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Another factor discussed in the existing literature is the relationship between the litigants.139 When the parties-in-suit are competitors, a permanent injunction typically issues.140 Indeed, the Federal Circuit has gone so far as to declare that the “essential attribute of a patent grant is that it provides a right to exclude competitors from infringing the patent.”141 According to one commentator, “[i]f the parties can fairly be described as direct competitors, the first two factors” of the eBay test—irreparable injury and absence of an adequate remedy at law—“will weigh heavily in favor of the [patentee].”142 For instance, the types of competition-related harms that courts have found sufficient to demonstrate an irreparable injury include loss of market share, loss of goodwill among customers, and price erosion.143 In contrast, “district courts appear to have consistently denied permanent injunctions in cases where . . . the infringer and patent holder were not competitors.”144

In the previous sections, I showed that the Supreme Court decision led to an increase in patenting, both at the intensive and extensive margins. Furthermore, this change in enforcement also positively affected patent quality and R&D investments. Overall, this evidence suggests that patent litigation had real distortive effects on firms’ ability to innovate in 2006, and the decision was able to reduce some of this burden faced by innovative firms. In this section, I explore why patent litigation affects innovation by firms.

6.1 Litigation lowers innovation returns: evidence from the composition of innovation

Previous discussion presents the shock as a reduction in the bargaining power of plaintiffs in litigation. In this section, I provide evidence consistent with this hypothesis by examining the stock returns of a set of public PAEs. In particular, I find that the ruling led to a drop of about 10% in the stock price of these companies.

Following the literature (Cohen et al., 2019; Feng and Jaravel, 2015; Kiebzak et al., 2016; Tucker, 2014), I identify PAEs looking at nonpracticing entities (NPEs), which are companies that generate most of their revenue through licensing and settlement fees rather than from manufacturing.17 This setting is a useful laboratory for several reasons. First, previous research has confirmed NPEs extensively used injunction threats when negotiating licensing agreements or settlements (Chien and Lemley, 2012). Therefore, the ruling should have somehow harm their business model. Second, unlike for other companies, automatic injunction does not constitute a major risk for these firms because they generally do not directly use intellectual property to develop products or sell services.

The main goal of the patent system is to protect innovation and thus to spur growth. Whether this goal is achieved depends on how patents are defined and protected, which itself depends on how the legal system resolves intellectual-property disputes. Indeed, the courts appear to have played an increasingly important role in the patent system (Cohen et al., 2019). Over the last thirty years, lawsuits involving patents more than tripled (Figure 1) and their estimated cost surpassed $300 billion (Bessen et al., 2018). In part, this shift in patent enforcement has been connected with the increase in patent-holders’ rights over the past decades (Jaffe and Lerner, 2011).1

In principle, increasing the rights of patent-holders should have positive effects on innovation. However, this simple logic may fail for several reasons. For instance, stronger rights for patent-holders may actually have detrimental effects on innovation when we account for the role of competition (Arrow, 1962; Aghion and Howitt, 1992) or we consider innovation as a cumulative process (Scotchmer, 1991; Bessen and Maskin, 2009). Furthermore, the idea that stronger patent rights will increase innovation also hinges on the assumption that patent enforcement is sufficiently effective in resolving legal disputes. In practice, the patent system is characterized by a lot of uncertainty (Lemley and Shapiro, 2005) and enforcement tends to be a noisy process (Jaffe and Lerner, 2011). In this context, strong patent rights may actually increase the cost that frivolous patent litigation can impose on innovative firms, which in turn may curb innovation and growth (Bessen and Meurer, 2008b; Boldrin and Levine, 2002). Therefore, to understand the connection between patent protection and innovation, we need to also consider how changes in patent rights affect enforcement. This issue is particularly crucial today, given the increasing importance of intangible assets to the modern corporation (e.g. Corrado and Hulten, 2010; Eisfeldt and Papanikolaou, 2014; Peters and Taylor, 2017).

The cyclical nature of the IP-antitrust interface is understandable, given the fact that the interests that drive the strengthening of one law also push toward weakening the other. But it is not desirable. The goal of both IP and antitrust as regulatory policy should be to balance the need for incentives to innovate against the need for robust competition. We need both innovation and competition to achieve dynamic efficiency. IP laws should ideally encourage innovation up to the optimal level, but no further, because overly strong IP laws unduly interfere with competition and therefore reduce welfare unnecessarily.50 The same is true in reverse: overly aggressive competition law sometimes privileges static efficiency over innovation and therefore reduces long-term welfare. To this balance we must add another: too much emphasis on IP to encourage innovation may have the opposite effect, impeding innovation, while too much emphasis on competition in an effort to spur innovation may also prove counterproductive.

As I noted in the last section, the balance has at least until quite recently been tilted in favor of IP law and against antitrust law. There are some signs that this is changing—not yet in antitrust, where the courts have struck down even antitrust challenges against conduct by patent owners that is unquestionably anticompetitive,51 but in patent law, where the Supreme Court has intervened to reduce the power of patents in some significant respects.52 There are also reasons to think the power of patents may shrink further in the next two years, as the Court decides the KSR case53 on the obviousness standard for patentability and as Congress considers proposals for patent reform.

This chapter aims to provide an overview of the intersection between intellectual property (IP) and antitrust law and to show the major relevance this intersection has for intellectual property scholars. Antitrust law and intellectual property law frequently overlap with each other, and a good scholar or practitioner of either subject must necessarily understand the other. Against this background, this chapter aims to address some of the most relevant issues that relate to this intersection and to the conceptualization of antitrust principles for intellectual property scholars and vice versa.

To this end, it is first necessary to elaborate—albeit in a nutshell—an oriented definition of the two branches of law and to clarify their intrinsic relationship.

