TTC in Context: Critical Technologies

On September 29, the European Union and the United States held the inaugural meeting of the Trade and Technology Council (TTC) in Pittsburgh. Through the operation of ten working groups, the TTC—first announced at the U.S.-EU Summit in June—addresses a set of issues including export controls, foreign investment, supply chains, technology standards (including for artificial intelligence), and platform regulation. Co-chaired by European Commission Executive Vice-Presidents Margrethe Vestager and Valdis Dombrovskis, along with Secretary of State Antony Blinken, Secretary of Commerce Gina Raimondo, and U.S. Trade Representative Katherine Tai, the TTC will work “to deepen transatlantic trade and economic relations, basing policies on shared democratic values” while simultaneously protecting “businesses, consumers, and workers from unfair trade practices, in particular those posed by non-market economies” and “countering authoritarian influence in the digital and emerging technology space.”

This article and an accompanying one on artificial intelligence provide context for these developments, reviewing recent U.S. and EU policy decisions as well as bilateral and multistakeholder interests. Resolving these issues can pave the way for the TTC’s efforts to bolster transatlantic cooperation on current and future generations of technological development—without undermining the existing rules-based system or embarking on a race to the bottom when it comes to standards. By creating the foundation for a collaborative framework for governing the digital world—from artificial intelligence and machine learning to the platform economy, digital taxation, and supply chain durability—the EU and the United States can pave a path forward in which innovation can flourish along with protection of human rights and security.

Eli Weiner

The Trade and Technology Council’s emphasis on crafting a collaborative set of strategic policies governing technology transfers and investment controls comes as U.S. officials across administrations have highlighted China’s growing strength as a challenge for national security and economic prosperity. They have identified Chinese-made technology as a tool for espionage, surveillance, and interference, and claimed that China’s industrial subsidies and technology-transfer policies give Chinese firms unfair advantages in developing and producing critical technologies. To head off these risks, the U.S. government has begun to disentangle the United States and China’s technological interdependence: limiting the deployment of Chinese technology—especially the telecom equipment produced by Huawei and ZTE—and restricting the export and transfer of advanced U.S. technologies to China. Increasingly, the challenge posed by China may have a centripetal effect, pushing the United States and Europe into jointly deploying their economic and regulatory power in opposition. Their joint statement released singled out the issue of ensuring a reliable supply of semiconductors, with the aim of creating a balanced and mutually beneficial partnership able to support supply-chain resilience over the long term. While there remains division within the EU about how best—and to what extent—it should confront Chinese competition, it is clear that these concerns are no longer confined to Washington as they take on a new transatlantic register.

History of the Issue

Congress first identified Huawei and ZTE as national security threats in 2012, and it has effectively prohibited the use of Chinese telecommunications equipment in the buildout of 5G networks in the United States. In 2018, the Federal Communications Commission banned telecom service providers from using federal funds to purchase or maintain Huawei and ZTE equipment, extending and reinforcing that ban.

The Trump administration waged an international campaign to persuade other governments to follow suit, sharing intelligence with allies suggesting that China’s government could conduct espionage via covert backdoors in Huawei equipment. Several countries followed the United States’ lead (including the United Kingdom, Sweden, and Poland) but most declined to ban Huawei equipment. The Trump administration’s efforts coincided with an intensifying U.S.-Chinese trade conflict and escalating U.S. trade restrictions targeting European economies, some justified on national security grounds. In that context, the U.S. campaign against Huawei was interpreted by many in Europe as thinly veiled economic protectionism.

The Obama administration had raised concerns about China’s strategies of forced technology transfer, intellectual property theft, and industrial subsidies that fueled China’s technological advancement, enhanced its military capabilities, and created unfair advantages for Chinese businesses at the expense of U.S. firms. These growing worries led to 2018 reforms of the United States’ foreign investment review and export control mechanisms, and were the focus of an investigation that ultimately ignited the U.S.-Chinese trade war.

The Trump administration also heightened restrictions on the export of certain U.S. technologies to China. Most notably, the Department of Commerce added hundreds of firms—including Huawei and over 100 of its affiliates—to an “Entity List” of foreign parties that have engaged in acts “contrary to U.S. national security and/or foreign policy interests.” U.S. businesses looking to sell products or technology to firms on the list must request and receive a license from the Department of Commerce. While the Trump administration approved billions of dollars’ worth of trade with Huawei, it also denied similarly large and increasing amounts, preventing the export of semiconductors and other critical technologies to China.

The Trump administration imposed these new export controls unilaterally, and then sought to internationalize them. New rules issued in 2020 targeted Huawei in particular, prohibiting foreign companies from using any U.S. technology to produce any electronic equipment for sale to the Chinese firm. Because many foreign producers depend on U.S. technology—especially for the design and production of semiconductors—the rule served as an extraterritorial ban on exports of high-end equipment to Huawei, dramatically expanding the reach of U.S. export license requirements.

