

An independent assessment for Congress as mandated by the FY2019 National Defense Authorization Act.

Foundational Principles of U.S. Strategy in the Indo-Pacific The United States and China are locked in strategic competition over the future of the Indo-Pacific—the most populous, dynamic, and consequential region in the world. At stake are competing visions for the rules, norms, and institutions that will govern international relations in the decades to come. The U.S. government aspires toward a “free and open” Indo-Pacific, defined by respect for sovereignty and the independence of nations, peaceful resolution of disputes, free and fair trade, adherence to international law, and greater transparency and good governance. For the United States, successful realization of this regional order would include strong U.S. alliances and security partnerships; a military able to operate throughout the region, consistent with international law; U.S. firms with access to leading markets, and benefiting from updated technology standards, investment rules, and trade agreements; U.S. participation in effective regional and international institutions; and the spread of democracy and individual freedoms in the context of an open information environment and vibrant civil society. By contrast, China is driving toward a more closed and illiberal future for the Indo-Pacific, core aspects of which would undermine vital U.S. interests. Key features of China-led order would include the People’s Liberation Army controlling the South and East China Seas; regional countries sufficiently coerced into acquiescing to China’s preferences on military, economic, and diplomatic matters; an economic order in which Beijing sets trade and investment rules in its favor, with dominance over leading technologies, data, and standards; and Beijing with de facto rule over Taiwan and agenda-setting power over regional institutions. The order would be further characterized by weak civil society, a dearth of independent media, and the gradual spread of authoritarianism, reinforced by the proliferation of China’s high-tech surveillance state. The net result would be a less secure, less prosperous United States that is less able to exert power and influence in the world. Ultimately, the competition between the United States and China in the Indo-Pacific is a contest over which of these futures will come closer to fruition, even as neither is likely to attain in its entirety. In the two years since the 2017 National Security Strategy and 2018 National Defense Strategy aptly identified this competition over the regional order in Asia, the U.S. government has taken initial steps toward its goal of a free and open region. On balance, however, critical areas of U.S. policy remain inconsistent, uncoordinated, underresourced, and—to be blunt—uncompetitive and counterproductive to advancing U.S. values and interests. This independent assessment—mandated by the U.S. Congress in the 2019 National Defense Authorization Act—is intended to help close the considerable gap between the current administration’s stated aspirations for a free and open Indo-Pacific and the actual implementation of policies to advance that vision. Specifically, Congress called for “an assessment of the geopolitical conditions in the Indo-Pacific region that are necessary for the successful implementation of the National Defense Strategy,” with a particular focus on how to “support United States military requirements for forward defense, assured access, extensive forward basing, and alliance and partnership formation and strengthening in such region.” This report examines how the U.S. government as a whole, not just the Department of Defense, can realize these outcomes. Although the focus of this assessment is on the Indo-Pacific, it is critical to underscore that the China challenge is a global phenomenon, and many of the actions recommended in this report should be taken to bolster U.S. competitiveness beyond the region. Consistent with the bipartisan mission of the Center for a New American Security, the report’s authors have collectively served on both sides of the aisle in Congress and in the administrations of Presidents George W. Bush, Barack Obama, and Donald Trump at the White House, State Department, Defense Department, Treasury Department, Central Intelligence Agency, and Office of the U.S. Trade Representative. Included herein are nearly a hundred specific and actionable policy recommendations across critical vectors of American competitiveness in the Indo-Pacific. Before turning to these recommendations, the remainder of this section describes six core principles that undergird the assessment and should form the foundations of U.S. strategy in the Indo-Pacific region. 1. The U.S. government should approach strategic competition with China as an urgent priority. Business as usual in Washington will be insufficient to address the China challenge in the Indo-Pacific. Among the most important contributions of the National Defense Strategy is this simple statement: “Inter-state strategic competition, not terrorism, is now the primary concern in U.S. national security.” This is correct: The China challenge—too often described as a problem for the future—is here and now. As is manifest throughout this report, the United States is at risk of losing strategic advantage to China across several critical domains and in ways that would have deep and enduring effects on America’s ability to advance its values and interests in the region. This is no reason for panic or pessimism, but a number of troubling trends should nevertheless sharpen America’s strategic focus on the scale and scope of the China challenge. The local military balance in Asia, for instance, is already approaching parity in certain areas, putting at risk America’s ability to deter Chinese aggression. Meanwhile, China is poised to surpass the United States in gross domestic product, while racing ahead to gain technological advantage in key areas such as artificial intelligence, quantum computing, and genomics. Beijing is similarly outpacing Washington with a more focused and innovative approach to diplomacy and economic development in the Indo-Pacific. America, by comparison, has too often been distracted, reactive, and flat-footed. Moreover, Washington continues to disproportionally direct federal resources toward Europe and the Middle East, which is inconsistent with the National Security Strategy and National Defense Strategy. China’s resurgence is partially the result of a natural redistribution of power and influence in the world. In many areas, however, eroding U.S. advantages in the Indo-Pacific are within America’s power to arrest and reverse. Doing so will require substantially greater attention and resources than have been applied to date. Renewing American competitiveness will not come cheaply—several recommendations herein call for committing considerable amounts of money, senior-level attention, and bureaucratic focus. This demands prioritizing the China challenge in the Indo-Pacific not only with a greater sense of urgency, but also with a willingness to make hard tradeoffs in other regions and with other issues. Managing the China challenge should be an organizing principle of U.S. foreign policy, not just one among many other pressing priorities in the world. 2. U.S. strategy must be both comprehensive and coordinated across multiple domains. The United States needs a strategy toward the Indo-Pacific that is both comprehensive in breadth and coordinated in execution. Unlike the Cold War with the Soviet Union, the competition with China will not be waged principally in the military sphere; sustaining deterrence will be essential but not sufficient. A core argument of this report is that bending the Indo-Pacific to a freer and more open future will require the United States to compete effectively across several critical domains, including economics, technology, diplomacy, ideology, governance, and human capital. Moreover, the whole of the competition is greater than the sum of its parts. Seemingly distinct issues interact and are mutually reinforcing in powerful ways: Technological advantage is a key driver of economic and military power; economic influence shapes decisions on politics and security; diplomacy reinforces military alliances and partnerships; the information environment shapes perceptions of relative power; and competing effectively in every one of these domains requires serious talent management strategies with commensurate investments in human capital. None of these areas should be treated as disparate arenas of the competition. The demand for a comprehensive strategy toward China has significant implications for how the U.S. government should organize in response. Without question, Washington will need a whole-of-government approach that coordinates U.S. policy across multiple issue areas. This will require institutional innovations in the U.S. government that cut across traditional bureaucratic lines. Moreover, as is argued throughout this report, Washington will need to enlist a broader set of stakeholders in bolstering U.S. competitiveness, including technology companies, media, universities, civil society, and the private sector. Viewing the China competition through the lens of a whole-of-society approach is necessary and will require further reforms to the ways in which U.S. policy is made and implemented. 3. Strengthening America’s own competitiveness is vital to realizing a free and open Indo-Pacific. America’s own competitiveness will be the dominant determinant of how the regional order in the Indo-Pacific evolves. U.S. policymakers should—in every dimension of the competition—begin by assessing what Washington can do to make America run faster and jump higher. The United States should take many of the actions recommended herein regardless, but doing so is all the more urgent in the context of strategic competition with China. As each section of this report demonstrates, there is a panoply of steps the United States can take to bolster its own power, thereby sustaining key advantages and reversing areas of strategic decline in the Indo-Pacific. U.S. policymakers should proceed with the conviction and confidence that the foundations of American power are strong: Its people, demography, geography, abundant energy resources, dynamic private sector, powerful alliances and partnerships, leading universities, robust democracy, and innovative spirit give the United States everything it needs to preserve and advance its interests in the Indo-Pacific. Many of these strengths stand in stark contrast to a number of obstacles China faces, including its slowing economy, poor demographics, devastated environment, repressive government, and weak rule of law. Nevertheless, U.S. advantages are neither preordained nor permanent. As is outlined throughout this report, competing more effectively in the region will require greater focus on sustaining core sources of U.S. power and cultivating new ones. This should include protecting the strength of the U.S. financial system, putting greater resources toward research and development, investing in education, developing human capital, leveraging high-skilled immigration, and defending America’s democratic way of life. At the same time, the U.S. government will have to be resourced to reflect the central importance of the Indo-Pacific, ensuring that the relevant bureaucracies—including the State Department, Commerce Department, Treasury Department, Justice Department, and White House—have the people and skills they need to compete in the 21st century. Beyond the issue of resources, U.S. policymakers will have to exhibit high levels of entrepreneurship inside the U.S. government. Existing U.S. departments and agencies will have to be supplemented with new institutions designed to develop and coordinate policy on critical issues, including development finance and public diplomacy. In response to the China challenge, U.S. policymakers will be further tasked with developing new tools of economic statecraft and novel military operational concepts. 4. The United States must compete with and for allies and partners. At its core, the China challenge in the Indo-Pacific is a problem of both scale and geography. Although the United States still possesses several natural advantages in the region, U.S. policymakers will find it increasingly difficult to generate unilateral solutions to the coercive power Beijing can bring to bear with its growing military and outsized domestic market. This means, in part, that it is no longer viable for the United States to pursue a policy aimed at achieving uncontested dominance. Instead, as is argued throughout this assessment, coalition building will be essential on nearly every major issue in the Indo-Pacific. The United States is entering this phase of the competition with China with a key advantage in alliances—with Australia and Japan, as well as NATO, the Philippines, South Korea, and Thailand—and several partnerships—including with India, Indonesia, Malaysia, Singapore, Taiwan, and Vietnam—that harbor the potential to play consequential roles in the region. Nevertheless, U.S. policy will have to reflect the reality that countries in the region all view China to differing degrees as both an economic opportunity and geographic reality. As a result, attempts to construct an explicitly anti-China alliance will fail. At the same time, countries in the region, by and large, do not want to live in an illiberal China-led order. This presents opportunities for the United States to build meaningful regional partnerships. Nevertheless, Washington will have to address the pervasive doubts in the Indo-Pacific about the enduring commitment of the United States to the region. As long as capitals are uncertain about America’s staying power, they will be reluctant to partner with Washington or stand up to Beijing. In the absence of a more competitive U.S. strategy, other countries will perceive the inevitability of a Sino-centric region, thereby coming to accept certain elements of China’s illiberal order regardless of their preferences for American leadership. It is therefore imperative for the United States to provide viable alternatives across issue areas that address the long-term economic, political, and security interests of regional states, and to stick to its commitments. U.S. strategy should further focus on strengthening the resiliency of regional states against China’s political, economic, and military coercion. Bolstering U.S. partners can take a number of forms, as are recommended throughout this report, including strengthening regional institutions, offering targeted military assistance, supporting civil society and anti-corruption initiatives, and providing development finance and human capital training. Rather than being cast as anti-China, this engagement should lead with an affirmative agenda of prioritizing sovereignty and political independence that is free from coercion. Finally, Washington should leave the door open for cooperation with Beijing, even as it mounts a more competitive strategy in the region. There are areas where, if possible, it would be squarely in America’s interest to collaborate with China in the Indo-Pacific, including climate change and energy, global public health, and nonproliferation. Pursuing cooperative efforts with Beijing will not only advance U.S. interests but also send an important message to the region that the United States is not seeking an all-out confrontation with China. 5. The United States should be proactive in building regional order in the Indo-Pacific, establishing new rules, norms, and institutions. In pursuit of a free and open Indo-Pacific, the United States will have to present an affirmative vision that goes beyond blunting China’s illiberal order. Critically, however, Washington’s aspirations for the region’s future cannot simply be cast as a return to the past. The postwar international order played a vital role in bringing peace and prosperity to Asia, but it has proved insufficient in curbing China’s ability and desire to challenge vital U.S. interests in the region. Moreover, new contested domains—including in economics, defense, technology, and information—are emerging in the Indo-Pacific for which the existing rules and institutions are largely silent or inadequate. As a result, U.S. strategy in the Indo-Pacific should focus on revising the regional order with updated norms, rules, and institutions that are better suited to the realities of the 21st century. To some extent, this will mean modernizing existing bodies. That alone, however, will not be sufficient. Each section of this report offers recommendations for the building blocks of a new regional order that goes beyond simply reinforcing the postwar system. These include specific proposals for advancing new trade and technology standards, new multilateral mechanisms to coordinate on technology issues, new human rights norms associated with digital freedom and access to information, a more networked regional security architecture, and new cooperative efforts on issues such as artificial intelligence, telecommunications, and development finance. Rather than being largely reactive to China’s new initiatives, U.S. policymakers should ensure that innovation and entrepreneurship are the watchwords of America’s approach to the Indo-Pacific. 6. There is no easy way out of the China challenge. Achieving long-term stability in the Indo-Pacific will first require a period of intensified competition with China. Even as the United States aspires to a more cooperative relationship—or at least a better-managed competition with Beijing—current realities necessitate greater tension in the near term. At present, the continued erosion of U.S. strategic advantage is creating a permissive environment for Chinese assertiveness and increasing the likelihood of confrontation and conflict. A more competitive United States could reverse these trends and help stabilize Asia, setting the context for a new strategic equilibrium with Beijing, provided that U.S. policy is sophisticated enough to avoid a counterproductive rivalry. Public education and engagement will be essential components of this effort: A more competitive U.S. strategy toward China will be neither effective nor sustainable without the informed support of the American people. Washington will have to accept and acknowledge that rising to the China challenge will require difficult sacrifices and tradeoffs. In doing so, U.S. leaders will have to explain the considerable stakes in the Indo-Pacific and be clear—especially with key stakeholders, including in industry and academia—about the requisite costs of renewing American competitiveness. In particular, defending against China’s predatory behavior and protecting key areas of competitive advantage will, in certain areas, affect economic efficiency and openness. There will be necessary costs to the United States’ pursuing more secure and diversified supply chains, stronger export controls and investment restrictions, and enhanced visa-screening and counterespionage capabilities. Washington will have to be vigilant in striking the right balance between selective decoupling and continued interdependence, building appropriate boundaries and safeguards while still preserving the enormous benefits America accrues from its open society and economy. There will also be specific issues—such as the internment camps in Xinjiang, intellectual property theft, and overseas political influence operations—where the United States will have to confront the Chinese Communist Party’s most pernicious forms of coercion and illiberalism, even when Beijing is likely to retaliate. The United States should not needlessly provoke China, but neither can Washington be paralyzed by risk aversion. Building public support for the policies recommended herein will require U.S. leaders to put forward clearer arguments about what is actually at stake for the American people beyond abstract or inside-the-Beltway assertions about the importance of U.S. leadership and the liberal international order. This should include public understanding of the real economic costs to Americans at all income levels if U.S. companies steadily lose access to leading markets; continue to be the victims of intellectual property theft and forced technology transfer; and are increasingly disadvantaged by China’s anti-competitive economic policies and China-led standards, investment rules, and trading blocs. Similarly, there should be more public awareness of the heightened risk of conflict in Asia if the United States finds itself with weaker alliances, fewer security partners, and a military forced to operate at greater distances. Finally, if China’s model and tools of censorship, surveillance, and social credit systems become acceptable features of domestic governance and international affairs, there will be harmful effects on the individual freedoms of people around the world, including in the United States.

