The Race to Consolidate Power and Stave Off Disaster
U.S. President Joe Biden has inherited from his predecessor, Donald Trump, a slew of flawed executive orders that sought either to ban or to limit the activities of Chinese technology firms in the United States. Trump attempted to ban the popular social media app TikTok in August 2020, and he tried to restrict the operations of companies such as WeChat, Alipay, and Huawei in U.S. markets. In the name of safeguarding national security, these measures would have created an American Cyber Grand Canyon to rival China’s Great Firewall, radically curbing the freedom of Americans to navigate the Internet and inhibiting competition in the technology sector.
The Biden administration now faces the tricky task of determining which Trump-era policies it should maintain, which it should retract, and how much political fallout it can risk in charting a course that allows Americans to access the technology of both nations. Washington must protect the supply chains that underlie information and communication services to secure sensitive data and systems from exploitation or sabotage—but it also must avoid limiting competition in ways that wind up hurting U.S. firms without strengthening national security.
Fortunately, Washington has more than just blunt instruments with which to address this problem. Trump’s problematic executive actions included an overly broad May 2019 executive order on supply chains in the technology sector; the U.S. Department of Commerce issued a vague rule in January 2021 to implement the order. Although the Trump administration hoped to impose the order to bludgeoning effect, the Biden administration can now use it to push China policy in a more considered direction. A Biden Commerce Department can tailor this rulemaking process to allow the administration to assess the security threats that specific Chinese companies pose and then craft a careful policy in response to them. A narrow, targeted approach of this nature would help protect Americans from genuine dangers while also giving them access to competitive Chinese products and services.
Trump took aggressive actions against Chinese technology companies in the interest of national security, but many of those measures harmed consumers, hindered competition, and slowed innovation without actually safeguarding Americans. Take, for example, the attempted ban on the very popular Chinese social media app TikTok. The Trump administration issued a series of confusing executive orders last summer that would have cut off access to TikTok for most Americans unless the app’s Chinese parent company sold a controlling share to U.S. investors. The order alleged that TikTok posed a significant national security threat to the United States because it was owned by a Chinese firm, but the Trump administration offered little evidence of the exact nature of that threat or why the company merited such a ban. A separate order banning Alipay, the payment platform owned by Ant Group, and seven other Chinese apps asserted the apps captured the sensitive information of users in the United States. These claims about the risks posed by Alipay were even less credible than those regarding TikTok since the majority of Alipay’s users reside in China and the app likely does not handle much U.S. data.
The TikTok executive order, in particular, came at an odd time. U.S. policymakers on both sides of the aisle were calling for more regulation to promote competition in the technology sector. TikTok’s rise presented a threat to U.S. technology companies such as Apple, Facebook, and Google. If the United States wanted to create a more competitive environment, surely banning a Chinese company such as TikTok—which was the second most downloaded app in the Apple App Store in 2020—was a step in the wrong direction.
Worse, the TikTok ban and other actions like it could come back to haunt American firms. Trump’s executive orders increased the risk that Beijing would retaliate in the Chinese market, where such U.S. firms as Apple, Intel, and Microsoft already face tremendous hurdles. Moreover, if the United States set the precedent of blocking apps and services based on their foreign ownership, governments elsewhere—particularly in Europe—could choose to ban U.S. companies using the same logic. The way U.S. policymakers view Chinese companies as potential threats mirrors the way Europeans view U.S. companies; U.S. measures against Chinese firms could inadvertently help the EU shut out U.S. companies.
The consequences of these actions go far beyond economic costs. U.S. companies should keep working with Chinese firms in the interest of national security. Foreign firms operating in the United States must comply with U.S. law enforcement and national security requests, so allowing Chinese companies to operate in the country gives the U.S. government more insight into potentially threatening online behavior.
The Trump administration’s May 2019 ban preventing Huawei from using the Google Android operating system provides a striking example of how broad restrictions can harm U.S. companies and consumers while undermining security. Before the ban, Huawei devices used Google’s Android operating system, which contained a security feature that constantly scanned every app on a phone for vulnerabilities. But after the Trump administration limited the ability of U.S. businesses to work with Huawei, the Chinese technology giant developed its own operating system and app store. Backed by Beijing’s subsidies, Huawei will be able to undercut U.S. firms in global markets with cheaper prices, and its hardware, operating system, and app store are now beyond the reach of U.S. scrutiny and protections.
