The United States is widely acknowledged to be in a period of profound political polarization. Virtually every facet of domestic policy is a source of friction between the major parties.
However, on matters of national security, something approaching a national consensus still exists. Both parties favor robust military spending, suppression of Islamic terrorists, strengthening NATO and countering China’s moves to displace America as the dominant global power.
Despite bipartisan support, though, Washington’s efforts to contain a rising China are not going well. One reason is that China’s power, unlike Russia’s, is grounded in robust economic performance.
China’s growth rate has routinely surpassed that of other industrialized countries for decades, and it now commands more manufacturing capacity than the U.S., Germany and Japan combined.
For instance, China out-produces the U.S. in steel by as much as ten-to-one in some years, and was well on its way to wiping out the domestic aluminum smelting industry before the Trump administration imposed tariffs on state-subsidized Chinese exports.
China has proven adept at dominating new industries widely deemed critical to the future global economy, from lithium-ion batteries to solar panels to wind turbines.
The United States still dominates in some sectors such as aerospace, but the overall impression, confirmed by numerous public and private assessments, is that America is losing ground.
Beijing is leveraging its dynamic economy to become a much bigger military player than it was in the past, particularly in its immediate neighborhood, but the core of the challenge remains economic and technological in character.
If Washington cannot prevail on that playing field, then no amount of military expenditure will prevent it from falling behind China in the race for global influence.
Against that backdrop, the rising tide of regulation aimed at U.S. tech companies is at best a mixed blessing, and potentially a hindrance to staying on top.
I am referring mainly to the biggest tech companies—Amazon
It is not necessary to resolve the debate over what constitutes monopolistic behavior in the digital era to recognize that these five companies have an outsized impact on America’s ability to keep ahead of China.
The Boston Consulting Group issues an annual ranking of the world’s most innovative companies, and the most recent lists the top four innovators as (1) Apple, (2) Alphabet, (3) Amazon, and (4) Microsoft. Meta, the parent company of Facebook, is somewhat further down the list, but still rates as one of the top-twenty innovators worldwide.
This matters to national security because every informed observer agrees that the key to competing globally is the pace at which a nation innovates. Innovation in this case doesn’t just mean being inventive, it means bringing new products to the market and shaping the content of demand. All of the companies in the Boston Consulting Group’s compendium of innovators are accomplished at doing this.
Consider Alphabet, the parent company of Google
And that is just the tip of the Google iceberg. The Nature Index rates it as one of the top five generators of scientific papers in the life sciences, when measured in terms of the impact its research creates. Google’s impact on innovation, both at home and abroad, is huge.
This is not the first time in American history that private industry has been crucial to national security. During the Second World War Raytheon played a pivotal role in supplying game-changing radar to the Allied powers. A generation later, AT&T Bell Labs was chosen to oversee the national missile-defense system because of its unique ability to manage large technology projects.
What makes the role of innovation in national security different today is that most of the technologies the Pentagon considers top-priority for the future are primarily commercial in nature.
Among the most important technologies are microelectronics, 5G communications, biotechnology, digital networking, quantum computing and artificial intelligence.
These are all areas in which Big Tech companies like Google are deeply engaged. Indeed, it is their very size that enables the scale of innovation in which they engage. Smaller enterprises can’t afford the depth of effort or the degree of risk that such companies frequently assume.
This is of no great concern to the European Parliament, which on Tuesday passed legislation to rein in the biggest tech players, because Europe is a laggard in the digital arena. None of its digital enterprises begins to approach the scale of an Amazon or Meta.
However, it matters a lot to the United States, where most of the world’s leading online enterprises are headquartered. If Europe’s digital regulations become a “roadmap” for U.S. rules, as the Wall Street Journal suggests may happen, that would hobble the most powerful sources of innovation in the American economy.
Although U.S. lawmakers have been contemplating a raft of legislative initiatives to rein in, constrain or break up the biggest U.S. tech companies, there is little evidence such laws would accomplish much more than increase cost and confusion for consumers. After all, it is common practice for the companies in question to offer their services for free, or at least at the lowest price possible.
The downside, obviously, is that tighter regulation could diminish the ability of the nation’s leading innovators to keep innovating at their current pace. The fallout wouldn’t be confined just to the top half-dozen companies: it would ripple across the entire digital sphere, an arena in which the majority of startup innovators hope eventually to be acquired by one of the big players.
There are valid reasons for regulating Big Tech, ranging from the protection of privacy to barring illegal content to preventing anti-competitive behavior.
However, without a rigorous assessment of how reining in Big Tech might impact the overall performance of the tech sector, it is an open question who would benefit more from new U.S. regulations—consumers, competitors, or China.
At the very least, any new U.S. regulations should be treating the likes of TikTok and Alibaba the same way Washington treats its own innovators, otherwise we may simply be helping Beijing in its quest for global dominance.
Some of the companies mentioned above have been occasional contributors to my think tank.