging with them and helping the Chinese economy to develop and help them move up the value chain, that that would inevitably lead to political liberalization was very much seen as not working out.

And then there was deep discussions across the policy community about why you would need to compete. Right. You certainly see this from reports issued within months after the Trump administration takes office by the US Chamber of Commerce and the EU Chamber of Commerce, looking at the threats made in China in 2025. All those things were written before the Trump administration had come in. They just happened to be published, I think March of 2017. It’s not as if those things were written because Trump came into office, those things had been written beforehand and are being issued out. There’s this understanding that things are shifting. And I think it just happens to be that it happened at the time of an election. And therefore we ascribed to it that the election was the thing that caused it as opposed to an underlying policy debate across the community. That essentially our expectations of what would happen in China were not working out and we needed a new approach.

Jackie Whisman: Well, I’m going to give you credit, Matt.

Matt Turpin: Well, you shouldn’t because by no means, I very much saw myself as a spectator to this-

Jackie Whisman: Interesting.

Matt Turpin: Because this was happening really at all levels of government, as we were realizing that our expectations were not working out

Jackie Whisman: And public awareness too. There’s more of an acceptance that this is an issue that needs to be addressed.

Matt Turpin: Sure. Yeah.

Rob Atkinson: Yeah. I agree with that, Matt, certainly. We were playing that role. In fact, we came out about a month before the election with agenda for... it was for Trump work. Secretary Clinton, I think they might have done similar things. Here’s my question though. I don’t want to put you on the spot too much, but one level I give Trump a lot of credit for putting the issue up high, raising it and all, but at another level, I’m thinking, oh boy, four years and what did we accomplish? He didn’t really support a domestic policy agenda like the Senate has with America COMPETES. He didn’t really bring our allies into it as he could have. Now, would a Clinton administration been able to do any better? I don’t know. Frankly right now, I don’t think we see much going on in the Biden administration, at least on the China front. We see it on the domestic front. But what’s your take on that very broad question?

Matt Turpin: Yeah. My take is that the president and his administration focused very much on Japan and India as a way to begin that conversation. You saw a very close relationship between the president and the leaders of those two countries. It’s what he prioritized and really saw that as the way forward. And so the position that the Biden administration is in today with the quad has an awful lot to do with the groundwork put in place by the last administration in making those activities a reality. And an understanding that the concept of an Indo-Pacific right, we are conceptualizing how we think about how the world works and where the center of economic gravity is. And thinking of it through that way, was where the administration put its effort and attention.

For Washington, that’s often very much a trans-Atlantic focus. To a certain degree, much of our conceptions of how things work tends to have a trans-Atlantic focus. The realization that Europe was not along with us during that process despite the fact that it was certainly moving in a... It was having its own policy realizations during that period of time. You’ll remember that the European union publishes its strategic outlook on China in March of 2019, in which it, for the first time, issues a statement about systemic rivalry as characterizing part of the relationship that Europe has with China, which had not been uttered war. And this is really language that’s coming out of the German Federation of Industries, BDI, in January of 2019.

These things are happening across Europe, but they had already happened to a very large degree in Japan. The free and open Indo-Pacific is not a phrase coined by the Trump administration, was coined by Prime Minister Abe back in 2012 and 2013. What is the organization that we should be thinking about? Japan had been pursuing diversification of its infrastructure spending across Southeast Asia for nearly a decade as the Trump administration comes in. And so I think to a certain degree, we in the policy community missed what Japan had been doing in that space. Certainly after embargo’s of rare earths, they certainly had understood the vulnerabilities that they had to becoming too economically dependent and vulnerable to the actions of a state controlled economy in the PRC, and that they would need to figure out a new approach.

And I think really the Trump administration, President Trump, certainly got ideas from Prime Minister Abe as he engaged with him very deeply about these concerns. And so I would characterize it that way, that this is, not everything happens in Washington, not all ideas that are good come from this town and that others have agency and that they are working on things of their own accord and are pursuing things for their own reasons. And so to me, that is what is happening. And you have a continuation of that by this administration who has continued to engage strongly with India and Japan and Australia, but have also, I think made real headway across Europe because Europeans have come to their own realizations about what they’re seeing and the behaviors they’re seeing out of Beijing. Not because they’re doing the United States a favor, but because they themselves understand those challenges.

Jackie Whisman: And how much of this policy you think will stick going forward maybe in the next administration? Do you think they’re lasting?

