CHINAMacroReporter

China, Ai, & the Coming U.S. Industrial Policy

‘The government will have to orchestrate policies to promote innovation; protect industries and sectors critical to national security; recruit and train talent; incentivize domestic research, development, and production across a range of technologies deemed essential for national security and economic prosperity; and marshal coalitions of allies and partners to support democratic norms.'
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The National Security Commission on Artificial Intelligence

March 11, 2021
China, Ai, & the Coming U.S. Industrial Policy
Chart from the 'Final Report' by the National Security Commission on Artificial Intelligence

I have followed China's efforts to take the lead in artificial intelligence since Li Kejiang announced the 'Made in China 2025' plan in 2015.

  • What I haven't paid much attention to is AI in the U.S.

That changed a couple of weeks ago when I read the 756-page 'Final Report' of the National Security Commission on Artificial Intelligence, an organization created by Congress and chaired by former Google CEO, Eric Smidt. The Report concluded:

  • ‘China possesses the might, talent, and ambition to surpass the United States as the world’s leader in AI in the next decade if current trends do not change.’
  • ‘If the United States does not act, it will likely lose its leadership position in AI to China in the next decade and become more vulnerable to a spectrum of AI-enabled threats from a host of state and non-state actors.’

And what actions should the U.S. take?

  • ‘The government will have to orchestrate policies to promote innovation; protect industries and sectors critical to national security; recruit and train talent; incentivize domestic research, development, and production across a range of technologies deemed essential for national security and economic prosperity; and marshal coalitions of allies and partners to support democratic norms.'
  • ‘The Commission is not calling for a state-directed economy, a five-year plan, or China-style “military-civil fusion.” '
  • ‘But this is not a time for abstract criticism of industrial policy or fears of deficit spending to stand in the way of progress.'

That last point was the only part of the Report that was outdated.

  • Rather than criticize industrial policy, leaders from both the Democrats and the Republicans are embracing it.
  • And goodness knows neither side fears deficit spending.

Then there are semiconductors. Even before the current shortage of semiconductors, former President Trump raised the alarm about vulnerabilities in the U.S. supply chain.

  • Now the Biden administration and Congress are continuing efforts to secure that supply chain.
  • The proposed solution here, as with AI, is a U.S. industrial policy for semiconductors.

In its efforts to counter China and its industrial policy, the Biden administration, with bipartisan support, is itself inching toward adopting industrial policies to meet specific challenges.

  • Not only will this have an impact on the targeted sectors, it will also represent a return to how the U.S. addressed such challenges in the past.

As now National Security Advisor, Jake Sullivan, wrote a year ago:

  • 'Looking to U.S. history, from the early years of the republic to the era following World War II, shifts in grand strategy have from time to time necessitated a change in economic philosophy—from mercantilism to laissez-faire absolutism to Keynesianism to neoliberalism—and national security arguments have proved critical to securing that change.'
  • 'The same is true today as the United States enters a new era of great-power competition with China and grapples with powerful forces like inequality, technology, and climate change.'
  • [More on Mr. Sullivan's push for industrial policy below at #3]

Still, despite all the noise on the left and right, there is still no sign of an industrial policy for AI, semiconductors, or anything else.

  • But that is going to soon change.
  • Industrial policy American-style is coming.

Here are my report and commentary on these challenges and the arguments for an American-style industrial policy as the way to secure the U.S semiconductor supply chain and to compete with and win against China in AI.

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