C.V. Starr & Co. Annual Lecture on China: The U.S.-China Technology Competition

Panelists discuss the U.S.-China technology competition, including China’s advances in the field, U.S. universities’ competition and collaboration with China, and the concerns of the U.S. business community in relying on technology supply chains based in China.

The C.V. Starr & Co. Annual Lecture on China was established in 2018 to honor the trailblazing career of C.V. Starr and the Chairman and Chief Executive Officer of C.V. Starr & Co., Maurice R. Greenberg.

BUSSEY: Well, welcome everybody. Thanks for joining us for the Council on Foreign Relations C.V. Starr and Company Annual lecture on China. We’re here today to talk about the U.S.-China technology competition. My name is John Bussey. I’m the associate editor of the Wall Street Journal. I’ll be presiding over today’s discussion. Also, would like to welcome Hank Greenberg who’s the CEO of C.V. Starr. He’s here in the audience with us today. (Applause.)

So we’re joined today by an excellent panel on a very big, complex topic to get to in one hour. We’re going to talk for about twenty-five minutes of that. We’re very much looking forward to your questions. So kind of keep that in mind as the conversation goes. You’ll have a chance to interject your thoughts but also ask our panelists some questions. And we’re joined today by Amy Celico, the principal of Albright Stonebridge Group; Shirley Ann Jackson, the president of Rensselaer Polytechnic Institute; and Adam Segal, who is the director of the digital and cyberspace program here at the Council on Foreign Relations.

So, Dr. Segal, let me—let me start with you. It seems like we’re at an inflection point in the U.S. and China relationship. You might agree with the president’s tactics. You might disagree with those tactics. But there’s bipartisan support for forcing China to address some of the unfair trade practices that we’ve seen over the last thirty years, from heavy government subsidies to IP theft. Much of that tension is now around technology issues. So can you give us a general sort of state of play of how you see the intersection of national security concerns on the part of the United States with its tech and trade policy, as how that connection is shaping the U.S. relationship with China more broadly?

SEGAL: Yeah, thanks. So I think there is a widespread kind of consensus around the idea that China was exploiting the openness of the U.S. science and technology and using it for—both to increase its technological capabilities, which were then being converted into military capabilities at a more rapid pace than we expected. I think it predates the Trump administration. You can see at the end of the Obama administration in a report done by the PCSATS, the President’s Council on Science and Technology Advisors, about semiconductors.

And in the DIU report that, you know, came out during President Trump but was started under President Obama about early-stage investments in Silicon Valley, that there was this concern that the PLA was increasing its capabilities and it was particularly focused on what we’re calling emerging and foundational technologies—so, AI, quantum, 5G, and other places. And that the convergence of these two things—the PLA’s military modernization and the leveraging of the U.S. system—was creating real security risk for the United States.

BUSSEY: Dr. Jackson, universities seem to be in the middle of this conflict. How do you see balancing the national interest with also the country’s desire to welcome in talent from abroad that brings in the kind of innovative spirit and intellectual acumen that drives innovation in the United States?

JACKSON: Well, I think it’s important to remember that universities have always done a lot relative to the economic and national security of this country—including during other fraught periods, including the height of the Cold War. And a lot of the advances in nuclear technology, and radar development, satellite communications, even the advent of various ways to encrypt, which led to this whole explosion with the internet, really came out of work that related to a partnership—partnership—between the government and universities, and more broadly universities, industry, and government.

And that has redounded to the benefit of this country for many years, both from a national security perspective as well as from the perspective of our economic security. But today the very things that have given universities their strength and have led to so much discovery and innovation, those same things are viewed as weaknesses. What do I mean? Adam alluded to it, the openness of the universities. Research is published. There’s peer review, so before publication articles are sent around to be reviewed by peers. International visitors and students are welcomed. Collaboration—international collaborations are part of the fabric of how research is done.

And now the U.S. government is concerned that that makes university a sieve for intellectual property theft. So universities are caught in the middle. And they are grappling with it. But the intent and desire is to remain open to the best talent from abroad. But I think as well, universities realize that there are certain ways that business has been done that has to change, not—hopefully not in a fundamental way, but with some tightening of requirements and approaches, as well as a more balanced perspective about attracting and developing talent. And I hope we can talk about that.

BUSSEY: Good. We’ll come back to that.

Ms. Celico, you’ve been involved with helping define China trade policy for many years—at the Commerce Department, at the U.S. trade representative’s office. Now you’re advising companies on how to navigate this minefield or this sort of difficult period. What are you telling them? And particularly the tech companies that are kind of—there’s a certain specific focus on them?

CELICO: Well, obviously for most of our clients they want to be in the China market. They want to find a way to be able to continue to grow their global business, including in China. And so the way that we’re advising them is basically to, of course, recognize that uncertainty is a new normal, regardless of whether and how we reach an interim phase one trade agreement. Many of these tensions that we’re talking about on this stage are going to continue. And so for our clients, they have to find a way to mitigate the risk that exists. And one way that we’re talking to our clients particularly is they have to speak more loudly in Washington, D.C., in Beijing, in Brussels, on some of the policies that are being developed, specifically on technology competition as we think about how to define where and how American companies can continue to operate in the China market.