The TikTok bans were challenged in court last fall, and federal judges put them on hold. The Biden administration recently requested a further stay in the legal proceedings to provide the government with time to review the bans and the national security risks they were designed to address. After the review, the administration will face a difficult choice. It could continue the Trump administration’s policy and accept all its likely negative consequences: reduced competition in the technology sector, protectionist restrictions imposed by other governments, and more hostile relations with Beijing. Or it could walk back the orders and risk being labeled soft on China. In recent weeks, Republicans have already begun ramping up their criticism of Biden’s cabinet nominees on this issue—and that narrative will only intensify ahead of the 2022 midterm elections.
In dealing with China’s technology companies, the Biden administration doesn’t have to choose between dovish inaction and hawkish bludgeoning. It can plot a new, sensible course by taking advantage of a rulemaking process that has already been set into motion by the Commerce Department.
In May 2019, the Trump administration issued a sweeping executive order on the supply chain of information and communications technology and services, granting the secretary of commerce vast authority to prohibit any transactions in digital technology products and services that have been “designed, developed, manufactured, or supplied” by companies owned or controlled by “foreign adversaries.” After months of delay and debate, on January 19, the last day of the Trump administration, the Department of Commerce issued an interim final rule that established guidelines for implementing this order, including listing China as a foreign adversary.
The Biden team may elect to reverse the Trump executive order entirely and would be justified in doing so. But if it doesn’t, it can use the rulemaking process to remake U.S.-Chinese technology policy.
It is time for an evidence-based approach to the national security risks posed by Chinese technology firms.
The administration could revise the rule before it takes effect. Interim final rules are called “interim” for a reason—the rule is still not final. It will go into force on March 22, 60 days after it was published in the Federal Register. During that time, individuals and organizations are able to submit public comments. These comments could provide the secretary of commerce with the rationale to argue that the rule is too broad or that it might be counterproductive, thereby granting the administration some political cover to narrow the rule’s application or to strike it altogether. Moreover, the rule states that the Commerce Department is “committed to issuing a subsequent final rule” that will address the comments it received. That means the Biden administration has a clear procedural prerogative to issue a new rule in the months that follow. The administration can use that prerogative to outline a set of detailed criteria for evaluating the data security practices of foreign apps and services, guarding against genuine security risks to American citizens and preventing needless fear-mongering.
A new rule could include provisions that protect both security and economic competition. For instance, the rule could create a process for whistleblowers to provide confidential information to the U.S. government when they see evidence of a security threat. Private companies are often the entities most aware of the security threats that emanate from foreign firms, so the government should encourage them to report problems when they see them. The fine-tuned rule could also prevent U.S. authorities from using national security considerations as an excuse to undermine competition within the technology sector. To that end, security standards for foreign companies should also be applied to U.S. firms. The government must put in place a comprehensive framework of security and privacy controls, informed perhaps by existing guidelines from the National Institute of Standards and Technology and the International Organization for Standardization.
This new rule will have no effect unless the Biden administration decides to use it. The administration can be selective about which transactions to ban, if any. It can select the cases in which the national security risks are real and tangible and in which it is confident it can marshal evidence to justify its actions. It could use these cases as an opportunity to be transparent about its findings, publishing evidence about threats to provide a defensible basis for any bans. Implementing the interim final rule in this fashion would allow the Biden administration to pursue a more deliberate course than Trump’s bans on TikTok and other Chinese technology firms.
The interim rule can form the basis for a well-organized process rooted in clear criteria for assessing the threat that certain Chinese technology firms may or may not pose and acting on any concerns proportionately and effectively. Such a process also furnishes the solution to a political problem. By banning transactions that pose legitimate dangers, the Biden administration can insulate itself from accusations of being “soft” on China hurled by the Republican opposition. But by eschewing such drastic measures as blanket bans, the administration will avoid cutting off services that many Americans value and jeopardizing U.S. security and business interests in China and around the world. Biden’s predecessor may have left him a problematic set of policy tools, but those tools can provide the new administration with the necessary solution: a case-by-case, evidence-based approach to the national security risks posed by Chinese technology products.