Matt Turpin: Well, I think it has an awful lot to do with continued assessments of the environment. I’m a historian as background, not a technologist, not a political scientist, but a historian. And I think that to a certain degree, as I look back at how this policy shift began to change, it didn’t happen because folks really wanted it to change, it’s because they were looking at reality that things were not moving in the directions in which the strategy had laid out. We weren’t achieving the objectives that we had hoped to achieve and grudgingly we were making these changes. And I think you see this across countries, across democracies. They’re not excited about entering into a phase of strategic competition with the PRC. They are realizing they have to do so because it is the least worst option of what they have to pursue.

Therefore, as long as Beijing continues to act as it acts, then I suspect that administrations will be compelled to adopt these kinds of approaches. Because I think Beijing has shown that one, it is unwilling to follow through reforms that itself has laid out, whether that’s the reforms associated with the entry into the WTO. Becoming a market economy, having the state control the economy far less. Or to lift its threats to its neighbors. Those things are going to compel countries to continue along paths that treat Beijing as a competitor because Beijing is treating others as competitors. And it would be great for us not to have to do that, but I don’t think that’s likely to change in the near future. If it were, well, then we would recalibrate and we would adopt new strategies. It’s highly dependent upon what Beijing chooses to do.

Rob Atkinson: See, here’s what I worry about, Matt. Which is, it was a nice article. I think it was foreign policy where it talked about the weakness of Xi. You got to take that with a grain of salt, but certainly, there are Chinese leaders who think he didn’t hide the light long enough. He should have kept hiding the light, if you will, and not really challenge us for another 10 or 15 years ‘till they’re really ready. But what I worry about. It’s okay. I don’t think Xi is going to change, but at some point he’s going to leave.

Now you have some reformers who are more subtle and they get rid of wolf warrior diplomacy. Every time Australia does something they don’t like, they stop talking about sending missiles their way. They start pretending that they’re abiding by the WTO and they bury China 2035 standards and they underplay China 2025. But they’re doing the same thing domestically in terms of their economy. And they’re getting ready for at least Southeast Asian on hedge money. And what I worry about is we’ll get taken in by that. We’ll go, “Oh yeah. Things are going back to normal,” when really it’s just a different front on the same building. What are your thoughts on that?

Matt Turpin: I understand that’s a concern and I share that concern. I’m not necessarily stuck on the idea that there can be no possibility of the PRC pursuing a different path. But I think we would need to see actual evidence of that. Right. If you look at what Beijing laid out in the 18th party Congress, the economic reforms that Beijing announced in November of 2013, if Beijing had fulfilled those, which was really to remove in many cases, the state and parties control over economic activities within the country, that would be a positive step forward. And had they followed through with those and then we seen those things continue, well, that would be evidence of the kinds of things that we would want to, see and we would want to encourage that.

Now, there may still be individuals who have ulterior motives. But if what we’re seeing is that an actual practice they’re doing things that look like the directions that we’d like to see, then we should take at face value, those are the things they’re doing. Your position of if they were to change their behavior, I think we should be willing to consider a different approach, but we should be very careful about what that means over time and how do we watch it? How do we measure backsliding? How do we pay attention to that to be able to take?

It is not as if we had not been hedging. We had followed a position of hedging. We maintained significant export controls on the PRC since we resumed trade with them. It’s not as if we had lifted everything. We had still maintained many of the things that separated the high end of our economy and things that were militarily significant from being able to be traded freely and associated. I would suggest that it’s not as if we went to fully open and fully coupled. We were always, to a certain degree, decoupled in many ways. And we are now figuring out the new position for us to be in

Rob Atkinson: One last follow up on that though. I still worry that they could change their methods, but still maintain their goals. And for example, to me, I think that Chinese officials are super smart. I don’t know. I think she just got over enthused here, but that to me would mean we should continue, for example, the changes that the Congress and the Trump administration made on [inaudible 00:18:08] , which is be more careful with [inaudible 00:18:11], look at broader deals. I wouldn’t want to give up something like that just because the Chinese are abiding a little bit more by the WTO.

Matt Turpin: I agree. Yeah. Again, It’s this trust. But verify this, this idea that if they were to make a decision in which they would not exercise control over overseas investment. Let’s say we remove the capital controls and to allow individual business leaders to make their own economic decisions about what they wanted to invest in, then I think of the things that we’re concerned about, we should consider that decision based upon our decision of what we do in terms of investment screening. I’m not saying that we should get rid of those measures. We’ve had those measures even at the period of time where... The mid aughts was a period of time where we most trusted what was going on, we still had significant investment screening of Chinese inbound investment into the United States.

We were not allowing them to acquire advanced jet engines. In a number of ways, we were still doing those things. We’ll still continue to do those things. I’m not saying that we should be getting rid of legislation and our own protections that we have, but we should also recognize that if they were to do that, that that is a positive step and we should welcome that. It isn’t as if there isn’t a way forward for the Chinese people to be able to succeed and do what they want to be able to do. But I think we have to be very mindful about what are the threats to our interests and that those are also things that are just as legitimate to safeguard

Jackie Whisman: On that point, what are some of the key steps the Biden administration and Congress should take vis-a-vis China and help facilitate US tech competitiveness?

