The need for alliances in US tech denial strategy

The high-tech blockade demand signal

The US’ current suboptimal mix of market and security-minded policies is exacerbated by outdated economic statecraft models and tools. Product- and entity-based designations for export controls, for example, make it difficult to deliver surgical precision in restricting problematic access to technology that may carry military or strategic utility. The bluntness of tariffs similarly ignores the reality of complex value chains and capacity for circumvention presented by China’s current global positioning. If promised security objectives aren’t achieved or can only be realized with significant collateral damage, then trust in security arguments and their political capital vis-à-vis market arguments diminishes.

The US’ failure to deliver on their advertised objectives owes in part to the nature of the competition and America’s strategic competitor. China is not the Soviet Union for which much of today’s tech denial playbook was built. China has held a trade-to-GDP ratio above 30% since the early 1990s. It accounted for 24% of total global volume transacted in equity capital markets and overtook the US as the top destination for foreign direct investment for the first time in 2020. It is a larger trading partner than the US for well over half the world and a critical trade partner and market for the US itself. America, in other words, is now dependent on its greatest adversary.

But China does still depend on external sources of innovation and select critical inputs. The US remains the primary source of those that China needs. The wares of Nvidia, for example, demonstrate that as successful as China’s indigenous innovation strategy has been over the past two decades, China is not without its vulnerabilities. For this reason, Chinese discourse reveals an enduring fear of what is referred to as a ‘high-tech blockade.” This concept of a high-tech blockade includes restrictions both on China’s access to developed nations’ technology and on the ability of private sector actors, globally, freely to engage with Chinese interlocutors, on China’s terms, beyond the reach of US governmental intervention.

Chinese strategists assume that a high-tech blockade is a difficult feat for the US government to execute, but China has positioned itself deliberately to neuter, as much as possible, this risk. Its national strategy of military-civil fusion is one such example. Military-civil fusion entails the transfer of commercial and civilian inputs (e.g., drones, autonomous systems) to military applications. But it also entails leveraging commercial and civilian actors and resources for strategic and coercive ends. It allows for a variety of Chinese commercial avenues to access technology from abroad and to complicate any attempt to deliver precise tech denial effects.

Furthermore, China is global in its positioning. Beijing deploys its broader technology acquisition program and its military-civil fusion apparatus internationally through both direct and indirect channels. For a high-tech blockade to resonate with Beijing, it will have to account for Beijing’s pervasive presence across the world as well as the challenges to implementation that come from private sector, market-oriented forces intent on maintaining ties to China.

But more than anything, the challenge of tech blockade is one of alliance coordination. Adopting security measures that yield short term market losses is a difficult pitch for allied political environments in the best of times. When economic growth prospects are dim and pressure from US tariffs may be making things worse, receptive audiences are sure to be even more limited in number. The opposite is also true: The short-term economic reward for rejecting an American-led tech denial strategy is higher for allied economies when they may face less competition from US peers and when their potential Chinese partners have fewer outside options.

Allied necessity

Even as the dividing line between the US and China grows starker, traditional US partners have been more restrained in their approaches. They have tried to hedge their bets and appease both powers in the bipolar economic order. In Europe, for example, Germany is adept at rhetorically addressing security concerns of the United States while continuing its embrace of the Chinese market – and even establishing backchannels to that market for itself via other economies, like Hungary.

The hesitance of traditional US partners to bandwagon on the American-led tech denial strategy is not without a logic. The short-term reward offered by China’s market is non-trivial. Equally appealing is the legacy of low-cost production that multinationals have enjoyed in China. Writing off both business development and manufacturing boons from China as sunk costs would make little sense without offsetting assurances of alternative market access or sources for production. The US tariff salvo of "Liberation Day" has not explicitly been framed in these terms. And even if the tariff pressures were strategically minded in this way, such a punitive approach to their rollout has already gone over as counterproductive in most allied capitals.

America stands divided by the tension of seizing either market or security objectives. America’s allies are even more divided on this score. China is not.

Conclusion: Marrying tech denial with market opportunity

China’s ambitions for seizing the commanding heights of technological supremacy are unlikely to recede regardless of external stimuli. If these competitive dynamics are enduring and the game will go unchanged, then US market and security leaders need to seek new ways to play.

Marrying tech denial to offensive levers of economic statecraft could deliver a solution. If America wants to execute on tech denial, it can do so, first, in a robust fashion at home. Updating export restriction frameworks can allow for more thorough restrictions on critical technologies being sold into the Chinese market and more adaptive enforcement against circumvention routes. As American leaders establish effective, updated tech denial frameworks, those frameworks could be incorporated into bilateral and multilateral trade and investment deals.

The promotion of common approaches with allies and partners needs to be the logical follow-on line of efforts. This should include the promulgation of unified export control and investment review processes that could be codified. To keep pace in this competition, these processes should be scoped to correspond to China’s technology acquisition priorities and mechanisms, particularly those aligned with China’s military-civil fusion program. Market-based allies of the US should align fiscal and monetary policies for seizing the asymmetric reward of filling critical value chain gaps that would otherwise be the dominion of China.

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