Policy Recommendations in Sum I. Sustaining Conventional Military Deterrence Develop a new American way of war Design a new military strategy and novel joint operational concepts for China contingencies.

Build a more resilient architecture for command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR).

Build a combat-credible posture in the Indo-Pacific.

Increase investments in critical munitions and munitions development.

Develop concepts and capabilities for contested logistics. Empower the Defense Department to harness America’s national security innovation base Reform Defense Department organizations and processes, including requirements, programming and budgeting, and acquisition.

Ensure the Department of Defense can develop, access, and leverage the latest technologies.

Sustain and enhance a traditional and nontraditional defense industrial base that is robust, flexible, and resilient. Strengthen and network U.S. allies and partners Develop ally and partner anti-access/area denial capabilities.

Promote security networks among U.S. allies and partners.

Build a common operating picture in Southeast Asia.

Allow exemptions to the Countering America’s Adversaries Through Sanctions Act (CAATSA) for countries seeking to balance against China.

Support Indian military choices that create dilemmas for China in peacetime, crisis, and conflict. II. Securing Vital U.S. Technological Advantages Bolster America’s innovation engine Increase research and development investments in the United States.

Accelerate U.S. innovation in artificial intelligence through standards-setting, metrics, and horizon-scanning.

Support U.S. innovation in artificial intelligence and machine learning by increasing the availability of government data and computing resources.

Forge an alliance innovation base. Protect critical U.S. technological advantages Secure semiconductor supply chains.

Establish multilateral export controls on semiconductor manufacturing equipment and increase federal funding for next-generation hardware.

Diversify sources of rare earth minerals.

Expand export controls based on end use for certain products sold to China. Counter illicit technology transfer Ensure sufficient resources for counterespionage investigations.

Develop better collaboration between U.S. law enforcement and universities.

Improve visa screening for espionage risks.

Expand sanctions authorities to cut off from the U.S. market and financial system Chinese firms that steal U.S. technology.

Include more People’s Liberation Army-linked companies on the export regime Entity List. Lead on developing new international rules, norms, and standards for emerging technologies Create a new grouping of advanced democracies to coordinate on technology policy.

Engage more proactively in multilateral bodies that set technology standards.

Lead internationally and engage with China on developing norms and principles for the use of emerging technologies. III. Bolstering U.S. Economic Power and Leadership Promote U.S. trade and investment in the Indo-Pacific Catalyze greater U.S. investment in the Indo-Pacific through the new U.S. International Development Finance Corporation, bilateral investment treaties, and the Export-Import Bank.

Enhance U.S. commercial diplomacy in the Indo-Pacific at the Treasury, Commerce, and State departments.

Expand technical assistance programs that bolster U.S. investment in the Indo-Pacific, including the Infrastructure Transaction and Assistance Network.

Continue to support an open global trade and investment regime for energy resources.

Include key Indo-Pacific partners in the Generalized System of Preferences program. Strengthen and leverage America’s financial power Promote financial market transparency by passing beneficial ownership disclosure requirements for U.S. companies.

