If financial valuations are anything to go by, digital technology has already transformed the world economy. In the decade leading up to 2019, the largest 100 firms in the world increased their total market capitalisation by US$12.7 trillion. A third of that increase (US$4.2 trillion) was accounted for by just seven firms: Facebook, Amazon, Apple, Alphabet, Microsoft (the famous ‘FAAAM’), Tencent and Alibaba. The aggressive rally of tech stocks during the COVID-19 pandemic represents recognition of the arrival of an entirely new model of value creation enabled by digital technology.
The special sauce of this model is what technology expert Azeem Azhar calls the ‘AI lock in loop’. As tech companies deploy products and services, they also collect data about their consumers’ use of those products and services. Machine learning performed on that data informs the development of better products and services. Integration of multiple data-rich digital assets into a single platform gives tech companies access to the entire vertical product chain (think Amazon) and capacity to expand horizontally into new products and services with relative ease and effectiveness (think Google, Facebook or Tencent). In this model, returns do not diminish as businesses scale. Rather, they increase exponentially.
But digital transformation is taking place on the volatile frontiers of a largely unregulated information ecosystem. Technology companies are fundamentally altering human society before regulators have had a chance to agree on the rules of the road for safe, ethical or equitable compact between businesses and consumers. Urgent issues include deficiencies in antitrust, intellectual property and patent law, and the need for stronger assurances around consumer privacy and data ownership. Digital technologies have disrupted the integrity of the institutions and communication tools upon which civil society functions, compelling governments, firms and individuals to improve digital literacy, counter misinformation and increase cybersecurity.
The Trump administration has successfully diverted attention away from these critical policy issues and towards the threat that Chinese tech companies pose to US national security. Video streaming app TikTok, China’s first social media tech company to penetrate international markets and threaten the supremacy of US firms like Facebook, is the latest Chinese tech company in the Trump administration’s crosshairs. WeChat will likely be next. While Huawei is perhaps more strategically important to Beijing, TikTok is uniquely valuable for its user data and the ingenuity of its proprietary recommendation algorithms — currently the envy of US tech giants like Facebook and Twitter. Microsoft and Walmart, frontrunners in the bid to acquire TikTok, see an opportunity to leverage TikTok’s assets for a range of possible products and revenue streams, from e-commerce to e-learning. But China’s update of export controls to include AI technologies is timed to derail the forced acquisition by potentially gutting TikTok of its commercial value to US bidders.
Three of our essays address the question of what is really at stake in the struggle between the United States and China over big tech. What’s clear is that the dominant narrative that China’s way of doing technology poses a threat to Western democracy conceals many other important facts about the state of the world’s digital transformation and the policy issues that require attention.
Chinese tech firms cannot be trusted to provide critical infrastructure (Huawei) or social media platforms (TikTok, WeChat), the dominant narrative runs, because civil liberties, human rights and personal freedoms will be sold out over the strategic interests of the Chinese Communist Party without oversight from any independent Chinese judiciary. Tech-enabled human rights abuses in Xinjiang and suppression of political freedoms in Hong Kong are evidence of these risks. Combined with this argument is an assumption that Chinese consumers of technology products and services are more willing to trade public security for personal privacy. This pictures China on an irreversible path to a tech-enabled authoritarian dystopia. Conveniently, this narrative permits little room for introspection about the way technology companies constrain the freedoms, agency and equity of citizens in Western democracies.
As Paul Haskell-Dowland argues, the Trump administration’s actions against Huawei and TikTok appear motivated as much by a US desire to maintain unilateral control and oversight over the world’s digital assets as by a sense of responsibility and protection of the free world. Less understood is that in 2018, US tech companies became subject to the same law (CLOUD) as China’s 2017 National Security Law. Nor has it been widely publicised that the EU–US data transfer agreement is effectively dead in the water due to a lack of data protection assurances in US surveillance law. The dominant narrative is shaky and lop-sided, and beneath it lies the more fundamental question of control over the digital frontier.
Winston Ma makes a point from the perspective of China’s awakening to data privacy concerns. While much is made of the national security dimensions of China’s 2017 Cyber Security Law and its potential to impinge upon the freedoms of tech consumers, there’s little acknowledgement of the concurrent push to develop data protections in response to Chinese consumers’ lack of appetite for ‘exchanging privacy for safety, convenience or efficiency’. ‘These developments are similar to the EU’s General Data Protection Regulation and mark a key step forward in developing a legal framework governing individual data privacy’.
The Trump administration’s actions reveal ‘fears that (unless Chinese power is checked) it will supplant the US as the world’s preeminent power, operating according to rules of its own’, says Jonathan Pollack. But it is far from clear that they have given ‘consideration to the implications of an adversarial relationship with Beijing, or the larger consequences of an increasingly fractionated global economy as China increasingly goes its own way’.
A Trump-led United States appears willing to maintain its position as arbiter of the world’s information ecosystem, whatever the cost may be to economic growth, innovation or security of anyone else in other countries around the world, including its allies. ‘If the United States implements further action against technology companies, and influences other countries to do the same, countries are going to face a stark choice between US or Chinese-‘approved’ versions of the Internet’, Haskell-Dowland concludes.
Is there an alternative route to avoid a winner takes all fracturing of the internet? That would require an agreement on the rules of the road for the world’s digital transformation — a task that needs political will on the part of the United States and China and proactive leadership from their technology firms. The Trump administration’s latest moves against Chinese tech firms signal a lack of confidence in America’s ability to lead from the front.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.