Tech Fragmentation as a Policy Challenge in 2023
Executive summary
In 2023, states may face significant challenges related to technology policy due to the ongoing geopolitical tensions between the U.S. and China, as well as increasing regulation in the technology sector. One of the major issues at play is tech fragmentation, or the development of different configurations of technologies to meet the requirements of different markets or regulatory environments. Stakeholders will likely need to address the potential negative impacts of tech fragmentation, such as higher costs for consumers, compatibility issues, and limitations on innovation, while also navigating the increasing regulatory landscape in the technology sector. This will require careful balancing and decision-making in order to support the growth and success of the technology sector while also addressing concerns about national security, consumer protection, and other policy priorities.
What drives tech fragmentation
One of the main drivers of tech fragmentation is the U.S.'s efforts to contain China's technological ascendancy, including export controls and restrictions on certain technology products. These measures have led companies to consider alternatives such as selling through foreign subsidiaries or designing out U.S.-origin components from their technologies, which could increase dual-track manufacturing or use multiple tech stacks.
Tech fragmentation can have several negative consequences, including higher consumer costs, compatibility issues, and potentially less secure products. It can also create challenges for product usability and limit the efficacy of global standards for technology, cross-border data usage, and user consent. Finally, tech fragmentation can hinder innovation and growth in the technology sector.
In addition to the U.S.'s efforts to contain China's technological ascendancy, states may also face challenges related to increasing regulation in the technology sector. The European Union, for example, has sought to lead the world in areas such as privacy, data protection, and antitrust, and this trend toward more intrusive regulation is expected to continue in the coming year. This could pose challenges for technology companies operating in Europe, particularly if they must adapt to changing regulations or face potential fines or penalties.
One central area of concern is the race to deploy broadband constellations in low Earth orbit, which has significant implications for the future of global technology. The U.S. currently holds a significant advantage in the race to deploy LEO constellations. However, a report released by the Center for Strategic and International Studies warns that economic and regulatory issues are creating competitive pressures for U.S. industry and that the U.S. government should "enact policies and incentives to keep U.S. companies competitive internationally" against China, which is also building LEO systems for its own use and plans to provide services in Asia, South America, and Africa.
The regulatory process carries significant stakes for companies such as SpaceX's Starlink and Amazon's Project Kuiper, which both face competition from China's SatNet. The constellations of OneWeb, Amazon, Telesat, and China SatNet could potentially add over 90,000 satellites into Earth's orbit. In the race to deploy LEO constellations, this can lead to companies designing out U.S.-origin components from their technologies to resume sales to China and other markets, despite export controls and other regulatory barriers. This can accelerate the technological and economic decoupling of China and the West as companies find ways to bypass regulations in order to maintain their consumer bases. This can lead to increased costs, compatibility issues, and limitations on innovation, among other negative consequences.
Potential for risk reduction
The decisions of the last U.S.-EU Trade and Technology Council have the potential to impact the prevention of technological fragmentation significantly. By issuing a Joint Artificial Intelligence (AI) Roadmap, establishing an expert task force on quantum information science and technology, and increasing standards cooperation on various technologies, the council aims to reduce barriers to research collaboration and engage on issues related to standards, intellectual property, and export control. These efforts can ensure that technologies are compatible and can work together rather than becoming fragmented.
Additionally, the council's efforts to build resilient semiconductor supply chains and exchange information on initiatives to simplify the cost of doing business with their governments can help generate a more cohesive and efficient technological landscape. By promoting the principles of the Declaration for the Future of the Internet, the council also aims to protect universal human rights and to ensure that the internet remains global in scope rather than becoming divided by different regulatory environments.
Overall, the decisions of the U.S.-EU Trade and Technology Council have the potential to prevent technological fragmentation by supporting collaboration and compatibility across diverse technologies and by safeguarding universal human rights and the global character of the internet.