Social Sciences in China (Chinese Edition)

No. 6, 2024

Technology Containment and Counter-Containment in Major Power Competition

(Abstract)

Wang Yong, Zhao Changwen and Jiang Shenzhe

In the arena of major power rivalry, latecomer nations face the challenge of dynamically and effectively countering technological containment strategies employed by established leaders. Existing economic theories lack consideration of international relations, while current international relations theories do not sufficiently study the market behavior of micro-entities such as enterprises. A synthesized general equilibrium economic model incorporating dynamic international relational game theory reveals that latecomers can enact counter-containment measures, such as subsidizing domestic production and R&D, in response to technological suppression by hegemonic powers. The model suggests an optimal subsidy rate that escalates with increasing containment intensity. While subsidies may initially intensify containment efforts, they ultimately shorten their duration and elevate welfare outcomes over time. However, given the real-world risks of “moral hazards” induced by subsidies, latecomers must also consider alternative strategies such as competition policies. Furthermore, leveraging spillover efficiencies from defense-centric industries to civilian sectors can also enhance the effectiveness of counter-containment efforts by the latecomer country.