Delist foreign companies, including Chinese firms, that do not meet audit and disclosure requirements from U.S. exchanges.

Discourage challenger currencies and payments.

Develop and exercise strategic concepts for coercive economic statecraft. Support U.S. leadership and innovation in financial technologies Create a regulatory framework for financial technology acceleration to compete against foreign jurisdictions, including China.

Encourage development of blockchain payments applications.

Fund and support rigorous education and academic research in blockchain technology. Revise the economic order in the Indo-Pacific and globally Pursue new high-standard multilateral trade agreements in the Indo-Pacific and Europe.

Use tariffs sparingly against allies and partners.

Enhance U.S. cooperation with the World Bank and Asian Development Bank to support high-quality infrastructure projects in the Indo-Pacific.

Lead on setting high standards for development finance.

Update, strengthen, and reform the World Trade Organization.

Make any additional tariffs against China more targeted. IV. Strengthening American Diplomacy Enhance diplomacy with the highest priority allies and partners in the Indo-Pacific Host a regular trilateral dialogue between the U.S., Japanese, and Australian national security advisors.

Upgrade and institutionalize high-level bilateral diplomacy with key Asian partners, particularly India, Indonesia, and Vietnam.

Strengthen diplomatic and security ties with Taiwan.

Intensify cooperation with Europe on Indo-Pacific diplomacy.

Proactively seek to resolve disputes between allies and partners, including in the South China Sea, as well as between Japan and South Korea.

Continue to prioritize assistance to Asian states on energy and climate resilience and rejoin the Paris climate agreement.

Selectively remove barriers to foreign and security assistance to strategic U.S. allies and partners in the Indo-Pacific. Develop new diplomatic, political, and cultural exchanges with partner states Shift International Military Education and Training funding to the Defense Department and create a similar State Department program for foreign diplomats.

Increase high-level visits to key allies and partners in the Indo-Pacific, including by U.S. congresspersons, mayors, and governors, and create a State-Commerce initiative to brief these officials properly.

Ramp up youth exchanges and establish additional Fulbright Universities in the Indo-Pacific.

Create an Asia-Pacific Center for Security Studies satellite office in the Indo-Pacific. Deepen engagement with regional institutions in the Indo-Pacific Participate actively in Asia’s leading multilateral institutions.

Join or increase participation in South Asian and Indo-Pacific multilateral organizations where the United States is not sufficiently active.

Coordinate with allies and partners on regional institutions in which the United States does not participate. Restructure U.S. bureaucracies to better compete in the Indo-Pacific Increase key U.S. government staffs dedicated to the Indo-Pacific, including at the Treasury and State departments.

Appoint a deputy assistant to the president for China responsible for coordinating a whole-of-government strategy.

Create an independent bipartisan Commission on American Competitiveness. V. Competing Over Ideology and Narrative Strengthen U.S. public diplomacy in the Indo-Pacific Rebuild and enhance U.S. public diplomacy institutions.

Optimize U.S. information efforts for social media and targeted audiences.

Launch public diplomacy campaigns to highlight and promote U.S. economic initiatives, development assistance, and private-sector investments in the Indo-Pacific. Expose China’s illegal, aggressive, and repressive actions Communicate directly and more systematically to publics both at home and abroad about Beijing’s malign activities.

Redesign declassification processes to make it easier to release information publicly about the Chinese Communist Party’s wrongdoings.

Draw attention to the repression of Uighurs as a religious freedom issue and encourage Muslim communities in Southeast Asia and beyond to speak out. Build resiliency to China’s propaganda and influence operations Institute mandatory transparency for U.S. educational and civil society institutions receiving Chinese government funding.

Require disclaimers on direct foreign government propaganda, including through reform of the Foreign Agents Registration Act.

Help to root out Chinese Communist Party influence in key allies and partners. VI. Promoting Digital Freedom and Countering High-Tech Illiberalism Bolster America’s digital engagement in the Indo-Pacific Establish a new U.S. Digital Development Fund that would, in coordination with allies, support information connectivity projects in the Indo-Pacific and beyond.

Direct the new U.S. International Development Finance Corporation to support projects in the Indo-Pacific that provide alternatives to China’s digital infrastructure.

Augment U.S. digital diplomacy in the Indo-Pacific with additional digital attachés and high-level “digital delegations.” Prevent China’s dominance of digital infrastructure in the Indo-Pacific Revitalize global competition in 5G wireless technology.

Increase pressure on Huawei’s 5G ambitions while honing the current U.S. approach to the company.

Actively reject the notion of “internet sovereignty” and advance access to fact-based information as a universal human right. Challenge China’s surveillance state domestically and overseas Leverage America’s economic toolkit to target actors facilitating the spread of China’s high-tech illiberalism.

Design new means to circumvent China’s “Great Firewall.”

Promote independent media, civil society, and government accountability throughout the Indo-Pacific. VII. Cultivating the Talent to Compete with China Empower the U.S. military to compete in the battle for talent Broaden military recruitment strategies to leverage America’s talents.

Rapidly scale military talent management initiatives across active and reserve components.

Modernize military training, education, and incentives for technical, regional, and language skills. Strengthen the civilian national security workforce Generate leadership expectations of human capital management, including national security civilian readiness metrics.

Modernize and reduce barriers in federal hiring processes.

Jump-start civilian professional development to build high-demand skills.

Enhance talent mobility across the national workforce.

Update federal education fellowships for great-power competition. Invest in the public-private technology workforce Surge support for science, technology, engineering, and math education across secondary, postsecondary, vocational, and workforce retraining levels.

Raise the overall cap for H-1B visas and remove the cap for advanced-degree holders entirely.

Improve workforce mobility between private sector and government technology roles.

Identify and appropriately staff critical technology roles in government.

I. Sustaining Conventional Military Deterrence Download this chapter and its recommendations. Maintaining a favorable balance of power will be essential to achieving America’s long-term aims in the Indo-Pacific. Even as the military dimensions of the U.S.-China competition are likely to feature less prominently than in the U.S.-Soviet rivalry of the Cold War, the erosion of conventional deterrence in Asia would threaten to undermine the full range of U.S. economic and political interests in the region. While the United States still retains an overall military advantage over China, the gap has closed considerably over the last two decades and, absent urgent change, the regional balance may tip in China’s favor by the late 2020s or early 2030s. In certain scenarios, the military balance may already disadvantage the United States. China’s military strategy has been predominantly asymmetric, seeking to disrupt, disable, or destroy the critical systems that enable U.S. military advantage. Responding to the asymmetric character of this competition poses an enormous challenge to the Defense Department (DoD) because it goes to the core of how the Joint Force fights wars, how the Pentagon and the defense industrial base develop technology, and how U.S. allies and partners build their armed forces. The National Defense Strategy and the Indo-Pacific Strategy Report pointed in the right direction to arrest and reverse these trends. Nevertheless, without requisite prioritization, forward-looking ideas, and consistent funding, subsequent shifts could end up being too little, too late. In short, the United States needs a new American way of war. The underlying military problem is that U.S. warfighting concepts and forces remain vulnerable to Chinese “systems destruction warfare,” which attacks critical nodes to create systemic effects. The challenges that need to be addressed are numerous: U.S. air bases, aircraft carriers, and surface vessels are too vulnerable to Chinese air and missile attacks; current U.S. systems for command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) are brittle in the face of Chinese cyberattacks, electronic warfare, and long-range strikes; U.S. logistics systems, ports, and airfields are vulnerable to cyberdisruptions and physical attacks; and the Joint Force lacks sufficient precision-guided munitions. All of these shortcomings must be addressed with considerable focus and urgency. To implement a new military strategy, the U.S. government will also have to change the way it does business. Reforming back-office processes cannot be pursued as an administrative sideshow, but rather as a foundation to America’s ability to compete more effectively. The Defense Department should revise its requirements, programming and budgeting, and acquisition processes to support and access the latest technological innovations. Bold and sustained leadership will be necessary at the Defense Department, at the White House, in the military services, and in the U.S. Congress to overcome powerful pockets of resistance that remain committed to legacy platforms and existing business models. Finally, the United States should make a concerted push to reshape the regional balance of power by further networking the regional security environment and building the capacity of key partners. This should include developing closer military ties that could be leveraged in crisis or conflict, as well as supporting the ability of frontline states to better deter Chinese coercion and aggression. To do so, the United States should help regional militaries—prioritizing Taiwan, Japan, Vietnam, and the Philippines—develop the ability to challenge China’s power-projection capabilities. Different parts of the region will require different fixes. In some cases, the threat of sanctions against countries with security ties with Russia should be eased to facilitate balancing against China. Where more advanced military cooperation is neither technically nor politically feasible—as is the case throughout much of Southeast Asia—the United States should build a maritime common operating picture that can both kick-start security cooperation and deter lower levels of Chinese coercion. Finally, the United States should pay particular attention to supporting India’s efforts to pose military dilemmas for China, thereby providing relatively low-cost means to complicate the ability of the People’s Liberation Army (PLA) to concentrate attention and resources on U.S. strongholds in East Asia and the Western Pacific. The following are recommendations for U.S. Policy:

Develop a New American Way of War Design a new military strategy and novel joint operational concepts for China contingencies Current U.S. military strategy and operational concepts for China incur significant risk of mission failure and unacceptable attrition, and trend lines suggest that this situation will worsen over time. This disadvantage will constrain U.S. policymakers across many potential contingencies, not just conflict scenarios. For instance, responses to gray-zone coercion are likely to be more muted if a strong response provokes escalation with significant risk to U.S. forces. Absent an appropriate strategy and operational concepts, U.S. modernization and technology developments are likely to be unfocused and inefficient, and allies and partners will lack a clear understanding of their role in response to Chinese coercion or aggression. The chairman of the Joint Chiefs of Staff should lead the effort to develop a new U.S. military strategy that explains how the United States alongside its allies and partners will use force to achieve the political objectives of defending U.S., allied, and partner interests from coercion while deterring or defeating Chinese aggression. In drafting the strategy, the Joint Staff should work closely with the Office of the Secretary of Defense, the relevant combatant commands, and the services. The strategy should be grounded in preventing China from achieving its objectives—what strategists call “deterrence by denial”—rather than simply by punishing China, given that Beijing may be willing to tolerate substantial costs to achieve its objectives. This strategy must also account for political dimensions of military action, including China’s ability to escalate strategically through informational, diplomatic, economic, or military means, to include attacks on the U.S. homeland or nuclear escalation. It should exploit the advantages of coalition warfare and force China to be the aggressor or escalator at every step. Finally, the strategy should detail how the Defense Department and the commander of U.S. Indo-Pacific Command intend to coordinate military actions with allies, partners, and other instruments of national power to achieve effects that are greater than the sum of the parts. Operational concepts for China should describe how the U.S., allied, and partner forces will conduct and coordinate military operations over time to achieve the military objectives of the strategy. The critical shift in these concepts must be the ability—whether through new technology or operational art—to strike at the PLA’s military centers of gravity without first gaining multidomain superiority, or without strategically unfavorable escalation. These concepts must be specific to conflict scenarios including Chinese coercion or aggression against Taiwan or Japan, coercion or conflict in the South China Sea, Chinese intervention into North Korea, and coercion or conflict in the Indian Ocean. This strategy and these concepts should guide defense investments and reforms while explaining these choices to audiences inside and outside the Defense Department, including allies and partners. As such, they should contain sufficient unclassified information to communicate the main ideas and priorities, while classified versions contain greater detail. Build a more resilient architecture for command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) Information has always been critical in warfare, but the concomitant development of information technology and precision-guided weapons has raised its importance to new heights. Given accurate information, precision-guided weapons can hit targets with reliable accuracy regardless of range. In this new regime, precision trumps mass, but it requires rapid, accurate information. China’s systems destruction warfare would use multidomain attacks to deprive U.S. forces of the information and coordination that make precision-guided warfare so effective. This approach is particularly problematic because current U.S. C4ISR is relatively brittle, as it was designed and built in an era when competitors or adversaries could not attack U.S. assets in space or at long ranges. A new architecture must be able to operate effectively under long-range multidomain Chinese attacks. Given the inherent vulnerability of some of these systems and the attack surface they present, preclusive defense is impossible. Instead, U.S. C4ISR systems must degrade gracefully under attack and must function in different modalities to complicate China’s counter-C4ISR operations. Improving the resilience of U.S. C4ISR architecture in the face of attack might be the single most effective step the United States can take to strengthen its conventional deterrent: China will be more readily deterred if Beijing doubts its ability to disrupt, degrade, or destroy U.S. C4ISR systems. Specific components of this architecture should include: Space capabilities that are more resistant to kinetic and nonkinetic attacks;

Alternatives to space for ISR, long-range communications, and position, navigation, and timing (PNT);

Low probability of intercept and low probability of jamming data links;

Cyberprotection that prioritizes sufficient trust in data over protecting network integrity;

Sophisticated surveillance systems that can penetrate contested environments using speed or stealth to surveil critical targets;

Alternative ISR systems that utilize large numbers of “good enough” sensors operating collaboratively in contested environments to target massed or imprecisely located targets;

Doctrine and training to operate using alternative C4ISR concepts, particularly mission orders and peer-to-peer networks;

Synthetic training environments that allow U.S. forces to exercise contested C4ISR operations;

Research and development investments in artificial intelligence to improve target recognition, information processing, and the ability of sensors and networks to respond to jamming or cyberattacks; and

Improvements in defensive countermeasures and offensive capabilities for electronic warfare (EW) that include: Developing a C4ISR architecture that can use multiple pathways to transmit data, including an ability to use networks of jam-resistant tactical data links to create larger “mesh” networks capable of supporting distributed, multidomain operations; Increasing the capacity of DoD and the services to conduct EW in multiple domains to disrupt enemy kill chains; Investing in stand-in jamming capabilities in the air, to include the use of unmanned or attritable aircraft in dense threat environments; Pursuing a layered EW posture for the Navy to defend against long-range anti-ship missiles, to include anti-satellite jamming, airborne EW platforms, and accelerated investments in terminal defenses; Investing in ground-based and unmanned EW platforms for the Marine Corps to provide an expeditionary EW capability as part of the Corps’ Expeditionary Advanced Basing Operations concept (EABO) that can disrupt enemy kill chains and enable maritime maneuver in previously contested environments; Investing in ground-based EW systems for the Army to help defend key forward locations against long-range air and missile attacks; and Investing in alternatives to GPS for all four services for position, navigation, and timing, and alternatives to millimeter-wave radars for terminal weapons guidance.

Build a combat-credible posture in the Indo-Pacific If attacking U.S. C4ISR systems is atop China’s targeting list, attacking U.S. forward bases, and particularly air bases, is a close second. China has made significant investments in long-range ISR and strike assets to attack fixed air bases and mobile aircraft carriers. China hopes the threat of these attacks will deter U.S. intervention by negating a substantial portion of U.S. airpower early in a conflict, thereby creating time and space for a fait accompli, and by causing potentially irreparable attrition to forward-deployed aircraft squadrons. A combat-credible posture would undermine China’s deterrence logic and weaken its military strategy by demonstrating that attacks on forward bases would not neutralize U.S. striking power in the region, and that attrition to U.S. forces would be within acceptable limits such that America and its allies could continue fighting. A combat-credible posture in the Indo-Pacific should include:

Adopting, exercising, and demonstrating an ability to execute a more dispersed basing posture in which dozens of airfields can support air operations in a crisis;

Acquiring equipment and maintainer personnel to support rapid movement between bases;

Making major air bases more resilient to attack by: Hardening, burying, or making redundant critical facilities such as fuel storage and pumps; Expanding runways or improving ramp and apron space to serve as expedient runways; Improving and exercising rapid runway repairs; Increasing passive defenses against area-effects weapons; Increasing active defenses against cruise missiles at major air bases; Increasing use of camouflage, concealment, deception, and electronic warfare to degrade Chinese ISR and battle-damage assessment; and Exercising air base operations under worst-case attack conditions.

Renewing and fully supporting the Compact of Free Association with the Federated States of Micronesia, the Marshall Islands, and Palau, which provide irreplaceable access to critical geography;

Developing support infrastructure and greater access at existing airfields, and improving runways and infrastructure at key locations in the Compact of Free Association states like Palau and Yap; and

Increasing deployments of ground-based precision fires for land and anti-ship attacks. Increase investments in critical munitions and munitions development Precision-guided warfare against China would require huge numbers of precision-guided weapons. Additionally, these weapons must be capable of striking both high-value and massed targets in highly contested environments with degraded information. Current U.S. munitions inventories are inadequate to support sustained combat against China, and especially in weapons that can penetrate China’s anti-access/area denial networks. To address this, the Defense Department should: Increase stockpiles of critical munitions, such as long-range anti-ship missiles;

Develop and deploy mobile and relocatable land-based launchers for long-range cruise, ballistic, and hypersonic weapons in the Indo-Pacific;

Develop and deploy affordable munitions that can operate collaboratively in contested environments to strike massed or imprecisely located targets;

Develop area-effects weapons that comply with current U.S. policies regarding cluster munitions, or seek waivers from these policies;

Accelerate development of longer-range air-to-air weapons;

Develop modular weapons with updatable seekers, control units, motors, and software to protect stockpiles from obsolescence; and

Work with Congress and the defense industry to increase munitions production capacity. Develop concepts and capabilities for contested logistics Attacks on U.S. air bases are one part of a broader Chinese strategy to impede the ability of U.S. forces to operate and sustain operations in East Asia. U.S. forces in Asia are at the end of a long logistical tether that was not designed to operate under precision long-range attacks. U.S. surge forces moving into the theater likewise rely on transportation equipment and infrastructure that were designed assuming sanctuary from attack. China’s ability to hold these systems at risk using long-range fires and cyberattacks threatens the ability of the United States to project and sustain combat power in the Indo-Pacific. To address this, the Defense Department should: Integrate logistics and sustainment considerations into military strategy and operational concept development for China from the outset;

Pursue the air base resiliency initiatives outlined above and apply similar measures to key ports, naval facilities, and other critical infrastructure in the region;

Conduct a review of the Navy’s Combat Logistics Fleet (CLF) force structure, employment strategy, and shipbuilding industry to design a new CLF fleet architecture that can deliver contested maritime logistics support;

Accelerate development of methods to rearm U.S. Navy vertical launch system cells at sea; and

Develop concepts and capabilities to support distributed operations with a more responsive logistics system.