And so allowing themselves to be a part of conversations that maybe in the past they were happier not participating in around definitions, emerging and foundational technologies. How is the U.S. government going to define those issues and restrict U.S. technology? Within China, critical industry infrastructure and information, how is that going to be defined? Companies have to be advocating for themselves to continue to have a role. And then finally, another area is, of course, they’re coming under increased scrutiny. Here in the United States we know that there’s a values-driven debate over whether and how American companies should be operating in the China market. In China the social credit system, the new unreliable entities list still not published. These are mechanisms that are going to monitor and judge how companies can be successful in China and how they should be behaving in China. And so consumers, employees, governments are going to continue to pressure our companies about their China presence.

BUSSEY: So companies complain about operating in China and the difficulties they have there. But isn’t this to some extent a China that U.S. companies helped create? And this sort of resulting rise in the competitiveness of China is something that U.S. companies have really contributed to by being—by forced to or willingly transferring their technology to China, doing business there? Haven’t they really contributed to this difficult position we find ourselves in now?

CELICO: I think that when you look at China’s number-one import last year it wasn’t oil, of course, it was semiconductors. Yes, China buys a lot of foreign technology. And American, and European, and Asian companies who want to succeed in the China market have had to make deals in China that they weren’t forced to make in other markets. And so I do think that, as Adam said, the challenges that the U.S. government is now trying to resolve with China on unfair and unlevel playing field or technology companies and other industries is not new, but I do think, to answer your question, yes, the business community has more forcefully advocated for assistance from the U.S. government because they are seeing windows closing for their continued participation in the market as China itself continues to build those walls higher and higher to their fair participation in the market.

SEGAL: I mean, I think it’s worth nothing that, you know, no two economies benefitted more from the globalization of science and technology than the United States and China, right? The United States, the reason why the companies build these global supply chains was a confluence of, you know, Window’s operating systems and Intel chips, and was in response, in many ways, to the challenge from Japan, right? We pivoted from a competition against Japan. We helped build these global systems. We benefitted immensely. The Chinese clearly moved up the value chain much more quickly than they would have just with the reforms they were doing of their own science and technology system. Our universities benefitted immensely from the access to Chinese students. And China benefitted immensely from access to American universities.

JACKSON: Well, that’s what my point really is. I think that it’s a mistake to feel that the “rise,” quote-unquote, of China is strictly due to what technology U.S. companies have transferred. That’s huge. But they have a huge talent development that has occurred. And over a ten-year span, up to a couple of years ago, something like close to seventy thousand Ph.D.s in science and engineering were awarded just to Chinese students. And today anywhere from, depending on the field, 45 (percent) to nearly 65 percent of the Ph.D.s in key fields of science and engineering are awarded to international students. And a large fraction of those are from China. And so that technology transfer is one that universities are in the bullseye of today.

BUSSEY: Adam, you hear this language of this is the new cold war with China. And you know, look, there’s some similarities to the old cold war. It’s not just about a desire to have reciprocal trade. There’s some national security issues involved here. And, frankly, when I go to Washington, I feel this vibe of containment policy in some of the discussions I’m having. But is that—is that the wrong phrase for that? Is that an overstatement? Are we at this point too integrated? Or do you actually see parallels with the old Cold War?

SEGAL: I mean, it’s not a cold war in the Soviet sense, for all the reasons we’ve listed, right? Just the degree of integration with the Chinese economy and the Chinese people is just orders of magnitude greater than anything that we ever had with the Soviets, and just I think really fundamentally changes the shape of the competition. That said, I do think there are some overlaps, just in the sense that there are some legitimate and real technology and national security concerns that are going to require a national response, right? Unfortunately, we have not mobilized those responses, I think, adequately. So if in fact we were really treating it like the rhetoric suggests we were, we would actually I think see on the domestic side a lot more investment in our own capabilities.

We would see, you know, some of the things that the CFR Innovation Task Force called for, and that Dr. Jackson was involved with ten years ago or fifteen years ago in the Gathering Storm Report, and we’ve been talking about every decade in the United States, which is greater investment in basic R&D, getting STEM education right, making sure we don’t lose minority and women in the pipeline, all of these things that we’ve been talking about for a long time. So I’d like to see some matching of that actual mobilization on the domestic side with this rhetoric about what the competition is.

BUSSEY: And by mobilization, are you talking about industrial policy?

SEGAL: Well, we’re not allowed to say industrial policy, but yes. (Laughter.) I mean, look, I think we’re not going to recreate China. And, again, we do have examples in the past. SEMATECH, for example, right, which was a precompetitive basic research and for important for training graduate students. When you get Marco Rubio’s subcommittee writing a report that says, you know: China makes us reconsider the idea of industrial policy—I mean, he couldn’t get all the way over the line, like the last two paragraphs were all about tax breaks. But I think we really are in a different world now. I think people are beginning to seriously think about what tools the U.S. government has. And we have them. We’ve used them before.

JACKSON: Let me—if I may amplify on that a little bit. I mean, it’s not entirely new. It’s just that it happened in a de facto way. Coming out of World War II we had a great focus in the nuclear arena. And a lot of—and in certain kinds of communications technologies. And in many ways, you could say that led ultimately down the line to the SEMATECH semiconductor roadmap. So we always have had this river that runs through it, this current that some might call an industrial policy. You could also say it has to do with strategic focus in terms of what is—

BUSSEY: Investing in basic research as a more—as a nicer way of saying.

JACKSON: Right. Well, the human—mapping of the human genome is another example.