In the long run, even the positive partial equilibrium effect of patents in providing an incentive for innovation may be more apparent than real: the existence of a large number of monopolies created by past patent grants reduces the incentives for current innovation because current innovators are subject to constant legal action and licensing demands from earlier patent holders. The downstream blocking effect of existing monopoly grants on incentives for future innovation has greatly increased in recent decades because modern products are made up of so many different components. The recent—and largely successful—efforts of Microsoft to impose a licensing fee on the large and expanding Android phone market is but one case in point. With the exception of Motorola Mobility, all the handset manufacturers have agreed to the fee, and Motorola lost its first battle against the fee in spring 2012—fought not in court but in the more receptive domain of the US International Trade Commission (Investigation Number 337-TA-744, May 18, 2012). Microsoft is attempting to charge a licensing fee solely over a patent involving the scheduling of meetings—a rarely used feature of modern smartphones. The meeting-schedule feature is but one of many thousands of patented "ideas" used in a modern smartphone, and each owner of each patent potentially can charge a licensing fee. Hence, the main dynamic general equilibrium effect of a patent system is to subject future inventions to a gigantic hold-up problem: with many licenses to be purchased and uncertainty about the ultimate value of the new innovation, each patent holder, in raising the price of his "component," imposes an externality on other patent holders and so charges a higher-than-efficient licensing fee. In Boldrin and Levine (2005) and Llanes and Trento (2009), we and others have explored the theory; and many case studies involving patents (and other fractionated ownership problems) can be found in Heller (2008).

To understand more about the actual effect of patents in the real world, consider the recent purchase by Google of Motorola Mobility, primarily for its patent portfolio—not for the ideas and innovations in that portfolio. Few, if any, changes or improvements to Google’s Android operating system will result from the ownership or study of these software patents. Google’s purpose in obtaining this patent portfolio is purely defensive: it can be used to countersue Apple and Microsoft and blunt their legal attack on Google. These remarks apply to the vast bulk of patents: they do not represent useful innovation at all and are just weapons in an arms race. This is not news: the same message emerged decades ago from the Levin, Klevorick, Nelson, and Winter (1987) and Cohen, Nelson, and Walsh (2000) surveys of research and development managers.

This week, the Biden administration very quietly published a manifesto for a counterrevolution. It didn’t arrive trumpeted with flaming rhetoric. There was no televised speech or Oval Office photo op—just a draft memo from the Justice Department and Federal Trade Commission laying out the new standards they will use to assess the legality of corporate mergers. This is, to say the least, not the most scintillating piece of reading that will be released this year. But it may turn out to be one of the most consequential.

The revolution being countered started pretty quietly too. For most of the New Deal and postwar years, the U.S. government took an aggressive stance on mergers. Concentrated economic power was understood to threaten core American values, and even to have helped trigger the Great Depression. The antitrust agencies tended to be suspicious of corporate deals even when the parties involved were nowhere close to dominating the market. This consensus began to wobble in the 1970s; the arrival of the Reagan era flipped it on its head. In 1982, the administration issued its own merger guidelines making clear that the days of aggressive antitrust enforcement were over.

The Biden administration and Democratic lawmakers are going all in on antitrust ahead of the election as prices loom 20 percent above where they were just a few years ago and confidence in the president’s handling of the economy sags.

Whether the pandemic ends soon or is longer-lasting, the global economy and global geopolitics are very likely to have a different shape than they had before its onset. The high likelihood of a world depression and the differential responses across countries – especially those of China and the US – is changing the existing distribution of power across the world.

After going over recent trends in the US’s superpower status, I will discuss the pandemic’s implications for the rise of China as a challenger to the US’s position and a consequent urgent importance for improving global conflict management. Urgency is justified because international institutions have atrophied over the past few decades whereas the possibilities for conflict are expanding.

President Joe Biden has embraced a decidedly pro-consumer agenda at a time when many Americans aren’t feeling confident about the state of the economy — even though it may do little to assure voters whose primary economic concern is higher prices.

Through his executive authority, Biden has taken steps to combat “junk fees” — hidden fees that make everything from airline bookings to concert tickets more expensive than their sticker price, but also just feel like shady corporate attempts to get the better of consumers. He has also required companies to provide more transparency in their pricing.

American capitalism is kind of like that. You can invent fables about how America is in economic decline. You can rail against “neoliberalism.” But the American economy doesn’t care. It just keeps rolling on. The Economist magazine published a report on American economic performance over the last three decades. Using an avalanche of evidence and data, the main thrust of the article is that far from declining, American capitalism is dominant and accelerating. Back in 1990, for example, America’s gross domestic product per capita was nearly neck and neck with that of Europe and Japan. But by 2022 the U.S. had raced ahead. In 1990, American income per person was 24 percent higher than the income per person in Western Europe. Today, it is about 30 percent higher. The sources of this strength are many. I was especially struck by how much America invests in its own people. America spends roughly 37 percent more per student on schooling than the average for the Organization for Economic Cooperation and Development, a collection of mostly rich peer nations. ChatGPT and mRNA vaccines are not the only signs of American technical prowess. The United States accounts for 22 percent of the patents in force abroad, up from 19 percent in 2004. That’s more than any other nation. The level of education is one reason American labor productivity increased by 67 percent between 1990 and 2022, compared with a 55 percent increase in Europe and 51 percent in Japan. American companies continue to generate amazing value. If in 1990 you had invested $100 in the S&P 500, an index of American companies, you would have about $2,300 today, according to The Economist. If you had invested that $100 in an index of non-American rich-world stocks, you would have about $510 today. Of course, China has risen to superpower status during these years. But that hasn’t eclipsed American prominence. In 1990, the U.S. economy accounted for about 25 percent of global G.D.P. In 2022 it still accounted for roughly 25 percent, The Economist found. Millennials, according to the Census Bureau, had household incomes $9,000 higher than Gen X households and $10,000 higher than boomer households at the same age, in 2019 dollars. Real estate costs have been surging in many metro areas, but Twenge reports that 48 percent of millennials owned their own homes during the 25-to-39 age range, nearly the same as the rate for boomers at that age. Many millennials bought their homes at a time of historically low interest rates and saw their values shoot up during the pandemic. “Millennials have not been economically unlucky as to homeownership,” Twenge concludes. “If anything, the reverse is true.” My point is not that American capitalism is perfect. My point is that there is a tension between economic dynamism and economic security. For reasons deeply rooted in our culture, the American brand of capitalism has always been tilted toward dynamism, with freer markets and smaller welfare states. But over the past many decades, Americans have experimented with ways to provide more security without smothering the capitalist turbo that produces growth and social mobility. This has been the great project of the center-left and the center-right. It has worked and it continues to work. Between 1990 and 2019, American social spending rose from 14 percent of G.D.P. to 18 percent. In part because of this government support, poverty hit an all-time low in 2021, according to the Census Bureau.