Empower the Defense Department to Harness America's National Security Innovation Base Reform Defense Department organizations and processes, including requirements, programming and budgeting, and acquisition The Defense Department originally designed the core decisionmaking processes that determine the size and shape of the future Joint Force (requirements, programming and budgeting, and acquisition) for the industrial age and the Cold War threat environment. These processes, although still sound, have a range of flaws and assumptions that make them inadequate to the task of building the future force. They should be updated to accommodate new and rapidly changing technologies and the current complex and evolving threat environment. Specifically, the requirements process, which was designed to develop new capabilities from scratch within the defense ecosystem, must adjust to the new innovation environment, developing ways to more quickly and efficiently adapt existing technologies developed outside of DoD or the traditional defense industrial base to emerging warfighting problems. The programming and budgeting process also need additional flexibility to allow the department to rapidly acquire emerging technologies as they develop, rather than waiting for the next full cycle of the process to culminate 18 to 24 months down the road. To this end, the Office of the Secretary of Defense should consider withholding significant funding when delivering fiscal guidance to the services, using this funding during its review of service spending plans to inject new proposals into the budget throughout the process, as opposed to only at the beginning. Further, Congress should consider realigning appropriations titles according to the type of life cycle a system has (for example, durable goods, such as aircraft carriers; evolvable systems, such as software; or expendable systems, such as munitions) as opposed to the part of the life cycle a system is in (research and development, procurement, or maintenance). This realignment would allow the department to move programs from development into production more quickly, while also making the total life cycle cost of the system more transparent. Ensure the Defense Department can develop, access, and leverage the latest technologies The global innovation environment has changed substantially since the Cold War, when big advances in military technology generally came out of DoD labs before eventually migrating to the commercial sector. Now, private companies are at the leading edge of developing new technologies with significant military applications, including artificial intelligence (AI) and machine learning. This presents a major challenge for the Defense Department in identifying these technologies and bringing them into the defense enterprise, when many companies are unwilling or unable to work with the Defense Department as a customer, and DoD is slow to absorb their potential and need for iteration. The defense market is small relative to the size of commercial technology markets, and some companies view cooperation with DoD as damaging to their brand. In addition, barriers to entry into the defense sector are high due to the complex regulatory regime governing defense contracts. DoD cannot easily invest in promising technologies outside of certain contractual frameworks. To begin to address these challenges, DoD and traditional defense industry primes have developed new means of reaching out to the technology sector, including most notably through government entities, such as the Defense Innovation Unit, and private entities, such as venture capital funds run by defense primes. However, these means of bringing new and disruptive technologies into the defense enterprise remain inadequate given the sheer scale of innovation with military applications happening outside of the Defense Department’s remit, and DoD’s limitations as a customer. These dynamics will have to change. DoD should invest more in capturing these technologies and helping new technology start-ups grow, while also continuing to invest in DoD labs and the traditional defense industrial base, which remain critical to sustaining U.S. military technological superiority. DoD should also take steps to make itself a more attractive customer or partner for new technology companies by developing ways to demonstrate a start-up’s viability, such as with its own venture capital capability. Sustain and enhance a traditional and nontraditional defense industrial base that is robust, flexible, and resilient Large diversified conglomerates mostly comprised the industrial base that produced war materiel for World War II and throughout much of the Cold War. After a wave of divestment of defense business units and the subsequent consolidation of remaining businesses driven by the post-Cold War peace dividend, the U.S. industrial base became dominated by a relatively small number of specialized defense and aerospace companies. These circumstances have left the traditional U.S. defense industrial base exposed to certain vulnerabilities, which were thoroughly catalogued in a 2018 DoD report—including lack of competition, fragile supply chains, and difficulty attracting and retaining skilled labor and engineering talent. At the same time, a new critical component of the defense industrial base has emerged in the form of companies developing advanced commercial technologies with significant military applications, as discussed above. A healthy industrial base, broadly defined, is a vital ingredient to U.S. defense competitiveness; DoD should not be passive about its future. In both cases, DoD must review its own regulatory regimes and contracting practices to foster a healthy defense innovation and industrial base, and Congress must support the department with legislative changes where necessary. DoD should start by fully implementing the new acquisition authorities included in the 2016 and 2017 National Defense Authorization Act, including further streamlining its regulatory frameworks. DoD should also develop a way to evaluate the benefits of a regulation against the cost of enforcing it. Finally, DoD and Congress should both use this metric to evaluate if, when, and under what circumstances different regulations should be enforced. Reducing regulatory burden could lower barriers to entry into the defense sector, allowing more nontraditional companies to enter the market, as either primes or subcontractors.

Strengthen and Network U.S. Allies and Partners Develop ally and partner anti-access/area denial capabilities America’s allies and partners must be capable of defending themselves alongside U.S. forces. Unfortunately, many U.S. allies and partners in the Indo-Pacific face the same challenges as the United States because their armed forces are similarly vulnerable to attacks on air bases, surface vessels, C4ISR systems, and critical infrastructure. They also lack sufficient quantities of the right kinds of munitions to sustain operations against China. To address this, DoD must work together with the State Department, Congress, and foreign governments to utilize Foreign Military Financing and Maritime Security Initiative (MSI) funding to help regional states develop concepts and capabilities that would challenge Chinese power-projection operations with some of the same kinds of anti-access/area denial systems that China developed to undermine U.S. military advantages. Prioritizing Taiwan, Japan, Vietnam, and the Philippines, specific initiatives should include: Conducting wargaming, analysis, exercises, and concept development for high-end warfare with key allies and partners to develop a shared understanding of the challenge and an appreciation of how they can contribute in a crisis or conflict;

Developing and exercising C4ISR capabilities for cooperative targeting in contested environments;

Shifting allied and partner operational concepts away from traditional maneuver and territorial defense toward greater use of area denial, long-range fires, cyberattacks, electronic warfare, and mobile defenses in depth;

Supporting specific investments in mines, coastal defense cruise missiles, jammers and dazzlers for terrestrial and space-based systems, anti-radiation munitions, mobile air and missile defenses, short-range guided munitions such as anti-tank weapons, and cyberattacks;

Working with more capable allies and partners to add long-range precision fires, air-independent propulsion diesel-electric attack submarines, unmanned surface and undersea vessels, unmanned aerial vehicles for ISR and offensive strikes, and air and missile defenses for key fixed sites; and

Encouraging U.S. allies and partners in the region, particularly Taiwan, to stockpile fuel, food, medicines, and munitions to prepare for potential Chinese blockades. Promote security networks among U.S. allies and partners The past decade has seen the emergence of new security networks involving various constellations of American allies and partners in the Indo-Pacific. These networks complement U.S. bilateral alliances and strategic partnerships, and Washington should continue to encourage their formation and growth. The United States should support the deepening of security ties between Japan and Australia, including by urging its two allies to finalize a reciprocal access agreement. Trilaterally, Washington should work with Tokyo and Canberra to enhance intelligence sharing, focusing on maritime domain awareness within the first island chain. Through its dialogue with Japan and India, the United States should explore new opportunities for trilateral military exercises and joint defense research and development. Washington should also make a priority of getting trilateral cooperation with South Korea and Japan back on track. Finally, American efforts to advance security networking in the Indo-Pacific should enlist European powers where practical. Specifically, the United States should work with France and India to stand up a new trilateral consortium to share information regarding the movement of Chinese military vessels in the Western Indian Ocean. Build a common operating picture in Southeast Asia Many U.S. allies and partners are concerned about China’s actions toward their maritime territories and resources. Leveraging a shared interest in maritime domain awareness could be advantageous to competition below armed conflict, while building coalition cohesion in the event of a crisis. Toward this end, Congress should expand Foreign Military Financing for Indo-Pacific countries and continue funding the Maritime Security Initiative (Section 1263 of the FY16 National Defense Authorization Act), which is due to expire at the end of FY2020. Without additional resources, Congress should also guard against expanding MSI authorities to other countries for fear of diluting the original intent of building partner capacity among Southeast Asian partners. Future legislation should more explicitly direct this effort to focus on creating a common operational picture in Southeast Asia. A common operational picture would provide shared situational awareness of activity in the air and maritime domains to all participating allies and partners. It would allow regional states to track activity, both in their sovereign airspace and maritime territory, as well as destabilizing behavior in international airspace and waters. In peacetime, this shared system would keep states apprised of illicit trafficking and violations of fisheries or mineral rights. In crises or conflicts, it would provide situational awareness about the disposition of enemy military forces. The shared nature of this system would provide it with a measure of strategic resilience, as China would be reluctant to attack a shared, multinational system during crises or limited conflicts, for fear of unfavorably escalating a crisis or limited conflict into a broader regional war. Protecting sensitive intelligence, surveillance, and reconnaissance collection capabilities would be an obstacle to developing such a system. To help allay these concerns, the system could be tiered, with the lowest tier sharing basic civilian airspace and maritime awareness data along with commercially available satellite information. The second tier could build on this and incorporate less-sensitive military ISR data, such as electro-optical/infrared (EO/IR) sensor feeds from publicly acknowledged ISR platforms. The third tier could offer fused, multi-intelligence information to the most trusted members. Allow exemptions to the Countering America’s Adversaries Through Sanctions Act (CAATSA) for countries seeking to balance against China The United States should seek to reduce Russian revenue from overseas arms sales; however, this goal should be pursued more flexibly with greater attention to how it affects the military balance in Asia. Certain Indo-Pacific states, particularly India, Indonesia, and Vietnam, have long been customers of Russian military equipment. It is ultimately counterproductive to sanction these countries, or threaten to sanction them, for buying Russian equipment that would improve their ability to counter Chinese coercion or deter Chinese aggression. Moreover, further isolating Russia in Asia and preventing its arms sales to a variety of states could push Moscow into a closer and more co-dependent relationship with Beijing. Congress should therefore allow CAATSA exemptions for Indo-Pacific states that wish to procure Russian weapons, provided these weapons would be used to balance against China. Over the long term, the U.S. government and defense industry should explore policies, incentive structures, and offerings that would give regional partners affordable options to buy American military equipment and services instead. Support Indian military choices that create dilemmas for China in peacetime, crisis, and conflict India has the potential to contribute as a military counterweight to China. Unfortunately, structural impediments and resource constraints have hobbled India’s ability to keep pace with China’s military modernization over the last 20 years. However, even without fundamental reform, the Indian military can still pose dilemmas for China and support a more competitive posture alongside the United States. Toward that end, the United States should actively support India to take the following actions, in addition to removing U.S. roadblocks when appropriate, such as those associated with CAATSA described above: Increasing investments in super- and hypersonic anti-ship missiles, along with investments in maritime domain awareness and long-range ISR to target these weapons;

