The U.S. and China - Becoming the Superior Technological Hegemon

Author: Caloianu Anamaria Florina

The growing strategic rivalry between the United States and China has made technology and innovation key areas of competition among great powers. From advanced semiconductors to artificial intelligence, the ability to develop and control crucial technologies increasingly determines a nation's capacity to project influence, gain economic leverage, and lead on the global stage. Understanding these dynamics requires a theoretical perspective that connects economic capabilities to international power structures. This case study draws on Robert Gilpin’s economic approach to international relations and his theory of hegemonic stability, providing a framework to assess how technological innovation affects both the potential for global dominance and the ongoing U.S.–China rivalry (Zhang, 2020).

Throughout history, actors with the most advanced technology have regularly disrupted the existing order and gained strategic advantages; technological dominance has often provided significant advantages in military, economic, and industrial sectors, enabling nations to expand their influence and reach. However, having a technological edge alone is rarely enough to transform a Great Power into a hegemon; several other factors, including economic resilience, institutional strength, strategic alliances, and global legitimacy, work in conjunction with technological capabilities to shape a state’s overall path in the international system.

It is essential to acknowledge that no comprehensive framework currently exists in international relations to systematically explain how technology and innovation influence the progression from a rising power to a Great Power, and ultimately to a hegemon. Although multiple studies examine facets of technological competition, there is no single universally accepted theory. The current U.S.-China rivalry, which exceeds the magnitude of the U.S. - Japan trade tensions of the 1980s and the U.S.-USSR Cold War technological race, underscores the persistent significance of innovation and industrial strength in determining global power dynamics.

In the 1980s, the U.S.'s dealings with Japan influenced its strategies for handling trade and technological rivalry. It employed tools such as voluntary export restraints, exchange rate interventions, the 1985 Plaza Accord, and the 1989 Structural Impediments Initiative. During this period, the U.S. was developing as a leading force in innovation, fueled by an open market and world-class inventions, products, and industrial methods (Ciuriak, 2019).

In contrast, the current U.S.-China rivalry exhibits a significantly different pattern: China has rapidly enhanced its production and manufacturing capabilities, emerging as a leader in various sectors. Although much of this development depends more on scale than on innovation, many technologies are adaptations rather than breakthroughs. China’s approach shows a non-coercive way of exerting influence, leveraging joint ventures and collaborations with smaller companies to promote technology transfer and connect with global supply chains without engaging in direct conflict.

The U.S.-China trade relationship has shifted from a focus on simple goods to a high-tech rivalry. China is now a leader in technology, and the competition includes AI, data management, and strategic infrastructure, making technological supremacy a key element of global influence (Ciuriak, 2019). Innovation is central to both economic growth and the strategic positioning of states within the international system, and industrial policy depends on various technology innovations and the government's commitment to investing in them (Kennedy and Lim, 2018). Gilpin stresses that nations aiming for global dominance must prioritize innovation as a key national interest, as technological leadership is transient and competitors will eventually catch up, resulting in continuous strategic challenges.

States implement technology through industrial policy, intentionally aiming to reshape economic structures and boost strategic capabilities; this often involves encouraging high-tech firms and creating spillover benefits across different sectors. The type of technological innovation pursued, whether it is original innovation (OI) or imitative innovation (II), and the level of government investment, influence the success of these policies. OI, which involves high risk and uncertainty, is typical of advanced countries like the United States, where market adoption can be unpredictable. Conversely, II focuses on adapting existing technologies and is more common among emerging powers trying to catch up with established leaders.

Historically, the United States exemplified OI, with its high-tech firms driving transformative innovation and reinforcing its hegemonic position. Government incentives were secondary to market forces, though policy occasionally supported strategic research. China has long depended on II, systematically adopting foreign technologies in manufacturing and infrastructure; however, recent initiatives such as 'Made in China 2025' and the ten-year plan to reach 70% technological self-sufficiency indicate a strategic shift towards OI in fields like robotics, aerospace, new energy, advanced materials, and biotechnology.

The Innovation Imperative, as articulated by Kennedy and Lim, frames this dual strategy: rising powers first acquire existing technologies to consolidate short-term capacities and reduce risk, then aim to generate original innovations to achieve long-term primacy (Kennedy and Lim, 2018). Applied to the U.S. - China rivalry, the framework shows how China’s shift from imitation to open innovation shapes its challenge to U.S. technological leadership in AI, 5G, and green technologies.

As of 2010, the United States’ GDP was roughly three times that of China, leading many analysts to doubt that China could surpass the U.S. economically or replace it as the primary source of technological innovation, despite its rapid rise among the world’s major powers. Over the past several years, however, China has entered a new stage of development, strategically shifting from a low- and middle-tech manufacturing economy toward a high-tech, innovation-driven model. This transition reflects a deliberate industrial policy aimed at acquiring technological capabilities to enhance its position in the international system, consistent with Robert Gilpin’s insights on the relationship between economic strength, technological leadership, and hegemonic stability.