Critics frequently accuse markets and capitalism of making life worse for the poor. This refrain is certainly common in the halls of left-leaning academia as well as in broader intellectual circles. But like so many other criticisms of capitalism, this one ignores the very real, and very available, facts of history. The biggest gains in the fight against poverty have occurred in countries that have opened up their markets. Nothing has done more to lift humanity out of poverty than the market economy. This claim is true whether we are looking at a time span of decades or of centuries. The number of people worldwide living on less than about two dollars per day today is less than half of what it was in 1990. The biggest gains in the fight against poverty have occurred in countries that have opened up their markets, such as China and India. If we look over the longer historical period, we can see that the trends today are just the continuation of capitalism’s victories in beating back poverty. For most of human history, we lived in a world of a few haves and lots of have-nots. That slowly began to change with the advent of capitalism and the Industrial Revolution. As economic growth took off and spread throughout the population, it created our own world in the West in which there are a whole bunch of haves and a few have-more-and-betters.

For example, the percentage of American households below the poverty line who have basic appliances has grown steadily over the last few decades, with poor families in 2005 being more likely to own things like a clothes dryer, dishwasher, refrigerator, or air conditioner than the average household was in 1971. And consumer items that didn’t even exist back then, such as cell phones, were owned by half of poor households in 2005 and are owned by a substantial majority of them today. Capitalism has also made poor people’s lives far better by reducing infant and child mortality rates, not to mention maternal death rates during childbirth, and by extending life expectancies by decades. We spend a much smaller percentage of our lives working for pay, whether we’re rich or poor. Consider, too, the way capitalism’s engine of growth has enabled the planet to sustain almost 7 billion people, compared to 1 billion in 1800. As Deirdre McCloskey has noted, if you multiply the gains in consumption to the average human by the gain in life expectancy worldwide by 7 (for 7 billion as compared to 1 billion people), humanity as a whole is better off by a factor of around 120. That’s not 120 percent better off, but 120 times better off since 1800. The competitive market process has also made education, art, and culture available to more and more people. Even the poorest of Americans, not to mention many of the global poor, have access through the Internet and TV to concerts, books, and works of art that were exclusively the province of the wealthy for centuries.

Critics of capitalism claim that the economic system incorrigibly encourages the exploitation of the planet and is thus incompatible with efforts to mitigate climate change. Economist Alessio Terzi writes that capitalism’s main alternative, socialism, has been historically just as destructive and that emergent incentives, including shifting consumer preferences and government interventions, will enable capitalism to drive the green revolution.

The sense that capitalism is the root cause of many of society’s most pressing issues, including climate change, has become almost conventional wisdom, in part with the help of many international media outlets. Even the World Economic Forum, not exactly the classic anti-capitalist organization, ran a podcast series earlier this year titled “‘Planet vs profit.” Most recently, on November 7, Colombia President Gustavo Petro used his speech at the 27th United Nations Climate Change Conference in Sharm El-Sheikh, Egypt, to denounce how the market and capital accumulation have led to climate change. Therefore, Petro concluded, capitalism can hardly be its solution.

Back in 1995, now-Democratic presidential candidate Bernie Sanders said, “I personally happen not to be a great believer in the free enterprise system for many reasons.” And having watched Sanders during this primary season, it doesn’t appear to me that the self-described democratic socialist has much changed his opinion of capitalism. Which is both amazing and appalling. The single greatest story of human achievement of the past 2,000 years is the dramatic rise in living standards of the past 200 years. It’s an astounding ascent — see above chart — driven by innovative, entrepreneurial capitalism. Free enterprise. Economic freedom. Yes, workers in advanced economies today are many multiples wealthier — almost incalculably so — than their counterparts in the early 19th century. But here is another way of looking at, thanks to a new study by consultancy Deloitte showing how technology-driving innovation has radically altered lives in Britain for the much better:

1) Technology has created more jobs than it has destroyed in the last 144 years.