BUSSEY: Yeah.

JACKSON: And that’s given us—gave us a huge leap in the biotechnology area. And that’s an area where on a relative basis China is not as strong as we are.

BUSSEY: Yeah. Yeah.

CELICO: And I do think for businesses we do have to consider whether and how global chains are going to continue to shift—for national security considerations, not just about avoiding tariffs. And that does come to the fundamental question of: Where are we going to face some restrictions as we look at civil-military fusion in China, and really trying to have a strong domestic base in some certain technologies—leading technologies? And I think what we all would argue is companies have to have a seat at the table in making these decisions, because if the government is making the decision for us it’s not going to be good for industry, and it’s not going to be good for our economy.

JACKSON: Also, you know, it’s hard to have a conversation like this and look at it strictly from the lens of what we’re doing in this country. If you’re going to talk about global supply chains, you have to think about what China’s doing, what other countries are doing around the globe, versus what we’re doing. So if you’re talking about access to strategic resources, looking at energy, looking at rare earth, looking at lithium—where China has basically cornered the market in many of these areas—looking at trade relationships, bolstered and linked to broader geopolitical concerns and military relationships. I think we get hung up on one thing, and then we forget that this is playing out in a larger world that influences what our companies can do, as well as what our universities can and are doing.

BUSSEY: Yeah. Adam, if industrial policy—if you’re saying maybe the U.S. needs to become a little bit more like China—

SEGAL: No, no, I didn’t say that. (Laughter.) I explicitly said the opposite.

BUSSEY: China is investing hundreds of billions of dollars in these new—these new zones of interest that it has, the critical technologies that it wants to dominate. The U.S. is never going to be that generous, I would imagine.

SEGAL: No, we’re not. But as Dr. Jackson pointed out, we don’t have to do it alone, right? I mean, they’re—we are not going to match the Chinese dollar for dollar for investment. But U.S.’s strength has always been that it’s the central node in this global system. And we have friends in Europe and East Asia and other places that are also investing. And so a comprehensive strategy would involve, you know, a broad-based discussion with our friends in the EU and East Asia that says: What are the technologies that we are concerned about? Which ones do we think the Chinese are making gains in that we, you know, think we can either compete with or slow by all working together? And how do we distribute the research, right? So make sure we’re all not doing the same thing, and that we can make sure that we are all kind of pulling our resources in the right way.

BUSSEY: Yeah. Shirley, there’s a lot of concern that China’s going to steal the march on us from a basic research standpoint. You’re a nuclear physicist by training. Do you see that happening? Is that being overstated? Are you worried that the next twenty—ten-twenty years of truly cutting-edge basic research in quantum computing or, you know, power supplies, or 5G is going to be ceded to China?

JACKSON: Well, we worried about this—you know, I’m old enough—we worried about this during the Cold War. We worried about it coming out of World War II. We worried about it with the advent of the space race. So but what did the U.S. do then? And this links to things that Adam has written about. We decided we needed to invest in developing human capital, that we needed to invest in fundamental research, that we needed to create certain kinds of infrastructure. And so it’s what I call the four Ps: People, human capital; programs, what your policy framework is and where you choose to focus and invest; platforms, what infrastructure is critical; and partnerships, that has to do with collaboration not just within an institution but globally. And so these are the things that I think those of us in the university, and university presidents, would like to have a broader perspective on and action. And as opposed to what we can’t do, what is it we must do.

BUSSEY: Amy, this discussion of technological advance and the U.S. position on Chinese intellectual property theft, we’ve been discussing this for quite some time, many years. And we’re now in a trade fight that may or may not produce substantive results, looking less and less likely that it will. How does the U.S. change the very model that has made China such a success? And why would China want to change that model? It is what has powered its growth over the last forty years—that is, IP theft, heavy subsidization, forcing technology transfer? How does the U.S. do that? And what do you think is a reasonable expectation for achieving any kind of substantive results in the next five years?

CELICO: I think what we know probably will not work is if we try to go it alone, and try, on our own, the United States, to force China to change. I’m not sure—and we’ve been experimenting with different ways to enhance our leverage in order to force China to change. And I don’t think we’ve seen a lot of results yet on our own. I think, as we’re seeing in these continued trade talks, the Chinese government really wants us to bring down those tariffs. So I don’t want to underplay the significance. But we need to bring down the tariffs because of the impact on the U.S. economy too. I think many people say this, if the United States wants to more effectively pressure China to change, we should return to working together with our allies so that we have more at stake for China to lose were it not to respond to a concerted drive by a number of countries.

I think we could lose the ability to do that if we allow the EU to continue to work with China and we don’t have a voice in those conversations about investment restrictions and lifting them for Europe and not for the United States. And so I think we do need to continue to work in the short term on a trade deal that will take some of the pressure out of the relationship, because we’re going to be dealing with these technology competition issues for years and years to come. It is important that the United States and China try to rebuild this trading relationship. But in order to get to those fundamental issues that underly our disagreements, I don’t think we can do it alone.

BUSSEY: Yeah.

JACKSON: So a question becomes: What would make them pay attention, besides lowering tariffs? What strengths do we have? We’re innovative. We’re creative. We’re very strong in the bio area, in semiconductors. And that’s a relative strength. Where are they strong? They’ve really been investing in certain key technologies, in space technologies and communications, in artificial intelligence and high-performance computing. So if we don’t do work in a collaborative way to strengthen our own hand, what are we really negotiating with?

