WASHINGTON—The COVID-19 pandemic has proved to be the most disruptive force of the year, and climate change is likely to produce some of the most sweeping societal disruptions of the 21st century—but in the mid-horizon, it is the rise of China that constitutes the most significant global business disruptor of the decade, according to a new report released today by the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.
The disruption stems from China’s unique position as the world’s largest market for many products, the leading supplier of many more, the toughest competitor, and the West’s chief geopolitical rival. Yet Western governments have yet to mount an appropriate response. Pointing the way forward, ITIF’s report proposes a strategic framework with 20 specific steps the United States and other allied governments should take to rebalance global supply chains, bolster their competitiveness, adjust to China’s market size, and solidify the appeal of the Western societal model.
“The United States and its Western allies must adopt a strategy for tackling the Chinese economic threat, because it is qualitatively different and far more potent than the challenges we have seen from other rivals in the past,” said David Moschella, a research fellow at the Leading Edge Forum (LEF), who co-authored the report with ITIF President Robert D. Atkinson. “China has done many things extremely well, such as investing in itself and leveraging Western business interests to lift an impoverished, even humiliated nation to global-superpower status in less than 50 years. But China’s strategy and methods have exposed vulnerabilities for the United States and its Western allies, so the great game of the 2020s will involve developing an effective strategic response.”
The report describes how the COVID-19 pandemic and recent controversial actions by the Chinese government have finally coalesced long-standing Western concerns about China, triggering preliminary debates about self-sufficiency, national security, product safety, trade deficits, business ethics, and human rights. Against this backdrop, American companies engage with China as a major market, supplier, and competitor, which creates a challenge unlike anything U.S. policymakers have confronted in modern history—two great rivals, deeply intertwined economically and culturally.
To succeed in the competition with China, ITIF’s report argues the United States and other Western governments must focus their efforts on four important areas, with five essential steps in each area:
- Rebalancing supply chains by requiring operational transparency, providing financial incentives to reduce American dependencies on Chinese firms, leveraging the power of consumers, pursuing greater domestic production in key areas, and using targeted tariffs and domestic content sparingly.
- Adjusting to China being the world’s largest economy by constantly pushing for expanding the market for U.S. products, leveraging the competitive advantage of the English language, pursuing advanced technology usage, revisiting reciprocity for technologies and market usage, and speaking collectively about American and Chinese market problems.
- Increasing U.S. and Western competitiveness by prioritizing technology leadership, attracting world-class talent, partnering with India, reducing cost advantages, and developing a value chain mindset.
- Ensure the West remains the world’s leading societal model by respecting what China has accomplished, being a world-class user, remaining a talent magnet, working with allies and buying time for competing against China.
“Chinese companies operating in the West and Western companies operating in China are both in for closer government and public scrutiny in the near term,” adds Atkinson. “Although tensions could defuse, U.S.-China relations increasingly look like a win-lose economic struggle that will test which nation is stronger and which is likely to prevail in specific areas. A new ‘great game’ is on, but who will play it best? The 2020s seem likely to be the decisive decade for answering this question.”