The Hill Station Club in Freetown was once the beating heart of Britain’s colonial community in Sierra Leone. It was here, in a raised clearing high above the city, that officials would unwind over gin and tonic and marvel at a panoramic view of the lush forest below. These days, the club stands in disrepair. Its ornate metal railings are rusted and decayed, while the underside of the roof is littered with holes. The building has become just another relic of the British Empire; a symbol of power and influence lost. Today in Sierra Leone – and much of the rest of Africa – there is a new player in town: the People’s Republic of China. In Freetown, road signs from 2021 celebrate 50 years of friendship between China and Sierra Leone, which gained independence from the UK in April 1961. Indeed, the smooth, wide road that runs past Hill Station Club is Chinese built. The country’s influence is evident everywhere. Several of Freetown’s housing estates have been constructed by Chinese companies, as have many of the city’s restaurants, shops, and casinos. Even Sierra Leone’s national stadium, based in the centre of the capital, was built by the Chinese, while Mandarin is being taught in the classrooms of primary and secondary schools across the country. In total, the Chinese have invested £2.3 billion into the nation since the early 1970s. The country’s experience with China is common to much of Africa. While the US and its allies have been busy enjoying the end of the Cold War, China has spent much of the past 30 years putting down roots across the African continent. Equipment belonging to a Chinese mining company at a quarry site on the edge of Sierra Leone's Western Area National Park Equipment belonging to a Chinese mining company at a quarry site on the edge of Sierra Leone's Western Area National Park CREDIT: Simon Townsley/The Telegraph Through its Belt and Road initiative, China has built infrastructure throughout Africa and established lucrative supply chains to several dozen nations. Over the past two decades, China has invested £123.85 billion in sub-Saharan Africa, research suggests. But this expansion into Africa has not always been positive, despite the vital investment it brings. In Sierra Leone, deception, corruption and intimidation, as with the British in the 1800s, have all been deployed to advance and consolidate the Chinese agenda. A joint investigation by the Telegraph and SourceMaterial explored how Chinese investors – facilitated by corrupt government officials – are plundering the natural resources of Sierra Leone and harming people’s health and causing serious environmental damage in the process. It uncovered: Plans to unlawfully mine granite from inside Freetown’s protected national forest and export the rock to the UK and other markets Outbreaks of violence between park rangers and Sierra Leonean soldiers tasked with protecting Chinese quarries The alleged poisoning of water supplies as a result of Chinese-run quarries The planned destruction of a pristine beach to construct a Chinese-funded fishing harbour and “marine park” for training captive dolphins At the same time, China’s investments in Sierra Leone have brought undeniable benefits, from new jobs and better infrastructure, to educational programmes. For many, life has improved. “It’s better to work with them than do nothing,” said one worker at a Chinese-owned quarry outside of Freetown. “I’m earning good money.”