Secondly, you know, people go where the resources are. So you look at the thing—the undergirding things that drive a lot of the modern technologies that are critical not only for commerce but for defense and security, they’re things where we’ve ceded them. Whether you’re talking about rare earth minerals, or lithium, I could go on, cobalt. You could go on and on. And so that’s why I keep saying that there are larger strategic questions. And the irony is that even as China has locked up many of these things, what is one of the key focal points for them? The development of new materials. But to do that, what do you have to do? You have to have the talent, but you have to have computational capabilities and so on, and so on, and so on. So what are we doing in those areas? And so it’s not just a plea from universities—give us the money, give us the money. The real thing is strategic focus, and how does it link to the broader geopolitical strengths we have or don’t have?

SEGAL: Yeah. There’s one great example of the U.S. forcing the Chinese to back down. And you have to get all these things in place. And it was over the WAPI chip. So WAPI was a Chinese competitor to Wi-Fi. The Chinese said: If you’re going to be involved in the Chinese market, you have to partner with these sixteen companies. These sixteen companies were all tied to the Ministry of State Security and the Ministry of Public Security. U.S. technology companies did not want to do this, of course. And what happened was the Bush administration said: We’re going to take you to the WTO. And the Japanese and the Europeans both agreed. So we had an international coalition.

Most importantly, the tech companies didn’t defect. So all the tech companies said: We’re not getting involved. So the Chinese couldn’t peel anybody off. And eventually the Chinese said, all right, we’re going to drop that provision on WAPI. Now, of course, there are WAPI chips in iPhones when you go to China, but they did prevent them from undermining WI-FI as an international standard. And you have to get all those things in place.

BUSSEY: Yeah. Amy, I just wondered whether the—your description of kind of the work toward a resolution that is step back, lower the tariffs, take some pressure out of the system, circle the wagons of the allies, and then move forward—is it—is, from the Chines perspective, a huge victory for this recent phase. That is, playing rope-a-dope, delaying—essentially not getting anything done, countering with their own tariffs, being willing to buy off those agricultural producers that you’re representing now. That’s political pressure for the United States—buy some soybeans, buy some pigs. That that’s classic China strategy on dealing with the United States. Push it off into the future, agree to nothing now.

CELICO: I think the Chinese have a lot to lose too in the short term. So I wouldn’t put this all on—I mean, President Trump has been willing to continue to raise tariffs. And so I think if you ask many stakeholders in China they frankly don’t know what is going to happen. And that level of uncertainty is keeping the Chinese committed to finding a way forward even if, as I myself believe, it will be a short-term deal that is focused on some purchases, some tariffs coming off, and some agreements in principal on things like currency, intellectual property, some market access, liberalization. You’re right, that doesn’t solve the problems we set out to solve through this—through the tariffs. However, I think we’re looking at a—let’s be realistic. It’s 2020. I don’t think that’s going to be an easy year for us to be diving in more deeply with our allies on China policy.

BUSSEY: And China knows that.

CELICO: And so—China knows that. in the meantime, their economy is slowing much more rapidly than they had anticipated. And so, again, that’s keeping them at the negotiating table. In May, maybe they overplayed their hand, thinking that they could get the U.S. to agree to more. And then they met with a lot of pain instead. And so I don’t think the Chinese are complacent in where they sit in Beijing with these trade negotiations. But, yes, it’s going to take time for us to get a coalition together to more effectively pressure China. And so in the short term, I do think, for China’s sake, for the U.S. sake, they want to take some of these tariffs down and then deal with those more structural concerns later.

JACKSON: But is it about tariffs that affect soybeans, or is it about what happens with companies like Huawei?

CELICO: Well, on the Huawei issue I think, you know, obviously President Xi very much hopes that President Trump lives up to including that in the trade deal. But I think that that’s not likely to happen because of these broader concerns over technology competition. A trade deal isn’t going to resolve those concerns. It’s not going to stop the U.S. government from continuing to expand the use of export controls, investment restrictions on Chinese technology for national security reasons. And so this fight isn’t going to end when the trade war stops.

BUSSEY: Yeah. Let’s go to questions from the members here. But before we do that, Adam, I just want to ask for one more reality check from you. There’s so much concern about China stealing the march on the U.S. in 5G, Huawei a great example of that. But also, a range of other industries and technologies. Is it overstated? Where are they outpacing the U.S., and where are they not?

SEGAL: You know, there are clearly pockets of excellence where the Chinese are closing the gap or are equal. And so I think broadly in AI, we see in facial recognition and voice recognition. The Chinese are as competitive, if not more competitive, than the U.S. companies. Overall in AI, I would suspect the U.S. is still—is the leader. You know, most of the basic—important basic research is happening in the United States. And more importantly, the chips are all here, and the Chinese are reliant on us for that. Clearly, I think, in biotech the United States still leads. The Chinese are working very hard to close the gap there. There was a big push on nanotech, nanomaterials, new materials. The Chinese were making depth there.

So I think the difference is that, you know, when we had this debate ten years ago with the—when the Gathering Storm Report came out, and we kind of lumped China and India together. And India clearly is nowhere near where China is. But the threat from China still seemed pretty far off. There was still some significant weaknesses. And I think here now the U.S. is still the most innovative economy in the world, but the Chinese are closing the gap quickly. And we will be surprised.

