In AI, U.S. Economic Statecraft Must Fire on all Cylinders

On August 13, 2018, President Trump signed the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). The law’s intent is to stop China’s acquisition of critical technologies — the ‘crown jewels’ of U.S. global power. FIRRMA expands the powers of the Committee on Foreign Investment in the United States (CFIUS) to review the national security implications of foreign investments. The CFIUS reform bill subjects more transactions to review and mandates that foreign investments in critical technologies are reported to the committee. Championed initially as a strong response to China’s technology transfer strategy, FIRRMA’s passage, coupled with ongoing trade and IP tensions, caused Chinese investments into U.S. technology firms to decline by 79% in 2018.

Artificial intelligence (AI) is one of the leading technologies FIRRMA seeks to safeguard. AI has vast potential military applications and will provide early adopters with immense advantages in strength, speed, and lethality. Imagine a fleet of drones capable of identifying and processing images on the battlefield as quickly as Facebook facial recognition software, feeding targeting data to an AI-assisted cruise missile managed by a human operator. Take it from Russian President Vladimir Putin: “Whoever becomes the leader in [artificial intelligence] will become ruler of the world.” To surpass America’s competitors for AI mastery, the United States must employ a comprehensive economic security strategy, not just raise investment barriers.

China currently trails the U.S. in top AI talent, but Beijing is spending billions more to become a leader in this technology as per the ambitious Made in China 2025 program. China already leads the U.S. and Japan in AI patents. In 2017 alone, China’s AI market grew by 67% to a value of $24 billion. FIRRMA may put a freeze on the unintended export of critical U.S. technological advancements, but China’s investments into its own AI market could make the lauded CFIUS update irrelevant and simultaneously restrict available funds for America’s AI industry.

An AI-focused national economic security strategy should loosen the mandatory filing requirements FIRRMA places on critical technology. Not every Silicon Valley-bound Chinese VC investment is intended to empower the People’s Liberation Army to storm the shores of Taiwan with revolutionary operational efficiency. Foreign direct investment can increase the volume of firms in the domestic U.S. AI industry by increasing the pool of available investment capital. More American AI firms means more American AI talent. CFIUS filing mandates create costs for all foreign investors, not just those with malign intentions. Is U.S. national security better served if a Baidu investment intended for a U.S. startup developing a benign, commercially-oriented AI software is diverted instead to a Chinese firm?

The committee should also implement a maximum transaction amount before a foreign investment triggers the mandatory filing requirement. This ceiling would direct CFIUS resources towards higher quality investigations and remove barriers for leaner AI startups. A better use of resources might be to develop a monitor of Chinese VC activity in U.S. critical technology headed by the U.S.-China Economic and Security Review Commission.

An AI-focused economic security strategy should also look to raise greater domestic capital. This could include greater grant funding for AI research, investment summits in critical technology headed by the Commerce Department, and an expanded budget for the Defense Innovation Unit to expand its portfolio of promising dual-use technology startups. Project MAVEN, a collaboration between Google and the Department of Defense on improving machine learning and image recognition software for warfighting systems, is a promising example of how the Pentagon can leverage public-private partnerships. Although Google decided not to renew its contract, the Pentagon should continue pursuing agreements that utilize American AI innovation.

Some will argue that the U.S. government should leave investment decisions to the private sector. What these critics fail to understand is the unique challenge China poses — a strategic competitor that can rival U.S. economic power. The U.S. cannot afford to cede AI tech leadership to China in cult-like deference to the invisible hand of the market.

The U.S. ‘national innovation base’ continues to be the crown jewel of America’s global military dominance. China would not pursue a technology transfer strategy if it did not covet American technological leadership, but the U.S. can fall behind in AI if its response is limited to imposing higher investment barriers. Adjusting FIRMMA filing requirements and implementing policies that generate adequate funding must be part of a comprehensive economic security strategy towards AI. These steps in support of critical technologies are necessary for the U.S. to win the battle for AI mastery.