The Wrath of Khan: How Antitrust Policy Can Undermine U.S. National Security

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To give credit where it is due, today’s title comes from my colleague Jim Lewis, who is coauthor of a report CSIS released on May 3: “Beyond Economics: How U.S. Policies Can Undermine National Security Goals” This white paper describes a range of U.S. policies that appear to be at odds with our national security goals and makes six recommendations for reconciling the differences.

The paper begins with an explanation of why technology, particularly critical and emerging technologies (CET), is essential to national security. Space does not permit repeating all of that here, but just think semiconductors, and you’ll get the picture. Our defense infrastructure depends on information and communications technology, and that is only going to become truer in the future.

As you might infer from the title of this column, the featured policy problem is U.S. antitrust policy. The argument over how best to regulate competition has been going on in one form or another for well over 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, innovative upstarts replacing old, stodgy, established firms. For some people, that has come to mean big is, by definition, bad, but for most it means focusing on market structure rather than on consumer impact as the test of whether an industry is not as competitive as it ought to be.

The problem, as it relates to national security, is that advocates of antitrust policy focused on market structure fail to take into account time, context, and success. The theory of creative destruction posits a fairly long time period. While old, uncompetitive companies might fade away relatively quickly, young innovators do not suddenly take their place. That takes time. However, in the national security universe, where the United States faces an adversary doing its best to outcompete us in most of the sectors important to our security, there is no time to lose. Might the normal, lengthy process of creative destruction produce more or better innovation in the end? Possibly, but the United States is not in a situation where it can wait for the end if China is able to capture market share and undermine our innovation capabilities in the interim.

The second issue is context. Early in the twentieth century, breaking up Standard Oil led to multiple U.S. oil company competitors. More recently, breaking up AT&T led initially to eight competing U.S. companies. Today, however, our technology companies, in addition to competing with each other, face aggressive foreign competitors, many of them in China. That means actions to restrict large U.S. company activities help their Chinese competitors more than their not-yet-ready-for-prime-time domestic competitors. To put it simply, hurting Apple helps Huawei.

The third issue is success. The idea of creative destruction is that the young and vigorous upstarts will replace the old and tired troglodytes, but what happens when the old are neither tired nor troglodytes, or, for that matter, not that old? U.S. tech companies are world leaders and first-class competitors in areas that are not short of competition once you take foreign companies into account. How does weakening those companies enhance our national security?

Ignoring time, context, and success means the United States may well end up restraining U.S. tech companies in the name of promoting competition that in fact will reduce companies’ global market share, innovative capabilities, and ability to enhance our security.

The white paper also examines the United States’ retreat on digital trade policy related to data flows, data localization, and source code disclosure, which hinders our companies’ ability to compete internationally and will inevitably cut into their revenues and ability to reinvest those revenues in next-generation technology development. To make matters worse, the retreat has not been to a clear new policy but rather to an extended period of navel-gazing that only prolongs the uncertainty for U.S. companies of all sizes.

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

Finally, the paper contains six recommendations:

  • Pass legislation on digital privacy and protect the U.S. competition landscape from a national security perspective.
  • Build national security considerations into antitrust analysis.
  • Establish fast-track processes to set up CET-related facilities.
  • Continue trying to multilateralize economic security measures.
  • Pursue a more ambitious trade agenda, including a digital component.
  • Ensure industrial policy measures remain compliant with U.S. multilateral commitments, including World Trade Organization rules.

Implementing these recommendations will not end the debate, nor should it. But it might be able to reorient the debate to take security considerations into account to a greater extent than they have been considered so far, 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, D.C.