BUSSEY: All right. So with that, let’s go to questions. And just a reminder, this is all on the record. If you could just wait for the microphone to get to you, state your name. And just one question, please, so that we can get to as many people as possible. Let’s start right here.

Q: Niso Abauf of Pace University.

You seem to have ignored the elephant in the room, which is the geopolitical competition, otherwise known as the Thucydides trap. Would you care to comment on that? After all, the technology competition is a subset of that competition.

JACKSON: What trap?

BUSSEY: Thucydides trap, the—which you well know—the rise of—you can’t have both Athens and Sparta at the same time. They’re going to pick a fight for dominance. Who wants to take that on?

SEGAL: Yeah. I mean, I think the main reason why the technology issue has moved so clearly to the top of the U.S. agenda, where it has always been a mild irritant, is because of much of this geopolitical competition, right? If the United States and China, for example, had come to an understanding about rules of the road for the South China Sea, then we would be much less concerned about hypersonics and other types of weapons systems that are being used to push the United States military further into the Western Pacific. So tech issues have been around for a long time, right? In 2006, the Chinese announced their intention for indigenous innovation. You know, it was hard to get attention about that at the time. But the fact is that because the geopolitical situation and the risk perception between the two sides has gone up so much, I think the tech issue has now been pushed to the top of the agenda.

BUSSEY: Is it misperception? Why do you say misperception?

SEGAL: No, I mean—sorry. I meant, well, skepticism about each other’s interest. Skepticism about their long-term goals. And distrust of their other strategies.

JACKSON: Why do we not—if you think about the Thucydides trap—look more broadly at the—again, the geopolitical scene? You look at the Belt and Road Initiative, which some people, you know, kind of poo-poo. But you have China building the overland route to Europe through Iran. You have them building a maritime infrastructure, even financing projects which sometimes gets certain countries into trouble. But then they’re building a concomitant digital infrastructure. And it’s going into Europe, the Middle East, Asia, and Africa. And it links to things like what they’re doing in the South China Sea, with the economic and the military and cooperation being linked.

We need to pay attention to that. Years ago I was on the board of an energy company—in fact, an oil and gas company—and went into EG. And when I say years ago I mean, like, twelve years ago. And what did we see? China building infrastructure in sub-Saharan Africa to ensure their access to, at least at that time, that energy supply. And so these things of what they’ve chosen to focus on—and they’re larger in the technology arena and their larger geopolitical intent—these are not delinked. And so ironically, as a university, we pay a lot of attention to that because that tell us, you know, what things are important. And not just for them, but for us.

BUSSEY: Yeah. The question is, you know, where’s our Belt and Road Initiative?

Yes, right here, please.

Q: Jeff Shafer.

You hear from usually people a bit away from the issue, a lot of talk about technological decoupling. People close to it tend to dismiss it a bit. But if you look at all of the divisions of interests—the geopolitical interest, the national defense technology interest, the cybersecurity interest, the corporate competition interests, the worker competition interests, and all of these—aren’t they likely to drive us at least some way down the road to creating decoupled technology systems? And what’s that likely to look like?

CELICO: I think that there’s inevitably going to be some decoupling because of the national security implications. And I think probably some of the fair criticism that we didn’t start regulating this early enough, and so China maybe got a leg up on some things where we could have protected ourselves a bit better. So I don’t believe that decoupling of the two economies is feasible or advisable. However, I do see both Beijing and Washington taking steps that will limit some technology integration. And, again, I think the business community really does need to drive where this is going to be good for our economies and where they have to accept some restrictions to it.

JACKSON: Well, let’s look at 5G. One of the reasons we are as paranoid as we are about Huawei is this whole issue of who’s been investing in 5G and who’s going to control it. And to the extent that China ties it into their broader, let’s call it digital silk road, that gives them a geopolitical position in terms of who controls how the internet is governed. And so it’s not exactly a technology decoupling, but it’s a technology-linked geopolitical decoupling.

BUSSEY: Standards—and the standards.

JACKSON: To the standards. And they want to govern that.

BUSSEY: Yeah. Adam, how would you answer this question about decoupling? Is it feasible?

SEGAL: No, I mean, I agree with Amy, I don’t think it’s—there’s not a decoupling of the economies. There’s going to be decoupling, or reduction of vulnerability, or exposure in some sectors. You know, I think, again, the Huawei example’s a great one, but the DOD clearly wants some supply chains to be located in the United States. And what those supply chains are will hopefully emerge in kind of a discussion with the private sector about a realistic discussion about what the supply chains look like. Can you do that? Can you move them? What are the costs going to be? I think one of the interesting issues is going to be on data, right? On big data, and how are we going to bifurcate on that, because we’re seeing that happening. You know, clearly any large pools of data that deal with U.S. citizens’ health or private information, that is becoming increasingly sensitive. And it looks like we don’t want Chinese companies to hold onto that. So we will probably have some decoupling on that side as well. But then after that, you know, I think it’s going to be on hopefully rather narrow national security concerns.

BUSSEY: Such as?

SEGAL: Well, I just gave two.

BUSSEY: Chips?

SEGAL: Well, chips is an obvious one, but a very hard one to do, since it’s such a global supply chain. And, importantly, how much the Chinese market drives revenue from the chip producers, who then, you know, funnel it back into R&D.

