The Rule of Law in the U.S.-China Tech War

Abstract

U.S. policy is increasingly being influenced by suspicion of links between Chinese companies and the Chinese party-state and military. Competition over the technological future between the world’s two largest economies has produced a legal thicket of statutes, regulations, and executive orders in areas including foreign investment, data storage and privacy, and access to the U.S. capital markets. These regimes were created or bolstered due to legitimate concerns about the geo-economic impact of transactions that implicate control over advanced technology and data. Yet regulatory uncertainty engendered by the legal landscape has greatly complicated many aspects of the prosaic but fundamental work of producing innovative companies and technologies: cross-border investment and data flow, mergers and acquisitions, and talent recruitment.

In this chapter, we approach the big policy issues in the U.S.-China tech war from the ground up, by exploring how the legal regimes recently developed in both countries to wage the tech war and operationalize technological decoupling affect cross-border deal making and domestic innovation. We fear that ironically, the rule of law necessary to maintain continued vibrancy in U.S. high-tech sectors is being compromised by some of the very actions ostensibly taken to protect these sectors from malign foreign influence. We conclude by offering some concrete policy suggestions to improve the transparency and effectiveness of national security and data protection regimes in the U.S. while advancing a second crucial objective – maintaining a regulatory environment conducive to technological innovation.

Keywords: Technology, National Security, Rule of Law

JEL Classification: F21, F52, O38, P50