This commentary is part of CSIS's Global Forecast 2021 essay series. One of the most pressing challenges the Biden administration will face is how to compete with, and push back against, China’s increasingly powerful and disruptive state capitalist system, which not only threatens U.S. economic and strategic interests, but also undermines the regulatory and legal architecture that underpins the global economy. The problem is daunting. China now has more companies on the Fortune Global 500 list than does the United States (124 versus 121), with nearly 75 percent of these being state-owned enterprises (SOEs). Three of the world’s five largest companies are Chinese (Sinopec Group, State Grid, and China National Petroleum). China’s largest SOEs hold dominant market positions in many of the most critical and strategic industries, from energy to shipping to rare earths. According to Freeman Chair calculations, the combined assets for China’s 96 largest SOEs total more than $63 trillion, an amount equivalent to nearly 80 percent of global GDP. The size and scale of these entities is partly a function of China’s massive domestic market, but more important is the fact that SOEs operating in strategic sectors (e.g., banking, infrastructure, telecommunications, energy) are shielded from domestic and foreign competition and are immune from any antitrust scrutiny by the Chinese government. While SOEs are not unique to China, the level of political control wielded over them is. As Xi Jinping declared in 2016, SOEs should become “stronger, better, and bigger." In 2017, the Chinese Communist Party (CCP) amended its constitution to assert that the Party “plays a leadership role” in firm decisionmaking. That same year, Ministry of Industry and Information Technology head Xiao Yaqing, then the head of the central SOE regulator, said: “To give full play of the Party's leadership and its core political role, SOEs should stick to the political principle that all SOEs must be under the Party's leadership.” The problem is not limited to SOEs nor to the traditional sectors that comprise the “commanding heights” of the global economy. Backed by a thicket of subsidies and industrial policies, a domestic market that restricts foreign competition in strategic sectors, and aided by generous state lending, China’s private firms have been propelled into the global market and now vie with U.S. and European firms for leadership in cutting-edge technologies, including robotics, artificial intelligence, biotechnology, and telecommunications. While many of these companies are truly innovative, lose business opportunities to SOE cousins, and in an ideal world prefer to operate in a market free from heavy-handed state involvement, it is also undeniable that they often benefit from a domestic political-economic order that has invested significant sources to ensure that they become major international players. As one senior Chinese official put it bluntly in an interview earlier this year, “Regardless of whether state-owned or private enterprises, they are all Chinese enterprises.” Rather than operating as a collection of individual, profit-first firms (as is the case in most developed Western economies), the CCP has created a robust set of formal and informal mechanisms that induce connectivity (of varying intensity) between state-owned and nominally private Chinse firms. Companies competing in non-strategic sectors can largely operate on more or less market terms, but for any sector or industry that Beijing has deemed strategic, foreign companies must expect that the Chinese government has placed its fingers on the scales to benefit domestic firms. Thus, when a U.S. or European firms compete against, say, COSCO Shipping or Huawei, it is the entirety of the Chinese government’s balance sheet that it must contend with, not just an individual firm. U.S. companies have long tried to prosper within this system by partnering with local firms and keeping ahead of their local rivals, but as Beijing sets it sights much higher up the value-added chain, the space for foreign companies in China is shrinking. Looking beyond China, what gives this state capitalist system such immense global force are the synergies and interconnectivity between and among Chinese firms, state-owned banks and investors, and the Chinese Party-state. This commercial-strategic ecosystem, which I have dubbed “CCP Inc.,” possesses an unrivaled ability to deliver the complete value package when entering overseas investment deals: it can buy, build, and finance on a scale and speed that is unmatched. Yet China’s state capitalist system is not without significant weaknesses—some of which are already known; some of which are only beginning to emerge as China’s international investment environment faces geopolitical headwinds; and some of which, including the long-recognized demographic and productivity challenges; are beginning to bite. While Beijing can leverage its super-sized and super-scaled SOEs to consolidate dominant market positions in strategic global industries, this comes at a price, not least of which is the squeeze placed on China’s more efficient and productive private sector. As the Peterson Institute’s Nick Lardy persuasively argues, “The resumption of state-led growth, in which a growing share of resources is flowing into investment by relatively low productivity state firms, and an increasingly omnipresent party are contributing to China’s growth slowdown.” While the Xi administration has taken recent steps to boost the performance of SOEs, there will inevitably remain a critical tension between the size of the state sector and China’s positive growth trajectory. Yet regardless of the long-term viability of Chinese state capitalism, the near-term implications for the United States are significant, from the inherent propensity to unleash waves of industrial and technological overcapacity that undercut U.S. firms, to the crucial role SOEs and state-backed firms play in supporting the Chinese military’s modernization and overseas expansion. Waiting for China’s political or economic system to grind to a halt is an unwise strategy given Beijing’s four-decade long streak of seemingly defying the laws of economic gravity. How, then, should Washington respond? Despite concerted efforts by the outgoing Trump administration to put significant economic pressure on Beijing in the hopes that it would abandon or adjust its statist approach to industrial policy, the Biden administration will confront a China more statist and more determined to ensure its companies occupy dominant positions over key technologies and resources both at home and abroad. Now projected to grow at an astounding 7.9 percent this coming year (per IMF forecasts), and arguably having confronted the pandemic more ably than most other large countries, China also will likely behave with a confidence the United States has not yet encountered. This means that the United States must first recognize the limits of its ability to shake the Xi administration, and the CCP more generally, from its current techno-statist approach to industrial planning, economic development, and global integration. Indeed, there is a good argument to be made that many of the Trump administration’s efforts to cut China off from global supply chains and constrain investment in key companies only further convinced the Xi that state capitalism is the best—and only—viable path forward. Yet Chinese firms—both private and state-owned—do not have an inherent right to market economies if they are not willing to operate transparently and according to the rules of the game. On this, several of the initiatives started under the Trump administration to demand more transparency into the ownership structure and political connections of Chinese firms seeking to invest in the United States should be continued yet refined. New legislation and increased efforts by the Securities and Exchange Commission and the U.S. Public Company Accounting Oversight Board’s (PCAOB) to bring Chinese companies listed on U.S. exchanges into auditing compliance is one notable example. Related to this, the Biden administration should task relevant agencies with drafting summaries of existing legal and regulatory tools that might be employed to better protect U.S. interests from market-distorting actions of state-owned or state-backed Chinese firms. The United States already has a robust toolkit for combating behavior that is market distorting and threatens national security, but too often, existing regulations that might pertain to problematic Chinese firms just are not enforced, as in the case of long-ignored flouting of auditing standards. The Biden administration should continue to build and expand the capacity of government agencies and the intelligence community to monitor and track the sprawling network of Chinese firms. This includes both increased funding for developing better tools and technologies to capture open-source information, but equally as important, resources to train and hire subject matter experts to interpret and analyze the incoming data flows. There is a treasure trove of open-source material available, including bond prospectuses, annual reports, ownership and financial databases, niche industry publications, as well as company government websites that can help answer key questions, including: How and where do Chinese firms raise capital? How are they state-supported and subsidized, and how have these types of support evolved to evade international scrutiny? How are they leveraging joint-ventures and other forms of formal partnerships with foreign firms to gain access to technology and talent? How might increased transparency requirements impact their ability to raise funds, engage in mergers and acquisitions, and operate globally? What do procurement documents tell us about the Chinese government’s technological and domestic security priorities? One important area of focus should be creating new tools to map ownership structures. Indeed, one of the single biggest factors aiding the expansion of SOEs and private companies globally is their ability to mask ownership through a labyrinthine network of obscured ownership and a proliferating network of subsidiaries. This helps mask their connections to the Chinese government and circumvent competition regulation, commercial and investment law, and sanctions. Consider one astounding statistic: “The average number of firms of the largest 100 [Chinese] conglomerates increased from 500 to more than 15 thousand from 1995 to 2015.” This translates into 1.5 million total companies, and that’s just for the top 100 business groups. There’s also important work to be done to bridge the information divide between corporate America and the U.S government. With obvious exceptions, the majority of U.S. companies do not want to willingly support China’s expansionist and illiberal activities, yet individual firms are ill-equipped to track and trace complex ownership structures, investments, and global supply chains that might be problematic. More robust and readily available tools and information must be made available to U.S. and companies from partner countries to help them decrease their knowing exposure to firms linked to the CCP or People's Liberation Army (PLA). Now the hard part. There is no long-term strategy for successfully competing against Chinese state capitalism that does not include significant investments in the United States’ own domestic infrastructure, educational system, health care, and governance capacity. Absent a deep and enduring commitment to rebuilding internal competitiveness, as well as creating an economic system that is vastly more inclusive, the United States can only tread water while China continues to march toward the future. Frustration with China’s brand of industrial policy stems from its opacity and its deeply mercantilist objectives, not from the mere fact that it the Chinese government seeks to boost the competitiveness of Chinese firms. While still considered a four-letter word to some, the United States should begin a conversation on creating its own market-friendly industrial policy. Indeed, as my colleagues Matt Goodman and Dylan Gerstel have pointed out, the United States has already seen a number of important technological successes as a result of industrial policy initiatives. “Since World War II, Washington has used military procurement and large research and development (R&D) budgets to accelerate the development of cutting-edge technologies that serve as the foundation of the modern economy, ranging from the Internet, satellites, GPS, aircraft, vaccines, supercomputing, and the components of smartphones.” Obviously, given the deep political divisions and the long-standing inability to prioritize domestic “nation building,” the challenge is immense. Yet there is no other path. Next, it is imperative the United States find overlap and synergies with like-minded countries that share apprehensions about the statist elements of China’s economic rise. Adopting a unilateral approach to deterring problematic Chinese investments is unavoidably inadequate, given the highly integrated nature of global technology, human capital, and financial markets. While the European Union’s recent agreement to move forward with the Comprehensive Agreement on Investment (CAI) with China might feel like a gut punch to the incoming administration, there remains significant underlying concern in many European capitals about the economic and national security risks that China’s SOEs and state-backed firms pose to their own national interests. The United States should start by finding ways to accumulate small, ad hoc partnerships where they can be forged. One concrete example: the creation of a coalition of like-minded market economies to share intelligence that tracks the transactions, ownership, and financing of firms (SOE or otherwise) suspected of working to further the interests of CCP and PLA geostrategic goals. To start with, the core of this group should be a “Five Eyes Plus,” with the addition of the European Union and Japan. Of course, the grouping can be expanded, assuming applicants can ensure they are capable of protecting sensitive intelligence. Related to this, my colleague Bonnie Glaser has also recently outlined several smart steps the United States can take to work with partners and allies in order to blunt Chinese economic coercion, which is often implemented through Chinese commercial firms. Last, the United States should lead a global conversation about creating new sets of rules and institutions that can facilitate and sustain cross-border trade, investment, and technology given the extraordinary changes in just the past few decades. As others have argued, the existing array of institutions created in the twentieth century that did so much to promote global integration, the World Trade Organization most prominently, were not designed to deal with the size and complexity of China’s sui generis “socialist market economy.” Building an economic order for this century is, of course, a vast undertaking, but as the recent splintering of ties between the United States and China demonstrates, in the absence of effective mediating institutions, economic and financial frictions can metastasize to become geopolitical tensions.