JACKSON: But you can’t really control big data if you can’t control the communication networks and standards.

BUSSEY: Right. Right.

Yes, right here.

Q: Thanks. Scott Moore from the University of Pennsylvania.

I wanted to pick up on something that Dr. Jackson touched on, which is the kind of human capital or people piece of this. And it kind of stems from thinking about initiatives like Thousand Talents and other kind of human capital retention and attraction programs that China has invested in. From your different perspectives, how concerned are you about this kind of talent competitiveness aspect? And to the extent that you are concerned, what should we do about it in terms of the policy response? Thanks.

JACKSON: Well, let me speak—because I’m from the university I’ll start there, but I’m sure they have lots to say.

I think there are two elements to the concern vis-à-vis human talent. One is for the U.S. to remain the attractor from the best talent from around the world, and then to be able to hold onto that talent. So you’ve heard university presidents talk about stapling the green card to the Ph.D. diploma. And we’re already beginning to see some effects of—you know, so softening. And it’s happening. It varies depending upon the university, and so forth. So that’s one strand of it that I think all of us are concerned about. And in the short term, if there’s a major drop it would have delirious effect on the research programs of most major research universities.

The second element of human talent is talent who are—the talent that’s here, and how that plays against the Thousand Talents program, and how the Thousand Talents program structures its relationship with faculty who are at our—potentially at our universities, and what it may require them to do in terms of transfer of intellectual property, et cetera, et cetera. And we’ve had some, you know, big splash media examples of things that have occurred. So I do think what it is causing universities to do is to look again at their various policies about how intellectual property is handled, how it’s managed, how it’s discovered, and what kind of reporting requirements there should be, how they should be strengthened. Because we all have reporting requirements today. But then how can they be monitored? And I think that’s the real key.

And then some of us—some universities get visits from the federal government about our faculty and our students. And universities are not going to spy on their faculty and students. But sometimes they may get subpoenas. And so these make things—makes for a fraught environment. But I think universities are saying: Let’s let the government know what we’re doing, and let’s strengthen what we’re doing on the one hand, so that it’s not that we’re just the leaky sieves that people think we are. But at the same time, let’s try to preserve the values that have made, you know, our scientific and engineering enterprise as great as it is. But there are certain sorts of things that have occurred that then cause a tightening.

But I was a regulator. So what you don’t want is for the regulator to catch you. You want to be ahead of the regulator. And so universities at the AAU and the Association of Public and Land-Grant Universities have put together a list of not just principles but steps that universities can take along some of the lines I’m talking about, including doing a better job of educating our own faculty and researchers about what some of the concerns and issues are.

CELICO: I think the one thing I’ll add to that is, of course, the reason why intellectual property issues continue to be at the forefront of our trade discussions is China needs to strengthen trade secrets enforcement in China because, of course, human capital is so—is so important to the development of all of these technology industries. And it should be able to flow to different places. But what we saw a year ago now, the U.S. government putting export control restrictions in place against Fujian Jinhua because of allegations that its personnel stole Micron’s intellectual property—I don’t want to see a regulator, you know, restrict sales to a Chinese company in that way. But I sure want there to be recourse for Micron, so that it doesn’t—the U.S. government doesn’t use that tool. So we definitely need to see the Chinese doing more on the protection side.

BUSSEY: I see a question back here in the middle.

Q: Steve Hellman, Mobility Impact Partners.

Quick question, do you see a Sputnik moment here in some fashion with respect to China that would galvanize public interest? Because a lot of these things—we talk about these things, and then nothing happens. But obviously Sputnik was the moment that seemed to drive the American government to take some really serious action in the Cold War. Or does the political environment with China just not lend itself to that? And then, secondarily, do you think—most of you have talked about collaboration among the OECD countries to put pressure on China. We seem to be—I don’t want to make a political comment—but we seem to be moving in kind of the opposite direction, and being—kind of taking individual action, bilateral action, instead. Is that something—are you seeing a drift in current policy towards collaborative action with respect to China? Or is that just no longer even possible given the current policy framework, and would require some sort of change in administration?

JACKSON: Well, I’ll speak to the Sputnik piece. I mean, what—because I’m a child of that era, in some ways. That’s because our whole competition with Russia or the Soviet Union was crystalized around the race in space. And it was put in a succinct way that focused the public’s attention. But undergirding it—and I think this is what relates to today—was a focus and a decision by the federal government to invest in key areas of research and in human capital development. There was a huge set of programs to encourage U.S. citizens to go into science, and engineering, and math, and supported them in doing so. And what we’ve seen here is more of a falloff in support.

Secondly, and this is something I talk about a lot, are we really focused as we should be on developing our full domestic talent pool? If you have women and you have underrepresented groups that comprise today nearly 70 percent of our population, and we have these discussions in the absence of talking at all about developing the best of that human capital, then what are we really saying? And so I’ve always called this acquired crisis, where we’ve always been the attractor, and must remain so, for talent from abroad. But then it goes against a background where we don’t develop our own full pool. And the proportion of women—we talk about artificial intelligence and this and that. And our own percentage of women getting just bachelor’s degrees in computer science has actually dropped over the last ten years. It used to be about 27 percent. Today it’s about 19 (percent). And if you look at women’s percentage of degrees in engineering, it’s about 21 percent. In physics, my field, it’s 20 percent. And then it’s concomitantly that much worse if you talk about various minorities. And so I know it sounds like it’s hard to have the complete conversation, but we better have it if we really want to address these issues more broadly.

