October 16, 2021

Will the US emulate China’s tech takedown?

One of the world’s largest economies is cracking down on its tech sector after political leaders became frustrated with tech’s earnings, size, and independence. The government imposed stringent regulations and sharply limited tech’s freedom to innovate, sending the message that tech must ask for permission first — and perhaps still beg for forgiveness later.  

Luckily, the aforementioned economy belongs to China, not the United States. In recent weeks, China punished Jack Ma’s Ant Group and other tech companies that offered new products without the government’s permission, often and at the expense of incumbents with close ties to the state. The government launched probes, blocked IPOs, forced restructurings, and issued a flurry of new regulations. To date, the results have been predictable: Even as China’s Communist Party has consolidated its control over the economy and squelched even the rumblings of dissent, the added scrutiny and uncertainty has spooked investors and halted product development.

China should serve as a cautionary tale for the U.S. Congress. Here at home, members of both parties are considering proposals that would give the federal government far more discretionary control over routine business decisions in tech and many other parts of the economy. Some bills would require the government to grant prior permission to private companies to merge or acquire other firms, reversing the current rule where mergers are presumed lawful and economically beneficial. Other proposals would “structurally separate” companies into individual lines of business and even abandon the venerable consumer welfare standard, which for four decades has served as an objective touchstone for antitrust law, widely embraced by both parties.
  
These ideas could discourage the types of investment and innovation that America needs to maintain its economic edge. America’s tech sector leads the world, at least in part, because of the stability and predictability of our legal and regulatory regimes, which reward new ideas, allow easy access to capital, and enforce laws based on objective criteria. Mergers and acquisitions, which are part of this dynamic economy, help to finance new companies and let larger companies to develop new products more quickly. When mergers raise competitive concerns, they are reviewed for their economic impact on consumers, rather than for their political impact on government officials and their favored constituencies.  

These ideas also could damage America’s global technological leadership. In 2018 alone, for example, Amazon, Google, Apple, and Facebook collectively invested more than $35 billion in research and development. Full disclosure: the organization I work for is funded by big tech companies, including Facebook.

Perhaps ironically, for the United States to emulate China’s recent tech crackdown would imperil our ability to compete with China over the long haul. The Department of Defense has identified China as a “strategic competitor” that uses “predatory economics.” According to the Council on Foreign Relations, “China is closing the technological gap with the United States” and will “soon be one of the leading powers in technologies such as artificial intelligence, robotics, energy storage, fifth-generation cellular networks (5G), quantum information systems, and possibly biotechnology.” Any move to break up America’s leading tech companies would necessarily hamper their ability to invest in these and other technologies.

Across the political spectrum, officials have advised against using the antitrust laws to punish our domestic tech sector, untethered from traditional criteria. Under President TrumpDonald TrumpFormer Sen. Heller to run for Nevada governor Overnight Defense & National Security — Milley becomes lightning rod Joint Chiefs Chairman Milley becomes lightning rod on right MORE, the Council of Economic Advisers warned that overly aggressive merger review could harm our economy by reducing venture capital for start-ups and discouraging innovation. Likewise, Sen. Mark WarnerMark Robert WarnerAdvocates call on top Democrats for 0B in housing investments Democrats draw red lines in spending fight Manchin puts foot down on key climate provision in spending bill MORE (D-Va.) cautioned that if regulators “chop off the legs of Facebook and Google,” then those companies “might be replaced by Alibaba, Baidu, Tencent — companies that are totally enmeshed with the Chinese government in their global economic plan. Rep. Ro KhannaRohit (Ro) KhannaWill the US emulate China’s tech takedown? Supreme Court’s abortion ruling amplifies progressives’ call for reform Defense & National Security — The mental scars of Afghanistan MORE (D-Calif.) has voiced similar concerns.

Instead of embracing China’s approach, Washington should use the recent crackdown as an opportunity to confirm the principles that have made America’s tech sector, and overall economy, the envy of the world.

The enforcement agencies should adhere to objective, established concepts such the consumer welfare standard. They should maintain the current legal and regulatory framework for evaluating mergers and acquisitions, free from politics and guided by the best interests of consumers.

Similarly, Congress should allow the current tech lawsuits and investigations to play out in a court of law, rather than in the court of public opinion. It should change the antitrust laws only if courts determine that the tech companies are harming consumers and that the existing antitrust laws afford consumers no remedies or inadequate remedies. To the extent that Congress wants to “do something” affirmative, it should ensure that the antitrust agencies have sufficient resources, and perhaps consider a few procedural improvements to streamline enforcement and protect due process. On the other hand, for Congress to “chop off the legs” of our most innovative companies would hand another victory to China’s Communist Party and its state-affiliated enterprises.

Befitting its authoritarian nature, China’s government has chosen to prioritize political control over economic freedom, growth, and the welfare of its consumers. That is not the American way. President BidenJoe BidenOvernight Defense & National Security — Milley becomes lightning rod Democrats hope Biden can flip Manchin and Sinema On The Money — Presented by Wells Fargo — Democrats advance tax plan through hurdles MORE and Congress should reaffirm the strong bipartisan consensus that has governed antitrust law for the past 40 years — a consensus that has benefited consumers and the country’s national security alike.  

Asheesh Agarwal works as an advisor for the American Edge Project, a coalition — including tech companies — that promotes technology and innovation. Agarwal formerly served in the Trump administration and as an assistant director in the FTC’s Office of Policy Planning.

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