Gladney, the anthropologist, said any Uighurs with ties to ISIS were more likely driven by resentment of China than by aims of global jihad. They may want militant training to fight China and even to establish a Uighur state, he said, but they’re less interested in creating a global caliphate. Analysts also note that those who do desire a global caliphate seem to have little more than a passing interest in Uighurs’ relatively parochial aspirations, despite some token gestures, such as Abu Bakr al-Baghdadi’s reference to Chinese violations of Muslim rights last July, and exaggerated claims about such abuses made last fall by an al Qaeda-run magazine. Meanwhile, it’s unclear if the group Beijing singles out as the greatest threat, the East Turkestan Islamic Movement, comprises a distinct, self-identified terrorist entity or a looser grouping of individuals. The Chinese government first mentioned ETIM in a vaguely sourced document in 2001, shortly after then-U.S. President George W. Bush announced his “global war on terror.” In it, China called the group “a major component of the terrorist network headed by Osama bin Laden.” United States seemed to agree that ETIM posed a real threat, listing the group as a Specially Designated Global Terrorist group in 2002 and detaining 22 Uighurs captured in Afghanistan and Pakistan at Guantánamo Bay. Some were held for more than a decade, though the United States later acknowledged that it didn’t have adequate evidence against them. Just over a year ago it sent the last three to Slovakia — one of a handful of small countries that agreed to host them. But George Washington University’s Roberts concluded in a 2012 paper titled “Imaginary Terrorism?” that Washington also may have inflated the Uighur threat. The Uighur detainees at Guantánamo who said they’d received jihadi training described a training camp in Afghanistan that amounted to a small, run-down shack. The highlight, in Roberts’s words: “A one-time opportunity to fire a few bullets with the only Kalashnikov rifle that was available at the camp.” Although detainees expressed anger about Chinese rule, they all denied belonging to ETIM, and many said they’d never heard of the group. Roberts has argued that the United States may have backed China’s claims about ETIM in order to cement China’s support for the occupation of Afghanistan and, later, Iraq. Nevertheless, various international terrorism analysts continued to perpetuate the allegations about ETIM in work that cited government statements as their primary sources. According to Georgetown’s Millward, China uses this echo chamber of supposed evidence about ETIM to keep alive the idea of an international Uighur threat, conflating ETIM with the newer, propaganda-producing Turkistan Islamic Party. A U.S. State Department official told Foreign Policy that the United States designated ETIM a terrorist group “after careful study,” having concluded that its members were responsible for terrorism in China and were planning attacks on U.S. interests abroad, but declined to specify the sources of this information. The official added that the government still maintains this listing. Officials at Washington’s Chinese Embassy and China’s State Council didn’t return repeated calls and emails seeking comment. What worries Human Rights Watch’s Bequelin, as several countries including the United States move to scale up counterterrorism cooperation with China, isn’t so much that other countries believe China’s inflated claims. It’s more that the need to cooperate on security and other goals may mean de facto acceptance of, or even practical assistance for, China’s repressive policies.