SEGAL: So when we did the rollout of the CFR task force last month, Admiral McRaven, one of the co-chairs, called this our holy shit moment. So of course, getting Admiral McRaven to say “shit” managed to get us some coverage, some headlines. (Laughter.) But the next two days we did briefing on the Hill. And what I heard was not particularly reassuring. So the people that we interacted with, from House Intelligence, Senate Intelligence, House Foreign Affairs, Senate Foreign Affairs, House Armed, Service Armed, they all get it. They all say, yes, of course, this is our priority. Tell us what your recommendations are. We’re thinking about the same things.

But once you talk to the staffers from other members, they said this is—this is not their priority, right? This is not high on their list. They can’t convince their members that this is a priority. Even when you try to frame it not as competition with China. You say this is about economic security, or economic growth. They just have a very difficult time putting that anywhere in the—in the top five, right? So—and basically they tell us: Don’t tell us to spend more money. You know, we know we’re supposed to spend more money, but we don’t want to hear it. So the problem is that the policy recommendations, which I think are the right recommendations, have no—other than this small constituency, I don’t think have a very broad support within members, and unfortunately, the American people more broadly.

On the OECD side, I think we have to separate kind of what the president might say, and what lots of people in the White House, and DOD, and State are doing. And they are, of course, still trying multilateral. You know, the Indo-Pacific community, others are all trying hard. But there is clearly at the top not a lot of signaling going on that that’s the direction of what U.S. policy should be. But I do think there are things happening, and we shouldn’t ignore them. They’re just probably not getting enough support.

BUSSEY: Yes, right over here.

Q: My name is Charles Frank.

And I wonder if Dr. Jackson could let us know, what specifically should universities be doing in order to assuage government concerns about national security?

JACKSON: Well, I think most of us are doing a number of things and are then tightening those things. As I said, educating and communicating with our faculty more strongly about intellectual property and its protection, and about things like confidential but unclassified information, about export controls, and all of those kinds of things. Secondly, looking at how we vet and bring in visitors. And, you know, being careful about if there’s specific restrictions what they work on. Third has to do with listening to government concerns. I mean, I think a hostility to that is not the way to go. But as I said, to get ahead, by strengthening our own reporting and monitoring. And universities are doing that. But at the same time, articulating that, you know, really the best research does not occur in a vacuum. And then I think at least some universities are beginning to get even more interested in how it broadens the diversity of its talent pool. But that diversity means both on an international basis as well as a domestic basis.

BUSSEY: But this is a tricky zone, because there’s a bit of a built-in conflict.

JACKSON: Yes.

BUSSEY: Universities are increasingly dependent upon the revenue stream that international students bring to those universities, as well as the talent that comes in. You know, should—

JACKSON: Well, there’s a bifurcation. On the undergraduate side, it is a revenue stream. On the graduate side, basically the U.S. government pays for graduate students and/or sponsored research that may come out of partnerships with industry.

BUSSEY: Should there be somebody vetting students that are coming to your university in a cubicle down in Washington?

JACKSON: Well, they shouldn’t be in the cubicle in Washington. It should be in the cubicle in the university. (Laughs.)

BUSSEY: A regulator?

JACKSON: I’ve said, it happens to get ahead of the regulator. You do it yourself.

BUSSEY: So you’re not in favor of the regulator?

SEGAL: I think part of—look, part of the problem has been messaging, and not great messaging.

JACKSON: That’s right.

SEGAL: I’ve just coincidentally—this is weird—yesterday I was reading actually the FBI’s documents to universities about the threat from China. And the rhetoric in there isn’t actually terrible. They constantly say: We realize that the openness of the universities is our great strength. We realize that these students are important for revenue streams. We—

JACKSON: Forty-two billion dollars.

SEGAL: We don’t—we don’t want to get in the way of this, right?

JACKSON: Right.

SEGAL: So that rhetoric is pretty good. But then when the—when the FBI director talks about, you know, this is whole of society threat from China, then the—I think the natural default is, well, all Chinese students are a threat, which, you know—

JACKSON: So when you say the rhetoric is not good, whose rhetoric?

SEGAL: The FBI—

JACKSON: Oh, OK.

SEGAL: —I think is sending two signals. Like, if they had led with what they wrote, as opposed to it’s a whole of society threat, then the whole of society threat, you know, makes it sound like it’s all Chinese. It plays to the things that the party is saying, which is that the U.S. is unfriendly and that the party is the only one that can, you know, stand up for Chinese students and Chinese citizens. So you know, I think there’s some messaging that needs to get better, because that document itself does recognize the role that universities play.

BUSSEY: Yes, I think right here was next. Maybe behind—no, you go right ahead. Go right ahead. (Laughs.)

Q: Ken Morris (sp), best identified as a classmate of Shirley’s at MIT’s. (Laughter.) Good to see you again.

Shirley, you said that the Chinese are using capital in the Belt and Road as part of a geopolitical—and we are having this conversation where we are all considering China as a determined adversary. And then Amy says we can’t go it alone. So we have to involve our European allies. And yet, they’re selling ports, and access to ports in response to a capital drive by China. So can we count on the Europeans to be part of the competition with a determined adversary or not?

