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How antitrust policy can undermine US national security

To give credit, today’s title comes from my colleague Jim Lewis, who co-authored a CSIS report released on May 3: “Beyond Economics: How US Policies Can Undermine National Security Goals” This official document describes a number of US policy goals that appear to conflict with our national security goals, and makes six recommendations for reconciling our differences.

The article begins by explaining why technology, particularly critical and emerging technologies (CET), is essential to national security. Space does not permit repeating all this here, but just think about semiconductors and you will get the picture. Our defense infrastructure depends on information and communication technologies, and this will become even more so in the future.

As you might infer from the title of this column, the political issue presented is US antitrust policy. The debate over how best to regulate competition has been going on in one form or another for more than 50 years. It grows out of Joseph Schumpeter’s work on “creative destruction” – the idea that a natural and healthy part of competition is new, upstarts replacing old, shoddy, established companies. For some people this means that “big” is by definition bad, but for most it means focusing on market structure rather than impact on consumers as a test to see if an industry is not as competitive as it should be.

The problem with national security is that advocates of antitrust policies focused on market structure do not take time, context, and success into account. The theory of creative destruction assumes quite a long period of time. Although old, uncompetitive companies may disappear relatively quickly, young innovators do not suddenly take their place. It needs time. However, in the world of national security, where the United States faces an adversary that is doing everything in its power to overtake us in most sectors important to our security, there is no time to waste. Can the normal, long-term process of creative destruction ultimately result in more and better innovations? Perhaps, but the United States is not in a position where it can wait until the end if China manages to take market share and temporarily undermine our innovation capabilities.

The second issue is context. In the early 20th century, the breakup of Standard Oil led to the creation of many competitors to American oil companies. More recently, the breakup of AT&T initially led to the creation of eight competing US companies. Today, however, our technology companies, in addition to mutual competition, face aggressive foreign competition, many of them in China. This means that the actions restricting the activities of large American companies help their Chinese competitors more than their domestic competitors who are not yet ready for prime-time broadcasting. In short, hurting Apple helps Huawei.

The third issue is success. The idea of ​​creative destruction is that young and energetic newcomers will replace the old and tired troglodytes, but what happens when the old ones are neither tired nor troglodytes, or not that old? American technology companies are global leaders and first-class competitors in areas where there is no shortage of competition when considering foreign companies. How does weakening these companies enhance our national security?

Ignoring time, context, and success means the United States may well rein in American technology companies in the name of promoting competition, which will actually reduce companies’ global market share, innovation capabilities, and ability to enhance our security.

The white paper also examines the United States’ retreat from digital trade policies related to data flows, data localization and source code disclosure, which make it harder for our companies to compete internationally and will inevitably reduce their revenues and their ability to reinvest in the development of next-generation technologies. Worse yet, the retreat has not been toward clear new policy, but rather toward an extended period of navel-gazing that only prolongs uncertainty for U.S. companies of all sizes.

The white paper also raises a number of other issues, including slow permitting processes, the lack of an immigration policy that will provide more workers, export controls and restrictions on outward investment, and industrial policies that violate our multilateral commitments.

Finally, the article makes six recommendations:

  • Pass digital privacy laws and protect the U.S. competitive landscape from a national security perspective.
  • Incorporate national security issues into antitrust analysis.
  • Establish accelerated processes for creating CET-related facilities.
  • Continue to try to multilateralize economic security measures.
  • Pursue a more ambitious commercial agenda, including a digital component.
  • Ensure that industrial policy measures are consistent with U.S. multilateral obligations, including World Trade Organization rules.

Implementing these recommendations will not end the debate, nor should it. However, he could change the direction of the debate to include security considerations to a greater extent than previously considered, and that would be a good thing.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, DC