Yet the scope of this challenge stretches beyond China’s potential to abuse technological “backdoors.” More than that, the Chinese Communist Party (CCP) is exploiting and exporting technological innovations to establish a panoptic form of governance—one through which it becomes possible for the state to constantly monitor individuals under the guise of “social management.” As as result, it’s important to investigate what this technological turn may mean for people both within China’s borders and beyond them. ** Totalitarianism 2.0** It’s impossible to understand the CCP’s current approach to maintaining political power without also understanding its version of social management. As the political scientist Samantha Hoffman defines it, China “optimises interactions vertically (within the Party), horizontally (between agencies), and holistically, between the Party and society” in order “to improve governance capacity to shape, manage, and respond to social demands.” Crucially, the demands of society, as determined by the state, trump those of any person or group. How does this actually play out? China shores up control largely through its social credit system, which relies on collecting and analyzing meta-data to shape and “score” individual citizens’ economic and social behavior. The effect fuels both passive participation (state access to personal data linked to everyday conveniences) and active participation (coercing people into allowing the state to monitor and punish individuals for non-compliance). Human Rights Watch calls this system “predictive policing,” whereby monitoring an individual’s social interactions, use of social media, and physical movement enables the state to make real-time assessments of their perceived “threat” to it at any time. This may seem like a dystopian vision of digitally-powered totalitarianism in a science-fiction movie (think of 2002’s Minority Report). But it’s increasingly becoming a lived reality—and nowhere is this reality more apparent than in China’s far-western province of Xinjiang. Xinjiang: A 21st Century Police State Xinjiang’s geopolitical position on the eastern edge of the Islamic and Turkic-speaking worlds, as well as the ethno-cultural distinctiveness of groups there like the Uighur, has long been treated by the Chinese authorities as a threat. In turn, since 1949, the CCP has pursued a muscular strategy of tight political, social, and cultural control over the region, as a means of integrating Xinjiang and its people. Understandably, this has periodically triggered violent opposition from the Uighur population, which chafes at demographic dilution, political marginalization, and continued state interference in its religious practices. But while Beijing’s approach to combating Uighur opposition in Xinjiang has always rested on the repressive capabilities of its security forces, its obsession with “stability” has, in recent years, seen the regional government’s spending on public security balloon. This money has largely gone toward making a pervasive, hi-tech “security state.” China has achieved this via actions like installing a “Skynet” electronic surveillance system in major urban areas, putting GPS trackers in motor vehicles, and using facial recognition scanners at checkpoints and apps that wipe smartphones of so-called “subversive” material. Though these actions are in line with the CCP’s move toward tech-driven social management, it’s obvious that, in Xinjiang, this system is defined almost solely by racist conceptions of threat—ones according to which the Uighur population is a “virtual biological threat to the body of society.” From government officials describing Uighur “extremism and terrorism” as a “tumour” to equating religious observance with drug addiction, the CCP’s discourse frames key elements of Uighur identity as pathologies to be “cured.” Reporting by international media and human rights groups shows that the CCP’s idea of “curing” supposed pathologies is a program of mass internment: Up to 1 million Uyghurs have been locked away in prison-like “re-education” centers using a system of predictive policing. This mass repression of an ethnic minority is, on its own, cause for concern, and certainly outrage. But the problem is even bigger: The Uighurs are, arguably, the canary in the coal mine—the “tools of control that are now being employed by the CCP” in Xinjiang, the historian James Millward has pointed out, may be “easily applied to other individuals as well.” Taking ‘Social Management’ Global The implications of China’s apparent technological takeover are evident in at least two meaningful ways. For one, China is seeking to target ethnic minority diasporas, such as Uighurs and Tibetans, with its system of social management. Beijing, more specifically, is “creating a global registry of Uighurs who live outside of China, threatening to detain their relatives if they do not provide personal and identifying information to Chinese police.” Potentially more far-reaching, though, is the fact that President Xi Jinping’s multi-billion dollar Belt and Road Initiative isn’t intended to invest only in physical infrastructures—but also in the infrastructure and technology necessary to create a “digital Silk Road.” Much of this investment is coming from China’s major tech companies, including Alibaba, Huawei, and ZTE. In addition, the manner in which China’s tech companies seem to be investing so heavily in emerging surveillance technology suggests that its gaze is broad: It wants to address Beijing’s social management at home—but also secure customers abroad. For instance, in 2016, the China National Electronics Import and Export Corporation helped the Ecuadorian government establish an “integrated security service system,” which was made up of a “nationwide network of 4,300 surveillance cameras, 16 regional response centers, and over 3,000 government employees diligently watching video footage.” More recently, CloudWalk, a Guangzhou-based tech company, finished a deal with Zimbabwe’s government to provide a “mass facial recognition program” with the alleged purpose of helping the company “train racial biases out of its facial recognition systems” via access to people with ethnic and racial backgrounds more varied than those of people in China. While such companies are undoubtedly more focused on profit, in the words of China expert Adam Segal, it’s also likely that the “presence of Chinese engineers, managers, and diplomats will reinforce a tendency among developing countries, especially those with authoritarian governments,” to adopt China’s approach of ensuring that technology serves the interests of a homogeneous state. Indeed, Beijing appears willing to nurture such tendencies, with President Xi himself suggesting last month that China export its model of social stability to the Arab world. So, what can be done to counter this pernicious development? In the past, many people viewed the digital revolution as a way to spur a new wave of democratization. But as the scholars Daniel Benaim and Hollie Russon Gilman recently noted, the CCP’s use of technological innovation demonstrates that it can just as easily be harnessed to enable “state domination and repression at a staggering scale and algorithmic effectiveness.”

