May 23, 2019 7:00 AM

Big Tech: Breaking Us Up Will Only Help China

Amid escalating tension with China, executives at Google and Facebook argue that tough regulations against tech will hurt US competitiveness.

Over the past week, both Facebook chief operating officer Sheryl Sandberg and former Google CEO Eric Schmidt made the same appeal to American nationalism, with differing degrees of subtlety: Breaking up Big Tech will only help China.

It’s a politically expedient plea as calls for regulating tech intensify amid growing concern about China’s tech prowess and an escalating US-China trade war. But the argument rests on the idea that what’s good for Facebook and Google is good for America. It also ignores how Silicon Valley is simultaneously seeking growth through partnerships with some of those same Chinese competitors, such as Google’s investment in JD.com and reported talks with Tencent to bring Google Cloud to China.

Sandberg made her case against breaking up Facebook explicit. In an interview Friday, CNBC asked if Facebook was prepping for a big antitrust battle. In response, Sandberg recounted recent private meetings with Democrats and Republicans in Washington. There, she said, she heard that “while people are concerned with the size and power of tech companies, there’s also a concern in the United States with the size and power of Chinese companies, and the realization that these companies are not going to be broken up.”

Schmidt was less direct but conjured the same fears of falling behind China. On Sunday he told the The Telegraph there is no legal basis to break up tech companies, arguing that “regulatory bias” in the West against Google and other American firms hurts consumers and hands China a competitive advantage on everything from privacy to data collection. "Chinese companies are growing faster, they have higher valuations, and they have more users than their non-Chinese counterparts," said Schmidt, who will step down from Alphabet’s board in June. "It’s very important to understand that there is a global competition around technology innovation, and China is a significant player and likely to remain so.”

Google and Facebook declined to respond to questions from WIRED.

Mark Zuckerberg, who reportedly offered to let President Xi name his first-born child, laid the groundwork for this strategy during a congressional hearing last year. Asked if Facebook was too powerful, Zuckerberg rerouted the conversation toward Chinese internet companies. He said American tech policymakers “should be thinking about” those companies because they pose “a real strategic and competitive threat.” (Zuckerberg even spelled out the China defense in his notes for the hearing, photographed by the Associated Press, which included the line “Break up FB? US tech companies key asset for America; break up strengthens Chinese companies.”)

It’s not a new line. Dominant companies and their defenders have made the same argument for decades. In the late 20th century, some argued that Japan’s rising power was a bigger economic threat than anticompetitive practices by Microsoft or IBM. In March, both Qualcomm and Apple used Washington’s fear of falling behind China in 5G to plead their case in a bitter fight with each other over patent royalties.

But this appeal to American nationalism has been getting more play recently as the on-again, off-again trade war with China appears to be back on. Nicol Turner-Lee, a fellow at the Brookings Institution’s Center for Technology Innovation, says concern about falling behind China is valid, especially in regards to artificial intelligence and advanced 5G wireless networks. But, she adds, the China defense is among the few plausible arguments Big Tech can bring before Congress right now. “They can’t say, ‘We know we’re allowing people to mess with our elections, but don’t break us up. We’re good for democracy, don’t break us up,’” she says.

Turner-Lee says American legislators don’t necessarily want to intervene in tech company operations, but they want tech companies to behave responsibly and clarify their relationship with Chinese companies around data security, surveillance, and other vulnerabilities. Regulators probably looked kindly on Google, for instance, for adhering to the US government’s new sanctions against the Chinese smartphone manufacturer Huawei; on Monday, the ban was delayed 90 days, allowing Google to send security patches and updates to existing Android-based Huawei devices.

Some US antitrust officials sound unmoved by the China card. “America doesn’t become competitive by propping up politically connected tech companies, we compete by making sure the best ideas can come from anywhere and anybody,” Rohit Chopra, a commissioner of the Federal Trade Commission, told WIRED. Makan Delrahim, head of the Justice Department’s Antitrust Division, recently spoke out against the idea of “national champions.” In March he congratulated the EU for blocking a rail-manufacturing merger. “Obviously there’s national security and other considerations that factor in, but with respect to that [merger], creating a national champion even if you would harm consumers is not the way to do it,” Delrahim said.

When WIRED asked Facebook whether Sandberg initiated concerns about China during her meetings in Washington, a spokesperson for Facebook pointed WIRED to recent comments from members of Congress, to show that legislators are also concerned. Representative Ro Khanna (D-California), who represents Silicon Valley, has called for greater regulation and antitrust scrutiny of the sector. But he recently told The Hill that regulators should be cautious. “Look, what we don't want is the only big tech companies to be Chinese—Alibaba, Baidu and Tencent.” In early April, Senator Mark Warner (D-Virginia) told CNBC that if regulators were to “chop off the legs of Facebook and Google,” then those companies “might be replaced by Alibaba, Baidu, Tencent—companies that are totally enmeshed with the Chinese government in their global economic plan.” A spokesperson for Warner declined to comment, beyond standing by his statements.

“I don’t think competition with China means, in any way, that we give tech a pass from antitrust enforcement,” Khanna told WIRED by email. “What it does mean is that we need to be nuanced and strategic in how we strongly enforce antitrust law and not reflexively call for breakups of a company just because it’s big.”

Khanna said US tech companies should work with US officials to protect American interests as they try to compete in China. “US tech companies have an obligation to help the United States and not to help the Chinese advance their surveillance state,” he wrote.

Economic policies that seek to prop up homegrown companies as “national champions” have a bad track record, says Columbia Law School professor Tim Wu, author of The Curse of Bigness: Antitrust in the New Gilded Age. The fact that regulators did not hold back on IBM, AT&T, and Microsoft “helped us ensure a generation of American supremacy in tech. Frankly, the fact that Japan never took on their monopolists ended up hurting them,” Wu told American Conservative last year. “I do accept and understand that there are advantages to scale, but there is a point where the advantages of scale run out. There are disadvantages to scale, and I think there’s a difference between scale and monopoly.”