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What It Will Take for the U.S. to Rival China in Tech: Former Defense Sec., CIA Director Leon Panetta

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  • The U.S. government is considering legislation to increase spending on chip production and technology as part of an effort to rival China, but the outlook remains uncertain.
  • Former Defense Secretary and CIA Director Leon Panetta says the U.S. "is not in a good position" relative to China and its investments in AI, quantum computing, robotics and cyber.
  • Panetta says government dysfunction is a major threat to the U.S. standing on the world stage that can extend the lead China already has in technology.

The U.S. government is considering legislation that would increase domestic semiconductor chip production and boost other technologies seen as key to competition with China. But after passing in the Senate in early summer, the legislation hasn't passed in the House.

Leon Panetta, former Secretary of Defense and Central Intelligence Agency Director, says lack of investment by the U.S. in technology is a critical national security risk. And there is no time to waste. "We're not in a good position," Panetta said at this week's CNBC Technology Executive Council Summit. "We have to increase investments in technology in order to at least begin to move into a competitive position with China."

Here are a few key thoughts from Panetta on the rivalry with China, which he says is moving into a period of such intense competition that war between the nations is a risk he worries about if the relationship isn't managed properly, and that includes not only foreign policy engagement but development of technological deterrents.

The Biden-Xi summit wasn't a total bust

Panetta told members of the CNBC Technology Executive Council that there is no question about the formidable competition going on between the U.S. and China in a number of areas and increasing tensions.

Chinese president Xi Jinping has indicated that the U.S. is in decline and that the role of China is to take the place of the U.S. in the world and do so through investments in technology and the military, and obviously trying to extend China's influence in the world, and so far, China is succeeding, Panetta said.

"The U.S. has been through a period where we have not been as competitive as we should have been," he said. "So we're behind the curve a little bit at this point and with tensions in Taiwan and in the South China Sea, there are growing concerns that there could be a conflict."

This is why Panetta says the virtual meeting between President Biden and President Xi this week should be viewed as a modest success even if there were few signs of tangible accomplishments. "I'm glad both sides saw some rationale in trying to deescalate. It's very important to have a dialogue, to manage the strategic competition and the best thing you can hope for right now is both sides learn to manage the strategic competition," he said.

"There is no question, in my experience, that if you can have two leaders communicate with one another and be able to talk with one and other that is a step in the right direction. Almost everything in politics and foreign policy is based on human relationships," the former Defense Secretary said, who noted he hosted Biden and Xi at the Pentagon when the Chinese leader visited during the Obama administration.

The competition will continue and "the worst tensions" won't stop, he said, "but at least if they are having a dialogue it reduces the potential for some kind of accident that could lead to war between the two countries and that is critical at this point in time."

Technology investments are strategic deterrents

The risk of competition edging into conflict is a reason that the U.S. needs to invest more in technology. Lack of investment is one of the reasons the U.S. has not been as competitive as it could be versus China, Panetta says.

"China has invested a tremendous amount in AI, quantum computing, robotics and cyber and their intent is to try to jump ahead of the U.S. and the rest of the world with these technologies. The U.S. has not kept up and I think it is really important for our defense establishment to invest in new technologies and increase our ability to compete," he said.

"Frankly, the key right now for the U.S. in dealing with China is to develop deterrents, the ability to show China that we are strengthening our position with regards to the ability to respond to anything China can do," Panetta added.

Breaking up Big Tech will not help

The competitive issues are solvable, Panetta says, but not if the political emphasis is placed on breaking up big technology companies.

Panetta, who serves on Oracle's board of directors and oversees the Monterey Bay, California-based Panetta Institute of Public Policy, said the U.S. has a number of companies that are the strongest competitors in the world when it comes to technology and they have to deal with serious concerns from privacy to free speech, but it is important for the government to develop partnerships with these companies, to be "walking in the same direction."

"I am in California. I am on the board of a technology company in Silicon Valley and I have seen firsthand the ability of these companies to be innovative and creative and ahead of the game. We have to develop a partnership between government and the private sector in order to make sure we are working together to increase the capabilities," he said. 

"If we undermine these companies, we will be hurting our ability to compete. It's that simple," he added. 

The biggest national security threat is at home

Amid the rivalry with China and calls to break up big technology companies, Panetta says the biggest threat to national security is the government itself and the dysfunction in Washington, D.C.

There are specific weapons systems and technology projects that need to be addressed by the State Department and Defense and intelligence agencies, Panetta says, but at a more fundamental level, there needs to be bipartisan cooperation to deal with the challenge from China.

The politics of the moment, and the partisan gridlock which Panetta says moves in cycles in D.C. but has become worse in recent years, is a national security issue. "Both sides have to learn to work together. I think that is the most important thing that needs to happen right now."

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