Matt Turpin: First of all, I think we’re in a tough position because over the last three decades, we have allowed electronics manufacturing. So the locus for the making electronics to move to the east coast of China. And in doing so while we still maintain along with a number of our allies, a significant leadership in the manufacturer of certain components into electronics, the ability to control the process of how things are made, and essentially be the consumer of those advanced components, have put us in a really difficult position. Semiconductor manufacturers that maintain the highest end semiconductors, they don’t sell semiconductors to individual customers. They sell them to people that make electronics.

And if the people that make electronics are sitting in one country, and that one country is economy is controlled by the state and the party and they are intent in moving up the value chain and gaining access to that higher degree of technology, then they have strong leverage over those component manufacturers to turn over technology and turn over know how to allow the PRC to be able to expand. And I think that’s a challenge that we have pushed ourselves into based upon earlier decisions, decisions to enable the PRC to localize manufacturing of strategic industries. And until that condition changes, it’ll be very difficult for us to execute policies that allow us to maintain the lead in certain areas that we need for both economic prosperity and national security.

Rob Atkinson: Matt, maybe just to close on that, we’re closely with the sponsors of the Senate Chips Act. The Chips Act is also now in the America competes act, which we really like, but it’s troubling. There are some folks, I believe, including some Republicans and maybe some Democrats who are looking at this in terms of, “Well, why don’t we do it like we did GM and we’ll do it as warrants rather than as grants?” Which completely misses the point that these companies aren’t lacking in capital. The issue here is just incentives for where they’re going to put their capital. And GM at the time would have to have a cash flow problem, which is why the Obama administration did that bailout. And it goes to your point of ultimately incentives are a key to... Anyway, what are your thoughts on that?

Matt Turpin: I find the Chips Act and at least the concepts within it, that we need to a certain degree, intervene within a sector that’s important to us and that is being manipulated by non at forces and that the United States would need to intervene in some ways. And I think to a certain degree, it’s great that we’re beginning to have that conversation and that we’re beginning to take steps on doing that. I happen to believe that it simply cannot be limited to one particular set of components for a broader set of industries that go across that. I feel that we need one to focus on... One, we need to be able to see how various economic and industrial sectors operate across global supply chains and value chains. And I think that for the government, right now they don’t have a good way to be able to see how those markets operate.

They get information from US companies, but it’s hard for them to see deal flows, how the commercial transactions take place so that we can actually see what the environment looks like. I go back to military comparisons. To me, you need a common operating picture if you’re going to intervene into these strategic sectors. And so you need the data and you need to be able to see what’s going on. And then you need to think about the whole suite of tools you have to be able to turn the [inaudible 00:23:58] to get the outcomes you want. And that means you’ve actually thought through what is the outcomes you want. What are those industries that you need to have a degree of control over? They exist within the US or they exist within jurisdictions of your close allies. And that you are not finding yourself in a vulnerable position in which you create dependencies.

I’m most concerned about, as we move toward green energy, that we find ourselves in a position in which we trade energy independence to an energy dependency on a strategic rival. If we do not get ourselves into position as we electrify grids and we start to electrify and green our energy output, if we do not have the ability to be able to provide those for ourselves, we are creating very tempting tools of coercion to present to a country that that currently is seeking to dominate those sectors. And that is really problematic thinking about our future and how our own economy would work and what foreign policy options we’d have in the future.

Rob Atkinson: Yeah. It’s always striking to me how little capability and even thought goes into exactly what you said, which I 100% agree with. There are two reports that we just issued. One that I wrote. One was on the case for a strategic industry competitiveness strategy as opposed to just a generic competitiveness strategy. And then another on if you were to integrate a strategic industry focus government, how would it play itself out? Including on the statistics and analysis and intelligence that we have to gather. Matt, we could keep going here for a long time because this is so fascinating, but we’re going to have to wrap it up. Thank you so much for joining us.

Jackie Whisman: Thank you.

Matt Turpin: Jackie, rob, thank you both very much. I really appreciate it.

Jackie Whisman: And that’s it for this week. If you liked it, please be sure to rate us and subscribe. Feel free to email show ideas or questions to podcast@itif.org. You can find the show notes and sign up for our weekly email newsletter on our website, itif.org. And follow us on Twitter, Facebook, and LinkedIn @ITIFdc.

Rob Atkinson: We have more episodes and great guests lined up. New episodes will drop every other Monday. So we’ll hope you will continue to tune in.