Raise Penalties for Chinese Trade Theft, Broaden CFIUS, ITIF Says

The next administration should look to raise criminal penalties for trade theft, broaden the scope of the Committee on Foreign Investment in the U.S. and refocus its export controls on military technologies to better compete with China, the Information Technology and Innovation Foundation said this week. ITIF also said the U.S. should push for a new “techno-economic alliance” of key trading partners and develop a new multilateral export control regime focused on semiconductors and artificial intelligence.

A new report published by the foundation this week includes 82 policy recommendations for either a second Biden or a second Trump administration, saying the “top goal” of either should be “re-establishing unparalleled U.S. national techno-economic power” while putting in place “constraints on China’s techno-economic advancement.” ITIF warned that the U.S. is “running out of time” and may risk ceding technological advantages to China if it doesn’t revamp how it uses some of its trade tools.

“Once lost, a firm’s -- or a nation’s -- technology advantage is almost impossible to regain unless it is willing to spend enormous sums of money, as China is doing,” ITIF said. “If the federal government does not act boldly within the next few years, it may permanently lose the ability to effectively compete in a range of critically important advanced industries.”

One step to better deter Chinese “theft” of sensitive technologies could involve increasing criminal penalties, the report said. The next administration should work with Congress to pass legislation that raises penalties for intellectual property theft and espionage, ITIF said, and the next government budget should include a “sizeable increase” for the FBI’s Office of Commercial Counterintelligence.

The report suggested that the U.S. should sanction Chinese companies involved in spying or trade theft. They “should be denied access to U.S. markets and financial services,” ITIF said, adding that the U.S. should also push allies to “move from collective condemnation of China to collective action and punishment.”

ITIF also urged the U.S. to impose more sweeping restrictions on foreign direct investment from China. CFIUS should be expanded to “limit most, if not all,” Chinese purchases and investments in U.S. companies “with more than minimal technological capabilities.” The foundation argued that CFIUS is mostly focused now on “protecting U.S. defense capabilities. However, the battle is not just for military supremacy, but rather for broad, dual-use supremacy.”

Although ITIF wants CFIUS to focus more on transactions involving dual-use technologies, it said export controls should focus less on those types of items and more on technologies used exclusively by militaries. It urged the U.S. to use its controls “judiciously,” saying they so far haven’t worked to undercut China’s critical technology industries.

“All too often” the “export controls have backfired, with Chinese companies identifying workarounds, supporting their own indigenous innovation, and limiting U.S. global sales, as we have seen in the case of Huawei,” the report said. “The next administration needs to take a much more restrained approach, refocusing on technologies more directly related to military capabilities and not on dual-use technologies.”

Several recommendations involve creating new frameworks to work with allies on technology policy issues, including export controls. The group said a new multilateral export control regime focused on “advanced-technology industries,” such as semiconductors and AI, would help “promulgate export controls among like-minded nations that have indigenous semiconductor production capacity.” The report specifically mentioned Germany, Japan, South Korea, Taiwan, the Netherlands and the U.K.

“The United States should eschew the application of unilateral export controls,” ITIF said.

Along with trade restrictions, the report also called on the U.S. to restart negotiations on trade deals with its closest allies, including the U.K., to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and to create a new “transatlantic G2” with the EU through a “comprehensive trade and investment partnership agreement that creates a de facto free trade zone.”

Exports to China also should be increased, the report said, adding that export controls should be limited to only the “most critical technologies,” and continued business with China is critical for U.S. companies.

The U.S. can’t “win the techno-economic war with China without selling more to China,” ITIF said. “Every dollar of U.S. sales to China is a dollar less Chinese companies receive, and a dollar more ours receive.”