A Middle Path to Economic Cooperation

Creating Bubbles of Trust Among Quad Countries to Manage China
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An Initiative by

Nitin Pai

Director, Takshashila Institution

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Today’s global retreat away from free movement of goods, services, capital, people and ideas across national borders is not so much a consequence of globalisation, but of its skewed pattern over the past four decades. The world’s acquiescence to an asymmetric globalisation favouring China allowed Beijing to attain the power it is now using to undermine liberal democratic values around the world.

Even before General Secretary Xi Jinping formally required Chinese firms to follow the political agenda of the Chinese Communist Party, private businesses there were never non-state corporate entities in the way they are in liberal democracies. It was never possible to tell where private ownership ended and the party-state began. Nor was the Chinese market ever open to foreign companies in the way foreign markets were to Chinese firms. This is particularly true in the information and communications technology sector: foreign media, technology and software companies have always been resolutely walled out of Chinese markets. Meanwhile, Chinese firms rode on the globalisation bandwagon to secure significant market shares in open economies around the world.

The Quadrilateral Security Dialogue (the Quad) – born into its second incarnation in 2017 – is part of an overall response to China’s rising power. The Quad countries (Japan, India, Australia and the United States) must stop seeing engagement with China through the misleading prism of free trade and globalisation; instead, they must lay the foundations for a genuinely free and equitable global economic community.

The roots of every Quad member’s prosperity and power lie in international trade. It will be to their advantage to create a new form of economic cooperation consistent with their geopolitical interests. Without an economic program, the Quad’s geopolitical and security agenda will stand on tenuous foundations.

This is especially true when it comes to critical and emerging technologies, where no single country, no matter how advanced, can replicate the combined genius of the world. The popular backlash against China and the economic disruptions caused by the pandemic have pushed Quad governments towards pursuing policies of self-reliance. Reorienting and de-risking global supply chains is one thing, but the pursuit of technological sovereignty is a self-defeating exercise. Worse, inward-looking policies often acquire a life of their own even as they contribute to geopolitical marginalisation.

There is a better way. Quad countries are uniquely placed to envelop their economies inside bubbles of trust, starting with the technology sector. A convergence of values and geopolitical interests creates the trust, and complementarities in capabilities powers innovation, growth and prosperity. The United States is a global leader in intellectual property, Japan in high-value manufacturing, Australia in advanced niches such as quantum computing and cyber security, and India in human capital. This configuration of values, interests and complementary capabilities offers unrivalled opportunities.

The idea of bubbles of trust charts a cautious middle path between the extremes of technological sovereignty and laissez-faire globalisation.

Unlike trading blocs, which tend to be insular and exclusive, bubbles tend to expand organically, attracting new partners that share values, interests and economic complementarities. Such expansion is necessary, for the Quad cannot fulfil its strategic ambitions merely by holding a defensive line against authoritarian power.

The Quad’s Critical and Emerging Technologies Working Group, announced in March 2021, is well placed to develop a proposal for a bubbles-of-trust framework, which could be adopted at the next Quad summit. This framework would allow the scope of the cooperation to be limited to information industries – encompassing semiconductors, network infrastructure and connectivity, operating systems and platforms, and content – avoiding the long and complex negotiations that typically characterise trade agreements.

To create bubbles of trust, the Working Group must seek to strengthen geopolitical convergences, increase faith in each member state’s judicial systems, deepen economic ties and boost trust in one another’s citizens. Policy must be geared to allow private investment, innovation, entrepreneurship and markets to come together and form thriving ecosystems in critical and emerging technologies. There is a role for governments beyond this: to finance accelerated investment in technology infrastructure and to adopt a common front in the battle for standards.

Two sectors – cybersecurity and semiconductors – require closer government-to-government cooperation and greater government-to-industry policy support.

The Quad’s approach to cybersecurity should move beyond its narrow focus on securing networks to the containment of the Sinosphere in cyberspace. We need a common approach to counter the hacking of minds, more than the mere hacking of networks and devices.

When it comes to semiconductors, instead of financial support for self-sufficiency, Quad governments are better off encouraging research and development cooperation, allowing preferential access to design tools and reinforcing intellectual property protections.

While there is a fundamental difference between authoritarian and liberal-democratic approaches to the policy issues of the information age, there is no consensus among the latter. The Quad should not allow differences of approach on privacy, data governance, platform competition and the digital economy to widen.

China is the biggest trading partner for most Quad countries. Each Quad nation imports more from China than from its three partners combined. This offers both the inspiration for and the limitation of the Quad’s agenda. Substituting China is neither practical nor desirable. The bubbles-of-trust approach would allow Quad countries to manage their dependencies on China while developing a new vision for the global economy.

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The Sydney Dialogue acknowledges the Gadigal people of the Eora Nation, the traditional custodians of the land and pays respect to the Elders both past and present. We honour and respect the significant role they play for our community.

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