As the Trump administration works to wrap up the first phase of a deal to end the trade war with China, it is easy to focus on the unfair policies and practices that the United States has been pressing China to stop.
While it is critical for President Trump and US allies to eventually succeed in getting the Chinese to discontinue unfair practices like steal intellectual property it is also naïve to believe that doing so will be enough for the United States to win the race to be the global leader in the industries of the future.
The truth is China has positioned itself as a leader in many of those industries not just by flouting global trade rules, but also by smartly investing in foundational technologies like 5G, digital identities, and electronic payments.
It is time for the United States follow China's lead and develop robust national strategies to support the development of these technologies. Doing so will drive US productivity growth while helping the United States outcompete China.
China beating US in industries across board
One of the key aspects of the next wave of IT innovation is that it will potentially transform all industries, not just the tech sector itself. But it is critical for governments to enact policies to help accelerate the transformation. That is what China is doing as it seeks to be the world's leading IT economy.
China has an ambitious plan to establish a nationwide smart power grid, with the first phase to be completed within two years. The United States has no such plan; it relies on states to move forward haphazardly.
China is home to around half of the world's 1,000 pilot "smart cities." For example, Hangzhou's "City Brain" regulates traffic signals and tracks ambulances while they are en route to hospitals so it can turn red lights to green. Only a few US cities have smart city projects, and the federal government has invested just $160 million in them.
When it comes to key IT platforms, China is making rapid progress. It is poised to lead in rolling out 5G wireless technology, in part because local governments, under pressure from Beijing, do everything they can to spur deployment, including providing subsidies to carriers.
In contrast, many US cities see 5G as a cash cow they can milk by instituting high fees on carriers seeking to deploy the necessary infrastructure. China is also leading the United States on mobile payments and digital IDs, in part by adding chips to government-issued IDs. The United States lags in both areas.
US needs to get serious
The United States faces three big challenges when it comes to beating China for control of the world's digital future:
Many US economists and policymakers cling to the faith that free markets are enough to effectively drive innovation and believe that any national IT strategy would be inappropriate government meddling. Most Chinese government officials are engineers who don't get hung up on such philosophical debates: they do what works. To be sure, this does not mean the United States should embrace heavy-handed government meddling. But there is a smart way for the government to invest without totally overpowering the market.
The second challenge relates to attitudes toward technology. China sees new technology as a key enabler of a better standard of living. In contrast, the US is in the grip of an elite-driven techlash, where virtually every new IT application is demonized as killing jobs, reinforcing bias, or destroying privacy.. So it's not surprising that the World Values Survey finds 78% of Chinese residents agree that "more emphasis on the development of technology" is a good thing, compared to just 49% of US residents. If the US does not want to fall behind China, more Americans will have to once again become pro-technology.
The third challenge is money. Advancing in many of these areas requires public investment. For China, money is no obstacle; the Central Committee allocates whatever it deems appropriate. The US meanwhile struggles to scrape up even bare-minimum investments in these areas. To beat China, Congress should be appropriating at least $10 billion annually to a wide variety of IT applications.
None of this is meant to suggest the United States should copy the bad aspects of China's policies, such as Internet blocking, surveillance, or lavishing special preferences on state-owned enterprises. But it is to say that if the United States hopes to avoid passing the mantle of IT leadership to China, it needs much more active policies to support emerging IT applications.
The US has done this before, in the 1990s the government made a commitment to connect most schools to the Internet and in the 2000s it tried to roll out broadband to more places. But we need to do it again – this time in more industries and with more resources.
* Robert D. Atkinson is president of the Information Technology and Innovation Foundation, the leading think tank for science and technology policy.