Acquiring more submarines—and particularly air-independent diesel-electric attack submarines—relative to surface vessels;

Improving military transportation infrastructure, particularly from the Indo-Pakistan border to the northeastern border with China, and from the internal lowlands to the mountainous border region;

Consolidating aircraft procurement around one or two fighters to create greater economies of scale and efficiencies in operation;

Making major investments in electronic warfare, cyber offense, and counterspace systems;

Leveraging commercial space systems and partnering with other spacefaring nations such as the United States to share access to certain space-based systems;

Shifting the “make in India” program away from large systems integration and toward developing centers of excellence and innovation in key areas of technology, modeled on the Israeli defense start-up sector; and

Shifting the Indian army away from massed territorial defense toward multidomain operations comprising long-range fires, electronic warfare, cyberwarfare, anti-maritime, anti-air, engineering, and information operations.

II. Securing Vital U.S. Technological Advantages Download this chapter and its recommendations. Advanced technology translates directly into military and economic power, and further provides leading nations with the ability to shape international norms and domestic governance practices. Sustaining America’s technological edge will therefore be vital to realizing a free and open Indo-Pacific. Fortunately, the United States retains a number of advantages in the technological competition with China: world-class universities and research institutes, leading technology companies, a vibrant venture capital and start-up ecosystem, and a long history of rewarding innovation. America has also benefited profoundly from being a place where people from around the world want to work and live. Yet, largely due to choices in Washington and Beijing, America’s position as the global technology leader is under threat. U.S. expenditures on research and development have stagnated for decades as a share of gross domestic product (GDP). In the meantime, China has quadrupled its spending and is on the brink of surpassing the United States in total investments in this area. Already, the results are showing: China is now a global powerhouse in a number of strategic technologies, equal to or ahead of the United States in critical areas such as quantum computing, artificial intelligence, and genomics. If current trends continue, the downstream military, economic, and political consequences could tip the scales toward China’s vision of regional order in the Indo-Pacific. To keep apace, Washington will have to do more to reinvigorate American technological leadership. The U.S. government should set ambitious national goals for public and private spending on research and development, while bolstering human capital and high-skilled immigration. Relying on competitive, market-oriented principles—and avoiding a heavy-handed industrial policy in which the government picks winners and losers—Washington should provide resources and data to defend and advance key areas of U.S. competitive advantage, including artificial intelligence and semiconductors. As it reinvigorates its innovation base at home, the United States will have to be more vigilant in protecting key U.S. technologies. Recent legislative efforts to enhance U.S. investment screening and export controls are a good start and must be followed through. But more comprehensive efforts are still needed to address China’s harmful and illicit practices of forced technology transfer, academic and commercial espionage, and intellectual property theft. Washington will have to establish a more productive and collaborative relationship with U.S. businesses and universities. It will also be necessary to augment resources for counterespionage investigations and visa screening, as well as a demonstrated willingness and ability to retaliate against Chinese firms and individuals that benefit from technology theft. Critically, going it alone will be insufficient for the United States, both because of China’s economies of scale and because unilateral defensive measures will be ineffective if Beijing can easily exploit other advanced economies. Washington should lead on establishing a new international body of democratic powers to coordinate on technology policy and develop cooperative solutions to combating China’s anti-competitive practices. Sustaining U.S. technological advantages will also require the United States to be more proactive internationally in setting new rules around emerging technologies. Active U.S. participation in international standards-setting bodies will be essential. Meanwhile, the United States can lead efforts in the Indo-Pacific and globally to codify norms for the use of emerging technologies. This should include detailed discussions with Beijing over the future of artificial intelligence. The following are recommendations for U.S. Policy:



Bolster America's Innovation Engine Increase investments in research and development in the United States The federal government plays a unique and critical role in America’s innovation ecosystem: Government research and development (R&D) spending spurs private-sector investments, and the U.S. government remains the largest funder of basic research, which is foundational to game-changing technological achievements. Notably, U.S. government investments in the 1960s and 1970s in semiconductors, the global positioning system (GPS), and the early internet paved the way for the digital world of today. Yet, while private-sector R&D investments have steadily increased in the United States, federal government spending has declined as a percentage of GDP from approximately 1.2 percent in 1976 to around 0.7 percent in 2018. To sustain another generation of technology leadership, the United States should increase federal R&D spending to 1.2 percent of GDP, matching levels in the 1970s. To execute such a significant increase, funding should increase gradually through existing organizations (Department of Defense, National Institutes of Health, and Department of Energy, among others). The White House Office of Science and Technology Policy (OSTP) should lead an interagency process, in consultation with external scientific advisors, to identify key strategic technologies for focused investment, such as artificial intelligence, microelectronics, quantum computing, wireless networking, synthetic biology, advanced manufacturing, health, energy, or other areas. As a bipartisan response to the intensifying technology competition with China, Congress could jump-start a new era of federal investment by passing a comprehensive appropriations bill. In addition to federal spending, the United States should increase total national (public and private) R&D expenditures to keep pace with other leading technology nations. South Korea and Israel, for example, spend greater than 4.5 percent of GDP on R&D, while total U.S. public and private R&D spending in 2017 was only 2.8 percent. Using tax incentives to spur private-sector investment, the United States should establish a goal of bringing total (public and private) R&D spending to 4 percent of GDP by 2030. Accelerate U.S. innovation in artificial intelligence through standards-setting, metrics, and horizon-scanning Artificial intelligence and machine learning are rapidly developing fields, fueled by exponential growth in data and computing processing power (“compute”). The federal government has an important role in advancing U.S. competitiveness in these vital areas, even while much of the innovation will remain private-sector-driven. Government-led standards-setting is critical for enabling innovation, as are metrics for tracking progress and incentivizing research against specific problems. The National Institute of Standards and Technology (NIST) and the Office of Science and Technology Policy should establish an interagency subcommittee for AI standards and measurement, under the National Science and Technology Council (NSTC) Select Committee on AI. Long-term analysis on future trends and threats is also critical to understanding rapid technology development and preventing harmful technological surprises. Such efforts can help national security leaders anticipate potential future challenges, such as detection-resistant “deep fakes,” and prepare mitigation measures in advance. The departments of Commerce, Defense, and Homeland Security, along with the intelligence community, should collaborate with OSTP to analyze global AI trends and anticipate future challenges. Support U.S. innovation in artificial intelligence and machine learning by increasing the availability of government data and computing resources The U.S. government should take steps to increase the availability of data and compute, both of which are key inputs for research and innovation on AI and machine learning. This is particularly important for university researchers, who may lack the financial resources available to private-sector AI researchers. OSTP and the Office of Management and Budget (OMB) should build on Project Open Data by expanding the number of open-source high-quality datasets, an important asset for machine learning. To increase compute resources for researchers, Congress should boost funding for the National Science Foundation’s Enabling Access to Cloud Computing Resources for CISE (Computer and Information Science and Engineering) Research and Education program and the Exploring Clouds for Acceleration of Science (E-CAS) project. Forge an alliance innovation base To keep pace with China’s military-civil innovation complex, the United States should develop deeper technology cooperation with key allies. This could take multiple forms. For example, DoD could expand existing mechanisms for quick-fire international seed projects. More ambitiously, the United States could stand up a “Freedom’s Foundry” that would bring together U.S. innovators and entrepreneurs with counterparts from allied countries to develop novel technologies—even new companies—around specific national security themes. With joint funding from participating governments and the private sector, these efforts could intersect with commercial market opportunities.

