How to win a tech cold war

If a digital Iron Curtain is falling between the U.S. and China, America seems increasingly eager to yank its side down. A hasty and excessive response, however, runs the risk of undermining its own technological advantage.

The most visible assault is the one the U.S. has launched against Huawei Technologies Co. Ltd., the world’s leading telecommunications-equipment business. American officials have pressured Western allies to ban Huawei technology from forthcoming 5G wireless networks, which will connect everything from mobile phones to autonomous cars. The Justice Department has indicted Huawei for corporate espionage and wants to prosecute Chief Financial Officer Meng Wanzhou for allegedly misleading banks about Huawei’s business dealings in Iran.

The larger U.S. campaign extends well beyond Huawei. American trade negotiators are pushing China to scale back massive government subsidies to its high-tech industries and stop forcing foreign companies to hand over technical secrets if they want to do business on the mainland. The U.S. has tightened restrictions on inbound Chinese investment in critical technologies, many of which have potential military uses.

All of these actions have costs. America’s intensified scrutiny is one reason that Chinese investment into the U.S. has virtually collapsed, squeezing a rich source of funding for startups. Threats to cut off sales of U.S. components only encourage Beijing to develop homegrown alternatives. New export controls may well stifle U.S.-Chinese collaboration in artificial intelligence and other scientific fields.

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Trying to protect U.S. technology without stumbling into a full break with China would be difficult under any circumstances. It’s getting harder and harder to draw a clear line between harmless exports and potentially dangerous ones.

Yet that’s precisely what the U.S. government needs to do: define its concerns as clearly and as narrowly as possible, with a focus on maintaining America’s qualitative military edge, then address them vigorously.

Legal actions against Chinese companies, including the U.S. case against Huawei, should be kept separate from trade negotiations and security actions. And the U.S. should seek support from its allies to prevent leakage.

The U.S. has every reason to safeguard its technological edge. But it should be possible to do that well without undermining the productive aspects of its relationship with China.

Bloomberg Opinion editorial.