China’s approach combines incentives, partnerships, and, in some cases, coercive measures with foreign firms, the government funds large-scale projects in advanced sectors such as next-generation nuclear reactors, nanotechnology, quantum computing, clean energy, and water purification, while simultaneously requiring multinational companies to transfer proprietary technologies to Chinese state-owned enterprises. These measures have created tensions with foreign governments and corporations and raised broader questions about the compatibility of China’s state-led model with Western capitalism.

According to the Harvard Business Review, since 2006, China has pursued policies aimed at appropriating technology from foreign multinationals in sectors such as aviation, power generation, high-speed rail, information technology, and electric vehicles. These measures limit foreign investment, enforce local content requirements, and compel technology transfer in joint ventures with state-owned enterprises.

By establishing a domestic ecosystem that compels multinational companies to base their advanced research and development activities in China, Beijing aims to accelerate the transition from an emerging power to a global rival capable of challenging U.S. technological dominance. To accelerate its technological ascent and consolidate strategic advantages, the Chinese government has developed a multi-pronged approach designed to both contain foreign companies and enable domestic firms to create advanced technologies. First, the state positions itself as both buyer and seller in key industries by retaining ownership of major customers and suppliers. Examples include CSR and China Railways in transport, AVIC in aerospace, and China Eastern Airlines in aviation. This dual role allows the government to exert substantial influence over equipment purchases, sales, and technological development.

Second, the government has consolidated multiple smaller manufacturers into a few national champions, generating economies of scale and concentrating learning. CSR and AVIC, for instance, emerged from the merger of several smaller, loss-making enterprises. Chinese officials leverage their position to compel multinational companies to form joint ventures with these national champions, effectively requiring technology transfer as a condition for access to current and future business opportunities. Firms that resist are excluded from projects entirely. These measures also exploit competitive dynamics among foreign companies, prompting them to transfer technologies to Chinese state-owned enterprises (SOEs) to secure market access.

Third, Beijing employs sector-specific strategies to accelerate domestic capabilities. In the wind energy sector, foreign firms held a 75% market share between 1996 and 2005. The government then expanded the market through subsidies and incentives while simultaneously raising local-content requirements from 40% to 70% and increasing tariffs on imported components. This created an environment where foreign companies could not scale rapidly, while Chinese firms, licensing technology from smaller European producers, rapidly gained market share. By 2009, domestic companies such as Sinovel and Goldwind controlled over two-thirds of the market, and no foreign company had won a central government–funded wind project since 2005.

In industries such as information technology, where mandatory joint ventures are less feasible and state-owned firms cannot match global leaders, China has adopted subtler measures. Domestic players receive tax incentives and preferential treatment, while foreign firms face regulatory pressures. For example, although Germany’s SAP dominates China’s ERP software market, the government has granted tax rebates to domestic firms such as Kingdee International Software Group, which now leads the SME segment. In 2010, the government attempted to require foreign companies serving state-owned clients to disclose source codes, though protests from global vendors and Western governments led to a partial retreat.

China also implements product standards and technical specifications that compel foreign software and hardware suppliers to develop customized versions for the domestic market. This strategy allows Chinese manufacturers to bypass Western patents and royalty obligations. Hout and Ghemawat (2020) examine the global implications of China’s technological development and its interplay with international innovation networks: China’s proprietary wireless and 3G mobile standards, WAPI and TD-SCDMA, are unlikely to achieve global adoption, yet they confer a competitive advantage to local companies while creating significant barriers for foreign equipment producers.

          Apple and Samsung remain the most familiar smartphone brands to Western consumers, together representing just over a third of global sales. Yet in Asia, Africa, and other regions, Chinese brands have firmly established themselves, not only dominating three of the top five positions worldwide (IDC, Quarterly Mobile Phone Tracker) but also winning users with affordable, feature-rich devices. U.S. restrictions on semiconductor supplies briefly disrupted Huawei’s production and sales, but other Chinese brands quickly filled the gap.

In the commercial drone industry, China’s dominance is clear. DJI, founded by Frank Wang, now leads the U.S. market for unmanned aircraft used in agriculture, filmmaking, public safety, and aerial photography. Western competitors, like California-based Skydio, hold less than 1% of the U.S. commercial drone market.

Overall, these examples demonstrate how China’s approach, which integrates industrial policy, market consolidation, both imitative and original innovation, and strategic global deployment, aligns with Gilpin’s view that technology control is key to international power. The Innovation Imperative emphasizes that emerging powers must acquire and develop technologies incrementally to build immediate capabilities and secure long-term dominance. China is implementing this strategy across both hardware and software sectors to challenge the U.S.'s technological leadership.

          Bibliography

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