I take these worries extremely seriously. There is definitely a wave of racist hate against Asian Americans, much of it violent. Though I don’t think that this hate is primarily due to rising geopolitical tensions between the U.S. and China, I do think those tensions, and the reaction to them, have the potential to exacerbate things going forward. On the other hand, geopolitical conflict is not going to stop on account of these worries. The U.S. has real national interests that directly conflict with the goals of China’s rulers — freedom of the seas, protecting Taiwan and India, and so on. As those interests come into conflict, there will inevitably be friction between the two countries. The folks who think they can stop a new Cold War by calling it racist are simply mistaken. For example, this kind of thing is just not going to work: Twitter avatar for @attackerman Spencer Ackerman @attackerman Your “Great Power Competition” with China, the new Cold War that you think will mean some fantasy national renewal or the Great Struggle for Freedom in The 21st Century or whatever will get your Asian-American neighbors murdered and you will deny the connection. March 17th 2021 644 Retweets2,734 Likes Even if U.S. leaders tried to go easy on China out of fear of stirring up racism at home, U.S. leaders are simply not in control of the situation the way they were back in the days of the Iraq War. China has power and agency here, and its spokespeople are out there beating the war drums even as its neighbors — including U.S. allies — grow more and more alarmed. If you actually think the U.S. is going to abandon its commitments, its allies, its principles, and its interests because some guy with a moustache yelled that great power competition is racist, you should probably think again. In addition, people who identify any news story that reflects badly on the CCP as inherently anti-Asian are not helping the cause of combatting anti-Asian hate. If the lab leak theory turns out to be true, then it turns out to be true. And if that happens, the people who tried to denounce it as racist are going to look like they tried to cover up the truth. And the backlash to that will be worse than whatever harm those people think they prevented by denouncing the lab leak theory. And as Matt Yglesias rightly argues in a recent post, criticism of countries — in addition to being inevitable — is morally legitimate. China’s government is engaged in atrocities at home and increasing aggression abroad, and we have a right, if not a duty, to call that out. Morally, we should not equate criticism of the CCP with anti-Asian racism any more than we should equate criticism of Israel with antisemitism. But that’s a moral argument. In a practical sense, we should work very hard to make sure that criticism of China doesn’t rebound onto Asian Americans. Though it’s probably not possible to completely suppress the backlash — this is a big country, and it has many racist and violent people who don’t listen to anything we say — I think there are some things we can do to minimize it. Rhetoric matters: Lessons from the War on Terror I think we can learn a valuable lesson by looking back to the last big outbreak of international tensions — the War on Terror. Folk history holds that the days following 9/11 were dark days of violence and hatred against Muslim Americans. But in fact, the peak of Islamophobic violence in America was not in 2001, but in 2016: There were two deadly attacks on Muslims (or South Asians mistaken for Muslims) in the five years following 9/11 — one in Arizona, one in Texas, both in late 2001. From 2014 through 2017, there were eight, plus a number of attacks that thankfully didn’t result in deaths. At first blush, this difference makes no sense at all. 9/11 killed thousands of people and threw our nation into absolute chaos. In 2016, in contrast, not much was happening in terms of a “clash of civilizations” — we were mopping up ISIS, but it was a relatively minor and distant threat compared to al Qaeda, and our crushing of it involved very few U.S. deaths. If there was ever a time we’d expect an Islamophobic backlash, it was 2001-2002, not 2016! The difference, it seems to me, was rhetoric. For all his bad deeds, George W. Bush got up after 9/11 and told the nation this: [T]he American people were appalled and outraged at last Tuesday's attacks, and so were Muslims all across the world. Both Americans, our Muslim friends and citizens, taxpaying citizens, and Muslims in nations were just appalled and could not believe what we saw on our TV screens. These acts of violence against innocents violate the fundamental tenets of the Islamic faith, and it's important for my fellow Americans to understand that. The English translation is not as eloquent as the original Arabic, but let me quote from the Koran itself. ‘In the long run, evil in the extreme will be the end of those who do evil, for that they rejected the signs of Allah and held them up to ridicule.’ The face of terror is not the true faith of Islam. That's not what Islam is all about. Islam is peace. These terrorists don't represent peace, they represent evil and war. When we think of Islam, we think of a faith that brings comfort to a billion people around the world. Billions of people find comfort and solace and peace. And that's made brothers and sisters out of every race, out of every race. America counts millions of Muslims amongst our citizens, and Muslims make an incredibly valuable contribution to our country. The Muslims are doctors, lawyers, law professors, members of the military, entrepreneurs, shopkeepers, moms and dads, and they need to be treated with respect. In our anger and emotion our fellow Americans must treat each other with respect. Women who cover their heads in this country must feel comfortable going outside their homes. Moms who wear covering must not be intimidated in America… I've been told that some fear to leave; some don't want to go shopping for their families; some don't want to go about their ordinary daily routines because, by wearing cover, they're afraid they'll be intimidated. That should not and that will not stand in America. Those who feel like they can intimidate our fellow citizens to take out their anger don't represent the best of America. They represent the worst of humankind. And they should be ashamed of that kind of behavior. Some conservatives were outraged at this speech, but there was nothing they could do. This was their President. Contrast this with Trump’s rhetoric in the years in 2015 and 2016. It was a constant drumbeat of fearmongering and collective demonization, including an accusation that Muslim Americans cheered as the twin towers came down. Trump floated the idea of creating a database of all Muslims in the U.S. He cited a specious poll claiming that a quarter of Muslims living in America supported violence against Americans in the name of jihad. He characterized Muslims as “a sick people”, declared that “Islam hates us”, and said Muslim immigrants were “not assimilating”. He stated that “The children of Muslim American parents [are] responsible for a growing number…of terrorist attacks.” And one of his signature policies was a ban on travel from many Muslim countries, popularly known as the Muslim Ban. Once you see the difference in presidential rhetoric, it’s easy to understand why 2016, not 2001, was the peak of anti-Islamic violence in America. Rhetoric matters! Trump’s rhetoric about China was extremely xenophobic, while Biden is striking all the right notes. It would be nice if some Republican leaders could get up and say things similar to what Bush said after 9/11 — that Asian Americans are Americans and must be protected as such, and that racism and violence against them are utterly unacceptable. But in lieu of that, it’s basically incumbent on everyone in the country to do their part to speak up on behalf of Asian Americans and denounce hatred, violence, and discrimination against them. And the bigger your platform, the more responsibility you have. Rhetoric of this kind can help break the link between China-U.S. conflict and anti-Asian racism. Focus on allies and dissidents A 1942 poster issued by the U.S. government Trump painted China as a country that’s constantly menacing America (and by implication, mostly menacing White Americans, whom Trump sees as the “real” Americans). This included his framing of COVID as a Chinese attack on the U.S., which is what made liberals react so strongly against the lab leak theory in the first place. But it’s important to understand that the vast majority of people under the greatest threat from China’s government’s newfound aggression are Asian people, not White people in America. Uyghurs, currently being put in camps and possibly mass-sterilized by the Chinese government, are Asian. Hong Kong dissidents being thrown in prison are Asian. Taiwanese people, menaced by China’s increasing threats, are Asian. The Philippines, which is seeing its maritime territory slowly sliced away by Chinese irregular forces, is Asian. Vietnam, which rightfully fears the increasing power of a neighbor who invaded it in 1979, is Asian. And the vast number of dissidents, reporters, thinkers, labor leaders, religious people, and activists of all kinds who are regularly suppressed by the authoritarian Chinese state are pretty much all Asian. Highlighting and talking about all these Asian people who are being oppressed or threatened by the CCP will make it clear that the new Cold War, such as it is, is not some sort of “clash of civilizations” — a race war between Asians and Whites for mastery of the planet, or any such nonsense. Instead, it’s almost entirely a story of some Asian people in Asia trying to exert dominance and power over other Asian people in Asia. If Americans hear this over and over, I predict that their perspective will shift. Some of the people Trump taught to think “China is attacking us” will instead start to think “China is threatening our Asian allies”. The conflict will be reframed as a struggle between the free people of Asia — and those who want to be free — against the forces that would put them in bondage. It will reframe U.S.-China conflict as protection of Asian people rather than as protection against Asian people.