Security of Supply: The Determinants of State Intervention in Emerging Technology Sectors

By Vinod K. Aggarwal and Andrew W. Reddie

Asia Global Papers, 2021

Scholars and policymakers have been increasingly concerned about technological competition between China and the United States over the past decade – made worse in recent months amid broader disagreements on global trade and the handling of the Covid19 outbreak. Efforts by Washington and Beijing to promote the development of several dual-use technologies including 5G, artificial intelligence and quantum computing have become a core aspect of their strategic competition. Yet understanding what constitutes a “strategic” industry is critically important for both theoretical purposes as well as policy making. Focusing on nuclear technology and the market for cybersecurity products – viewed as strategic priorities – in United States and China, this paper outlines the variables that shape government decisions to intervene vi2a trade policy and investment rules in these markets.
Market-oriented efficiency does not adequately explain state-firm relations and its broader impact for civilian and military applications of dual-use technologies. Trade and investment measures designed to protect strategic industries and maintain a security of supply are emblematic of the need to shift the analysis of the global economy. Hitherto, economic analysts have focused on efficiency gains and the reduction of transaction costs rather than considering the political and strategic aspects of trade and capital flows. Several governments – potentially pushed by the current crisis – would be expected to continue to use economic levers to compete in high- and low-technology sectors. For net exporters of intellectual property such as the United States and European countries, there may be significant impact resulting from the rise of alternative (and potentially cheaper) sources of advanced technologies. Moreover, with continued aggressive state intervention, China will challenge Western technological dominance with attendant security implications.

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