The signing of the trilateral AUKUS security pact between Australia, the United Kingdom and the United States in September signaled a collective strategic move to contain China’s maneuverability in the Asia-Pacific region. Since the start of the pandemic and Joe Bidens’ presidency, the economic disputes with China seemed to have been cooling off. However, with China’s trade sanctions on Australia in July 2021, and its efforts to ban tech companies from seeking foreign funding, a different picture seems to be developing. Moreover, Australia’s countermeasures to ban Chinese tech companies from investing in 5G technologies has further aggravated relations between China and Australia and the US. The possibility of further economic skirmishes in the future cannot be denied considering China’s anxiety around the AUKUS agreement. 

Amid the trade tensions between Beijing and Washington is a growing high-tech economic competitive strategy by each country. China has started to blacklist new companies that use the Variable Interest Entities (VIEs). VIEs are the legal structure of investment wherein the investor does not have control over the stake but retains a controlling interest. The move concerning foreign investors in Beijing’s next-generation tech companies is expected to threaten more than $2 trillion worth of shares on Wall Street. 

In response, the US undertook similar measures intensifying a crackdown on China’s tech sector. The US Commerce Department has placed export restrictions on Chinese companies that are using technologies that pose a national security threat to the US. The high-tech economic warfare appears to be the first ‘AUKUS Effect’.

However, the present conflict between the US-led bloc and China has gone beyond economics and touches upon international law, security, and geopolitical strategy. For instance, Washington accused tech companies such as Huawei, New H3C Semiconductor Technologies Co Ltd, and Yunchip Microelectronics of helping the People’s Liberation Army of China (PLA) surveil citizens and commit human rights abuses against religious and ethnic minorities in China’s Xinjiang Uygur Autonomous Region.

Furthermore, since the establishment of the AUKUS pact, media reports stressed nuclear powered-submarines rather than artificial intelligence (AI) even while it was a crucial element of the pact. Britain’s new AI strategy, announced in September, seeks to make the UK a global AI superpower, and the US has articulated its commitment to strengthening AI in its report published by the National Security Commission on Artificial Intelligence. Similarly, Australia has presented a similar strategy through its AI Action Plan. 

The troika’s AI strategy seems, therefore, to be bound to the AUKUS agreement, thus establishing a future ground of contention with Beijing. China, followed by the Western alliance, is ready to bear the economic brunt to contain the technological dominance and grab strategic advantage flowing within high-tech firms. Analysts suggest that by cutting capital flows to China, Washington will deprive itself of economic gains from these tech giants. Furthermore, it will significantly affect the free market status of the US. Such a move will in turn complement Beijing’s promotion of alternative global norms and standards such as “no-strings attached” and “non-intervention” policy enshrined within its infrastructure development models such as the Belt and Road Initiative (BRI). The free-market economic system of the West now faces a growing challenge from the “China model”, thereby increasing the gap between American expectations and Chinese realities. 

In Beijing’s view, however, the measures are not meant for specific industries or private firms. According to the China Securities Regulatory Commission (CSRC), “the main purpose of (those moves) is to regulate monopoly, to protect the interests and data security of small and medium-sized firms, as well as personal information security.” Interestingly, China’s official policy measures suggest the opposite, as it is presently implementing new regulations in three key areas – Cybersecurity Law (2017), the Data Security Law (2021), and Personal Information Protection Law (2021). All of these measures signal increased control of fintech firms in China. 

Apart from strategic advantage over geopolitical competitors, Beijing has economic reasons to pursue such a policy. Currently, the digital economy sector in China makes up 38% of China’s GDP and is expected to grow by up to 55% by 2025. In 2020, the Chinese Communist Party (CCP) Central Committee and State Council added “data” as a new factor of production in its field-based allocation system and mechanism. It appears that China has accepted technology and data as the new gold in the international markets with underlying strategic implications that require explicit rules to govern it.

The US-led alliance is more defensive in its approach to protect its interests and contain China’s rise which is evident through its actions in the South China Sea (SCS). The QUAD countries – the US, India, Japan and Australia do not claim the SCS, but consider China a “Cold War foe” threatening freedom of navigation in the region. The US Pacific Command has therefore increased the frequency of large scale naval exercises with its allies in the SCS such as the “Indo-Pacific Drill” conducted in August 2021. The high-tech economic conflict is therefore a result of global power dynamics, restructuring of international norms, and protection of sovereign interests. While it would be too early to regard it as economic warfare in the present scenario, its continued existence will signify a more serious concern for the next-generation AI and technology sector. 

The role of high-tech economic conflicts in shaping tomorrow’s conventional warfare cannot be neglected. The human decision-making elements such as necessity, distinction, and proportionality in a military battle can now be undertaken by autonomous systems. Therefore, to what extent international actors, including China and Western states, are willing to go forward  determines the nature of avoiding such conflicts in the future. 

The next step in tech governance is likely to involve aligning policies and frameworks as per internationally accepted ethical standards. The combined efforts of China, the US, Britain, and Australia to boost domestic AI development could significantly compromise access to data and data localisation. As a consequence, important data sharing may be compromised, effecting states’ ability to tackle pressing global challenges such as climate change, future pandemics, and humanitarian crises.