This marked a departure from the typical plurilateral process for export controls in which governments come together to determine what technologies deserve to be controlled and coordinate their actions. In leveraging U.S. technological dominance to force foreign firms to follow the U.S.’ lead in restricting export of certain technologies to China, the Trump Administration alienated U.S. allies, and drove foreign firms to seek work-arounds to their dependence on U.S. technology.

Current State of Play

The Biden administration has largely continued the Trump administration’s strict approach to China on technology issues. The prohibition on Huawei’s participation in U.S. 5G networks endures, and the Department of Commerce has tightened limits on the export of semiconductors and other technologies to Huawei. Furthermore, the Biden administration has allowed a new rule—issued in the waning days of the Trump administration—to take effect. Clearly targeted at China, the rule gives the Department of Commerce authority to prohibit any technology-related business transaction that may threaten national security.

Most EU member states declined to ban Huawei equipment from their 5G networks out of concern that this could be seen as a form of protectionism that may violate international trade commitments. But some have imposed partial or de facto bans on using Chinese telecom equipment in their 5G networks. France, for example, has required operators to phase out Huawei equipment over the coming years. Germany has created a process to review telecom equipment before it is installed, which is likely to prohibit Huawei equipment in some cases.

At the EU level, concerns about China’s growing technological prowess and Russia’s offensive cyber activities have led to a tightening of controls on critical technology.

At the EU level, concerns about China’s growing technological prowess and Russia’s offensive cyber activities have led to a tightening of controls on critical technology. The EU’s new foreign investment review mechanism went into effect last October, boosting the ability of the EU and member states to object to foreign acquisitions of firms that could affect national security.

Further, a new EU export-control regulation was adopted on May 10 and recently went into effect. The new regulation is designed to help member states coordinate their controls of new and emerging technologies, and it expands the ability of the EU to limit the export of certain kinds of products, including cyber- and surveillance-related technologies. While the EU system remains less flexible than the U.S. one, this new regulation could create opportunities for both sides to collaborate outside the confines of multilateral export-control frameworks and work with other allies to limit the transfer of critical technologies to China.

U.S. and EU Interests

In the United States, a bipartisan consensus has emerged in support of a strict approach to China on trade and technology, creating political pressure for the Biden administration to continue many of the Trump administration’s policies. Earlier this year, Republicans in Congress pushed the Biden Administration to maintain Huawei on the Entity List. Secretary of Commerce Gina Raimondo later confirmed that the Department of Commerce would continue to use the list to its “full effect.” Congress has likewise found an unusual degree of bipartisan support for a bill that would funnel funds to domestic research, development, and production of a wide range of technologies, with a view to enhancing U.S. competitiveness vis-à-a vis China.

Further, coordinated efforts to limit the dominance of Chinese telecom providers and control the transfer of critical technologies to China are likely to be more effective.

While the United States can move forward with these efforts unilaterally, the Biden administration has indicated a preference for coordinating with allies in pushing back on China. Further, coordinated efforts to limit the dominance of Chinese telecom providers and control the transfer of critical technologies to China are likely to be more effective. Where viable alternatives to U.S. technologies exist, unilateral export controls will not succeed, as Chinese firms may simply procure technology from non-U.S. sources. Thus, the United States should have an interest in coordinating such controls with other suppliers of critical technologies, including certain EU member states, Japan, Korea, and Taiwan.

EU interests may be more heterogenous. Certain member states are more economically dependent on China than others, making their governments reluctant to create a major rift with a key trading partner. The European public is also skeptical of U.S. technology companies and U.S. government activities in the trade and technology space. Further, many in Europe have viewed the U.S. technology and trade actions targeting China as a form of veiled protectionism: European leaders frequently advocate the importance of upholding the World Trade Organization’s international trade rules and may be loath to support any international effort that could be seen to undermine them.

At the same time, as evinced by the European Parliament’s vote to halt the proposed Comprehensive Agreement on Investment with China, there are strong political forces within the EU interested in confronting China on trade concerns.  

Other Stakeholder Interests

Private-sector actors on both sides of the Atlantic share many interests. Many have a strong interest in seeing China implement economic reforms that level the playing field for foreign firms, including by reducing domestic subsidies, limiting state intervention in the economy, and halting the theft of intellectual property and forced technology transfer policies. At the same time, many of the same firms oppose aggressive actions by Western governments—such as the limits on exports of semiconductors—that threaten to disrupt international trade and global supply chains running through China.

In certain sectors, however, corporate interests may diverge. Many foreign firms—likely including some European ones—have seen benefits from the Trump administration’s trade restrictions on China: where the U.S. government has limited exports and there is an alternative foreign supplier, Chinese purchases have diverted to the latter. European firms that saw increased revenues from such shifts may have an incentive to oppose new European export controls that would limit sales to China.