Arthur Kroeber: recommendation

Transcript context

…Let’s go back to this discussion about what should be the grand bargain between the rest of the world and China. I live in Silicon Valley and as you know, a big topic of conversation is AI. In particular the race between China and the US on AI. One idea I've heard is that what we should do is give them free rein on solar, electric vehicles, batteries—all this other real world heavy manufacturing that they seem to have greater proclivity for anyways. They consider it more real. On AI and semiconductors, we’ll dominate that. Everything else we'll import. Is this a plausible deal worth making? Because if you take AI very seriously, this might be an amazing bargain. You can say what you want in your ideal state of things, but how do you get there? There are a lot of people in China who'd say, “No, we want it all and we can. So why should we make that deal with you?” If I basically take this down to the level on which the United States and China are now starting to negotiate, my personal view on this is that it would make a lot of sense for the US to be much more open to direct investment by Chinese companies in manufacturing in the United States. I'm thinking particularly of things like electric vehicles and that whole supply chain, green energy, industrial automation, all of those things. Why do I think that? First of all, if the US is serious about revitalizing its industrial base—and I think there's a good case for trying to do that selectively—it is not going to happen unless you invite in the world's leading players and have them compete. That is how China industrialized. 45 years ago, they were an industrial basket case. They said, “We want to get industrially strong. How do you do that? Get all the leading companies in the world to invest here and we'll learn from them.” That's how you do it. If we're serious about that, we should be serious about figuring out ways that we can bring Chinese industrial investment into the United States. That to me would be a win-win, because Chinese companies at an individual level would love that. They see the US is a huge market. They can't get into it right now. They would love the opportunity to tap into it more. We could learn from them. And if you did that, basically you would be saying that whatever we're in with China, it's not a cold war, because we are willing to have high levels of direct investment by both sides. You might want to put protections around that, all kinds of rules of the road. But in an ideal world, we would have a lot more of that. The first question is, why is that so difficult? Why do you essentially have a consensus in Washington that not only do we have to prevent the export of US technology goods to China, but we also have to prevent Chinese companies from investing in the US? This is basically agreed on in Washington. The reason is data. Fundamentally, there is a view that any manufacturing process today is also a data creation machine. Where does that data go and who benefits from that data? The other thing is that, back 30 or 40 years ago, you used to be able to divide the world into technologies which were essentially for civilian use, a few technologies that were military, and then a very small proportion of dual-use technologies that could go either way. It was those dual-use technologies that had to be controlled very carefully. Now basically everything is dual use. Any technology that you can imagine can be put to some kind of military use. her way. It was those dual-use technologies that had to be controlled very carefully. Now basically everything is dual use. Any technology that you can imagine can be put to some kind of military use. So it becomes much more risky to have these patterns of investment, particularly when you don't know where the data is flowing and how that will feed into someone else's defense production base. That is a legitimate concern. In my ideal world, you would have a lot more Chinese investment in the United States, but it would be very carefully regulated in the same way that China very carefully regulates the direct investments by foreign companies in its economy. They have rules about data localization, etc. I think that could be achieved. I think it will be very difficult in the current political environment. In terms of the grand bargain that you suggest, China is very interested in not being pigeonholed. They didn't want to be pigeonholed in low value-added manufacturing. They wanted to do the high tech stuff, now they're doing that. They don't want to be pigeonholed in manufacturing. They want all of technology, including AI. I don't think that any strategy premised on the idea that China should accept arbitrary limits on what it can do is viable. Would we accept that? Absolutely not. So why should we expect them to accept something that we would consider an absurd and completely unreasonable infringement on our sovereignty? It just doesn't work that way.…

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