Protect Critical U.S. Technological Advantages Secure semiconductor supply chains Along with artificial intelligence, U.S. technological advantages in semiconductors will be critical to advancing U.S. competitiveness in the Indo-Pacific. Although the United States is a global leader in semiconductor design—with U.S. headquartered firms accounting for roughly half of the global market—most fabrication occurs overseas. This heavy reliance on overseas production presents substantial risks to vital U.S. economic and security interests. As a result, the United States should develop trusted semiconductor suppliers for defense and intelligence applications in order to ensure chips are free from potential tampering by adversaries and are not easily subject to disruption. Washington can also collaborate with key allies to establish an international fabrication consortium to diversify semiconductor fabrication. On the order of $10 billion to $20 billion, the costs of establishing a new foundry present a major challenge to diversifying semiconductor supply chains, making onshoring prohibitively expensive even with potential government subsidies. Additionally, the U.S. military and intelligence community have special needs for security that go above and beyond what is available in commercial facilities, yet they lack the scale of demand to make a purely government-dedicated foundry profitable. DoD and the intelligence community should therefore explore novel approaches for public-private partnerships with U.S. companies to build the capability for trusted design, fabrication, packaging, and testing. Additionally, the United States should explore establishing an international fabrication consortium with allies to share the costs of building new semiconductor foundries that can ensure a trusted and diverse supply chain. As a starting point, member nations of the consortium should include the global leaders in semiconductor manufacturing equipment: the United States, Japan, and the Netherlands. Establish multilateral export controls on semiconductor manufacturing equipment and increase federal funding for next-generation hardware The United States has a major global lead in semiconductor design and should enact multilateral export controls, in concert with allies and partners, to protect its current technological advantage in hardware. This is among the most important actions the United States can take to protect its competitive edge in artificial intelligence. Furthermore, export controls should be coupled with increased federal R&D funding for next-generation hardware to ensure continued U.S. leadership. China is heavily dependent on imports of foreign-manufactured semiconductors to meet internal demand. As part of its industrial policy to seize technological leadership from the United States, China is looking to reduce its reliance on foreign chips by ramping up domestic semiconductor production. To accomplish this goal, China will need foreign imports of semiconductor manufacturing equipment (SME), which comprises the equipment and tools needed to establish a chip fabrication facility, or foundry. The global SME market is highly centralized, with the United States, Japan, and the Netherlands accounting for 90 percent. While export controls on semiconductors themselves should be rare and targeted, such as the action against Huawei and a handful of other companies linked to the Chinese military, the United States should enact broad restrictions on sales of SME to China to sustain the U.S. advantage in hardware. In parallel, the Commerce and State departments should work with key allies and partners (the Netherlands, Japan, South Korea, and Singapore) to establish multilateral export controls on SME, thereby further restricting sales to China. It is true that SME export controls would reduce profits from sales in China that U.S. companies might have reinvested in R&D. Nevertheless, the imperative of protecting U.S. technological advantage makes this a necessary expense, and the U.S. government can increase R&D funding in next-generation chip design, fabrication, and packaging to help fill the gap and ensure continued U.S. leadership in semiconductors. Diversify sources of rare earth minerals The United States must also secure the underlying raw materials behind digital technologies. Rare earth minerals, in particular, are essential for electronics, missile guidance systems, and military platforms such as fighter aircraft and submarines. Yet China has near-complete control over the U.S. rare earths supply chain: As of 2018, China supplied 80 percent of U.S. rare earth imports and much of the chemical intermediates and mineral concentrates needed to process what was imported from Estonia, France, and Japan. China further controls at least 85 percent of global rare earth processing capacity. The U.S. government can take a number of important steps to help reduce U.S. reliance on China for rare earths. The U.S. Department of Defense, for instance, has already initiated efforts to expand mining and processing of rare earths outside China, including in Australia. To reduce dependence on overseas suppliers more generally, Congress should ensure funding for the Department of Commerce’s plan to reinvigorate mining and processing of rare earths in the United States, and Department of Energy research into and scaling of rare earth recycling from consumer products, which can stretch existing U.S. supplies. Finally, Congress should support Department of Energy efforts to develop artificial substitutes, which have proved capable of reducing dependence on rare earths altogether. Expand export controls based on end use for certain products sold to China To ensure U.S. technology does not enable China’s malign behavior, the U.S. government should develop additional tools beyond existing restrictions on military exports. To that end, the U.S. Commerce Department should undertake the development of a new export control regulation that would restrict the sale of both key U.S.-origin products and key foreign-origin products developed by U.S. companies and their subsidiaries overseas to be used for certain end uses in China, including those that infringe on internationally accepted human rights standards, enable surveillance or cyberespionage, and are involved in domestic security activities. Creating a new end-use-based control regime would require rigorous consideration by the U.S. government, as well as shifts in compliance protocols by a number of U.S. private-sector exporters. The Commerce Department should develop end-use-based controls in consultation with the U.S. private sector, engaging in a full administrative rulemaking process to seek feedback from national security professionals and industry.

Counter Illicit Technology Transfer Ensure sufficient resources for counterespionage investigations China poses a major counterintelligence threat to the United States, accounting for 90 percent of all Department of Justice (DoJ) espionage cases involving a state actor between 2011 and 2018. The DoJ has begun ramping up efforts to counter this threat, with roughly 1,000 FBI investigations underway involving attempted intellectual property theft by China. Moreover, the DoJ established a new China Initiative in 2018 to increase outreach to universities and business, interagency coordination, and investigation of Chinese investments and influence operations, among other activities. As these efforts move forward, Congress should provide the FBI and DoJ with sufficient resources—particularly for Chinese language skills and scientific and technical expertise—to ensure there is adequate capacity to carry out thorough counterespionage investigations. FBI Director Christopher Wray has identified Mandarin skills as a gap for the FBI, and insufficient technical knowledge has at times been an obstacle in prior cases. Develop better collaboration between U.S. law enforcement and universities Universities have a strong interest in preventing countries such as China from unfairly exploiting research by their faculty and students, while also protecting core values of academic freedom and fostering transnational research. As universities and the FBI are both implementing measures to address academic espionage concerns on campuses, greater dialogue is urgently needed between investigators and academics to better understand the scope of the problem and work together on possible solutions. Fortunately, some positive steps are already underway under the auspices of OSTP and the academic community. More should be done, however, to ensure greater coordination between universities and the national security community on this important topic. Such action should include the reestablishment of the National Security Higher Education Advisory Board, which was established to build lines of communication and cooperation between universities and the national security community on counterintelligence threats, among other issues. Improve visa screening for espionage risks The United States benefits greatly from foreign students at U.S. universities, many of whom stay for work and support the U.S. economy. These academic exchanges are a significant source of strength for the United States and should be protected. Guided by that principle, Congress should nevertheless work with the State Department, FBI, and intelligence community to develop enhanced criteria for visa screening to identify individuals from China who pose heightened espionage risks. Possible risk factors could include whether an individual comes from a university with ties to the PLA or cites highly specific research interests relating to defense technologies. Recently proposed U.S. legislation includes both actor-based and technology-based approaches to improve visa screening. The People’s Liberation Army (PLA) Visa Security Act would prohibit F or J visas for PLA-employed, -funded, or -sponsored individuals, and the Protect Our Universities Act of 2019 would mandate background screening of students seeking to work on “sensitive research projects.” Both proposals are sensible measures and should be implemented, but broader screening could still be required. This is in part because many important technology areas, such as AI, have both commercial and military applications. Beyond evident military-specific research projects, more stringent screening is also needed for a wider range of dual-use technologies. Expand sanctions authorities to cut off from the U.S. market and financial system Chinese firms that steal U.S. technology The United States has failed to sufficiently penalize Chinese companies known to be benefiting from stolen U.S. technology. Going forward, Chinese firms that engage in significant intellectual property (IP) theft and other anti-competitive behavior should be cut off from the U.S. market and the U.S. financial system. Existing U.S. sanctions authorities allow the executive branch to sanction foreign companies, including Chinese ones, that engage in cyber-enabled IP theft, but these authorities do not fully capture other types of IP theft, such as by corporate insiders. The U.S. Treasury Department, working with the Commerce Department and the State Department, should lead in developing and enforcing a new regime to enable sanctions against the full range of IP theft. Include more People’s Liberation Army-linked companies on the export regime Entity List China engages in a systematic and multifaceted campaign of both licit and illicit technology transfer to acquire access to advanced U.S. technology and repurpose it for the Chinese military. Although U.S. law generally prohibits the sale of U.S. products to the PLA and other military end users in China, Beijing’s promotion of military-civil fusion means that civilian entities in China that are closely linked to the PLA can still legally purchase U.S.-made products. This problem is exacerbated by the fact that many cutting-edge technologies, such as AI, are dual-use, with both valuable military and commercial applications. The U.S. government has made some progress in using existing export control authorities to restrict the export of U.S. products to Chinese entities that are tied to the PLA. For example, in June 2019, the Commerce Department added five PLA-linked supercomputing organizations to the Entity List, which prohibits the sale or provision of U.S.-made products to the designated organizations. Expanding the list of named PLA-linked entities barred from receiving U.S. products and prohibiting visas for PLA-sponsored individuals will help limit proliferation of U.S. technology to the PLA. To that end, the Commerce Department and Department of Defense should lead an interagency process to compile an extensive, publicly releasable, and regularly updated list of PLA-linked entities in China and add them to the Commerce Entity List. (An initial such effort is reportedly underway.) In addition to curbing unwanted technology transfer to the PLA, this would help to expose China’s military-civil fusion strategy and make it riskier to invest in companies that work with the PLA. Finally, the United States should prohibit F and J visas for PLA-employed, -funded, or -sponsored individuals.