CELICO: Well, I think the European Commission has identified many of the problems that we are talking about on this stage, and others are talking about, about China manipulating the global trading system in a way that is bad for Europe. And so, as you know, Brussels didn’t have anything to do with Italy joining the Belt and Road Initiative, or other European countries. But your point is a good one. We need to offer an alternative and not just say, hey, don’t do that. I think we tried that with Huawei, to limited success. And so I do think on these issues of global competition, we have to step back for a moment and sort of look at where China is and where we are. I don’t think we’ve decided China is our adversary. I think very few people in the U.S. government even are saying China is our adversary. They are certainly saying they’re our competitor and could become an adversary.

But China four years ago, for example, I think their strategic goals were quite proactive and, I think, concerned many people that they were being so aggressive. I think if you look at some of those goals, including the Belt and Road Initiative today, you’re seeing a slimming of that initiative. You’re seeing China being more reactive rather than assertive on its own on a lot of its strategic interests. And so what I’m trying to say is the competition between our two countries and our systems isn’t set yet. It is going to continue to evolve based on our actions. And so there is still time for the United States to work more effectively with other partners to try to move some of China’s more worrisome behavior. But at the same time, like you’re suggesting, China’s trying to build those relationships. And whether they make progress finalizing an investment agreement with the European Union by the end of this year or in 2020 will be quite telling of how reliable Europe will be as a partner to us.

BUSSEY: I think we have time for one more question. I see one back here. Right there, yeah.

Q: Ron Tiersky from Amherst College. I’m a political scientist.

So this will be a little bit different. When we—I’m a Europeanist. When we talk about the Europeans, you know, who are the Europeans? You have to think about it in those terms. When you’re talking about the Chinese, who are the Chinese? How do you think about the political structure of China? To use old language, is the Chinese leadership a monolith or do you see some internal differences? How do you think about it? Who are the Chinese?

BUSSEY: Adam, why don’t you start with that one?

SEGAL: Yeah.

BUSSEY: Is it the party? Is it the PLA? Is it—is it Jack Ma?

SEGAL: So I think that’s a great point, because one of the things that I’ve noticed in the—so part of the problem is, right, we decided that U.S. strategy of engagement was a mess, we shouldn’t have done it. And that kind of also meant that the view of domestic politics in China dropped out, right, because part of the reason we engaged with China was to strengthen certain parties or at last undercut or try to undermine certain arguments of hardliners or soft-liners. And now that all seems to have dropped out. And this was true in the tech sector, right? In 2006 when this indigenous innovation plan came out, the plan was really two—it was two-sided. There was—the first half was all, yes, we need top-down, state-led innovation. And the bottom half was all, no, no, we need to create these systems of—ecosystems of innovation. We need to protect IPR. We need to further globalize. So there were clearly two voices. And there was kind of a battle going on in Chinese tech strategy.

That second voice has clearly lost the battle, at least it seems, in the short term. Occasionally we see a pip of that voice comes up. You know, Ren Zhengfei, the head of Huawei, you know at one point said: I don’t think indigenous innovation is a good idea. I’m not going to take him as my only source, but I’ll take it where I can get it right now. (Laughter.) But occasionally, you will see these voices. But I think it is clear that Xi Jinping has consolidated power in ways that—in faster ways than we expected. It’s very hard to identify opposition now at least publicly. It must exist. And so it’s very hard to think about how our policies interact with the Chinese domestic politics. But it’s clearly there. And I don’t have a particularly good model of it right now.

JACKSON: The Thousand Talents program is a national program. And you know, it focuses on the sea turtles and the sea gulls, right? The sea turtles being those who are attracted back home, who are very senior. They’re given very attractive things—raising the retirement age, and they’re expected to set up labs and different things, and bring resources, and people, and knowledge with them. And then the sea gulls are the ones that I think our U.S. government are the most worried about. They actually are established, but they’re still active. They go back and forth. But that’s a national program. But it turns out that the regions, the more local areas, in fact have their own versions of this kind of thing, and linking and trying to link with U.S. universities, investing in companies, attracting partners. And so when you talk about the two Chinas, there’s the two minds that Adam talked about. But they’re actually two Chinas in terms of the national strategy and how it links to or not the regional and more local strategies. And so it’s subtle.

The final piece has to do with the fact of what’s happening in the greater Asia ASEAN region, and the linkage between ASEAN and China itself. And so there are lots of things going on. And then some of my friends who are European businessmen tell me that because of our focus with less collaboration of the broad basis, you know, each country looks out for itself. So people will organize around this. And they’re going to trade with whom they feel they must trade or wish to trade. And so all of those things go on at any given time. And the question is whether the kinds of things that we think should be those strategies, how much trade agreements will alter those behaviors. And she’s the expert. I’m not.

CELICO: (Laughs.) Well, I’ll just respond to the who is China question, and just say, you know, the party—the Communist Party just finished its plenum—long-awaited plenum meeting. And one of the main takeaways was the party must enhance its role over every aspect of society. And so while I completely agree with Adam, that Xi Jinping has consolidated power in a—in a very surprising way, to many of us, from the outside—how quickly he’s done it. He clearly thinks he needs to do a better job, so that the party really is speaking for all of society on issues. And I don’t think China is there yet.

BUSSEY: And we’ll have to leave it there. Amy, Shirley, Adam, thank you so much. (Applause.) Thank you for your good questions.

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