Lead on Developing New International Rules, Norms, and Standards for Emerging Technologies Create a new grouping of advanced democracies to coordinate on technology policy U.S. efforts to spur innovation and protect key areas of competitive advantage are far more likely to succeed if major elements of U.S. policy are coordinated and jointly implemented with allies and partners. Multilateral cooperation among like-minded countries would serve to amplify the effectiveness of the measures across a range of areas, including R&D, supply chain diversity and security, standards-setting, multilateral export controls, and countering illiberal uses of technology. To achieve the necessary level of coordination and collaboration, the United States should lead the creation of a new multilateral grouping on technology policy. The purpose of this new body would be to coordinate multinational technology policy to protect and advance key areas of competitive technological advantage, and to promote collective norms and values around the use of emerging technologies. Leading liberal-democratic technological and economic powers—including Australia, Canada, France, Germany, Japan, the Netherlands, South Korea, and the United Kingdom, among others—would comprise the group’s core membership. This new organization could cooperate on 5G, semiconductors, AI, cybersecurity, internet of things, and other significant technologies. Increased information sharing and cooperation could help nations develop cooperative solutions for technology leadership and defend against intellectual property theft, espionage, and other unfair trade practices that harm competition and distort free and fair markets. Engage more proactively in multilateral bodies that set technology standards The United States has a strong national security interest in the development of international technical standards, which are critical for shaping how technology is adopted around the world for 5G wireless, artificial intelligence, internet of things, and other emerging technologies. However, while the U.S. government has been insufficiently engaged, China has become increasingly proactive in international bodies, elevating standards-setting as a major priority with its “China Standards 2035” plan. Working in partnership with U.S. industry leaders, the U.S. government should increase its participation in international technology standards-setting bodies, including the 3rd Generation Partnership Project (3GPP), International Telecommunication Union (ITU), and International Organization for Standardization (ISO), among others. To accomplish this goal, OSTP should establish an interagency working group on international technology standards, bringing together the departments of State, Commerce, Justice, and Defense; the U.S. intelligence community; and the NIST to coordinate U.S. government action. This interagency group should also increase engagement with U.S. industry leaders, including information sharing on technical standards and Chinese efforts to exert political influence within international standards-setting bodies. Participation in standards-setting bodies should be explicitly exempted from export controls so U.S. companies and government officials can help shape international standards even if prohibited Chinese entities are also participating. Lead internationally and engage with China on developing norms and principles for the use of emerging technologies The United States should work with allies and partners to establish and export norms for using emerging technologies, including AI and biotechnology. U.S. officials should also engage China where there may be opportunities for norm development. The United States has a vested interest in helping to shape, to the extent possible, how China uses technology, which will have significant global implications. A number of Chinese actors have already released AI “principles” documents, similar to those released by businesses, governments, and nongovernmental organizations around the globe. These principles indicate some degree of norm transfer to China. Continuing to develop formal norms such as the AI principles the Organisation for Economic Co-operation and Development (OECD) recently adopted is valuable, but equally important will be demonstrating responsible use in applications at home and abroad. The dynamic interplay in democratic nations between civil society, nongovernmental organizations, companies, the government, and a free press over how to use technology while balancing competing interests sets an important example for other nations and stands in stark contrast to the illiberal use of technology by autocratic regimes.

III. Bolstering U.S. Economic Power and Leadership Download this chapter and its recommendations. Economics is at the core of American competitiveness. U.S. economic and financial strength provides the foundation for U.S. military power and alliances, technological leadership, and political influence in the region. At home, the United States benefits enormously from the open economic order in Asia, providing a vital and growing region for U.S. trade and investment. These contributions to the prosperity and security of the American people will be at risk if the United States does not renew U.S. economic power and leadership in the Indo-Pacific. China has eroded America’s economic influence by leveraging its huge market, pursuing anti-competitive trade practices, and seeking to revise the regional economic order with institutions and initiatives that advantage Chinese companies. As the dominant trading partner in the region, Beijing selectively uses development finance and market access as carrots and sticks to advance the Chinese Communist Party’s domestic and foreign policy agenda. Meanwhile, Beijing has been nimble in pushing new economic institutions and initiatives—including the Asian Infrastructure Investment Bank (AIIB) and its Belt and Road strategy—to create the veneer, and in some cases the reality, of an increasingly Sino-centric economic order in the region. China’s growing economic clout further provides Beijing with the ability to challenge U.S. security interests, both directly by investing heavily in modernizing the People’s Liberation Army and indirectly by using economic pressure to shape the decisionmaking of U.S. allies and partners about the breadth and future of their military ties with the United States. Preserving U.S. economic interests in the Indo-Pacific will require a concerted effort to shape the regional economic order in ways that level the playing field and deny China the advantages it accrues from anti-competitive practices, including systematic intellectual property theft, state subsidies, and limits on access to China’s market. While it would be preferable to steer China toward a different course, the current Chinese Communist Party (CCP) leadership in Beijing remains committed to a state-led economic model. As a result, the United States should no longer center its economic policy on compelling Beijing to make fundamental structural changes to China’s economy. Yet, nor should Washington’s response be to sever America’s economic relationship with China: Many areas of trade and investment are beneficial to the United States and actually provide leverage over Beijing. A broad-based decoupling of the U.S. and Chinese economies would prove unnecessarily costly to Americans. Instead, a more selective approach to economic interdependence is necessary to address the unfair advantages that China derives from maintaining a fairly closed economy at home while preying on U.S. economic openness. The United States should respond with a determined economic agenda that simultaneously strengthens U.S. economic influence globally and in the region and reinforces sound governance and best practices for free, fair, and secure international economic activity. This should include revitalizing leadership in international economic institutions and emphasizing adaptations within these institutions that better reflect today’s economic realities. Such an approach would target China’s anti-competitive behaviors and policies with legal and trade actions, both bilaterally and, to a great extent, with international partners and institutions, including the World Trade Organization (WTO). Washington should also commit to working collectively with other advanced economies in Asia and Europe on new high-standard trade and investment agreements that both create greater opportunities for U.S. businesses and undermine China’s unfair and illegal trade practices. In doing so, the U.S. government should leverage the immense power of the U.S. private sector, augmenting the role of commercial diplomacy and focusing greater attention and resources to catalyze U.S. trade and investment in the Indo-Pacific. Success in this regard will require reversing U.S. withdrawal from multilateral trade mechanisms, and undoing the deeply counterproductive approach of imposing unilateral tariffs on key U.S. allies and partners. In addition to renewing U.S. economic leadership in the Indo-Pacific, it will be essential for the United States to reinforce the preeminence of the U.S. financial system. America’s deep and liquid financial markets are a key anchor of economic growth and stability, as well as leverage the United States can deploy in pursuit of vital national interests. Financial power further enables the United States to assist allies and partners, while using sanctions and other coercive economic tools to pressure potential adversaries. Sustaining the dominant role of the dollar and increasing transparency in U.S. markets will further enhance American’s financial strength. To reinforce America’s economic position in the Indo-Pacific, Washington will have to look beyond simply shoring up traditional sources of financial power. The United States should play a more formidable role in shaping the future of financial technology (fintech). Ensuring that major global fintech companies are anchored in the United States, and that U.S. incumbent financial institutions incorporate and develop new leading fintech applications, will be critical to curbing China’s ability to undercut America’s financial power. Ultimately, American power rests on the strength of the U.S. domestic economy. While a comprehensive domestic economic agenda is beyond the scope of this report, America’s long-term influence in the world will depend on prudent domestic policies and investments in the economic foundations of American power. As is recommended throughout this report, the United States should increase federal spending in basic sciences; research and development; science, technology, engineering and math education; and high-quality vocational and technical education. The federal government should also increase domestic investments in infrastructure, including both physical infrastructure, such as roads and ports, and in telecommunications infrastructure, which underpins the modern economy. U.S. leaders will also have to prepare for future financial crises and tackle head on the tax and entitlement reforms necessary to ensure that U.S. fiscal policy and debt levels remain sustainable across economic cycles. Ignoring these challenges threatens to undermine America’s position as the premier financial powerhouse in the world—a key advantage over China. The following are recommendations for U.S. Policy:



Promote U.S. Trade and Investment in the Indo-Pacific Enhance U.S. commercial diplomacy in the Indo-Pacific at the Treasury, Commerce, and State departments The Treasury, Commerce, and State departments should significantly increase personnel and professional training for commercial diplomacy, engaging with foreign countries and companies in Washington and abroad. The Treasury Department should expand its program to place attachés in an array of additional foreign capitals and major economic centers to provide technical expertis