Lack of IoT Public Policy Putting United States at a Strategic Disadvantage

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4Q 2018 | IN-5308

Over the past several months, reports issued by the U.S. government have highlighted concerns about the economic and national security concerns that China’s government policies have raised regarding the growing Internet of Things (IoT) market. These reports have already had a substantial impact on influencing U.S. laws and policies, from trade actions such as the recent tariffs imposed on China to the ban on the federal government using certain telecommunications equipment manufactured by Chinese state-owned companies.

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Economic and Security Threats

NEWS


Over the past several months, reports issued by the U.S. government have highlighted concerns about the economic and national security concerns that China’s government policies have raised regarding the growing Internet of Things (IoT) market. These reports have already had a substantial impact on influencing U.S. laws and policies, from trade actions such as the recent tariffs imposed on China to the ban on the federal government using certain telecommunications equipment manufactured by Chinese state-owned companies.

On October 26, 2018, the U.S.-China Economic and Security Review Commission, which was authorized by Congress to identify potential conflicts between the U.S. and China, released a report titled China’s Internet of Things. The report highlights the economic and security risks that China’s dominance of the global IoT market could have on the United States moving forward—primarily, the influence that China could have on guiding the global IoT industry as a whole, the cybersecurity threat that its joint civil-military initiatives raises, and its ability to leverage substantial competitive advantages in production to drive solution costs down and gain market share in the United States.

Falling Behind Other Countries

IMPACT


Whether or not all the concerns raised in the report are valid, the bottom line is that each previously published government report has resulted in a shift in laws and policies affecting trade and commerce between the countries. The impact of this newly issued report remains to be fully seen, but it will very likely result in a new series of laws and regulations that are reactive in nature in an attempt to counter the proactive, long-term strategies of China. In 2011, China’s Twelfth Five-Year Plan targeted IoT (among other industries) and began to work to provide financial and public policy support to create a more desirable market environment. Even before then, Beijing had a national IoT center to conserve resources and eliminate inefficiencies in 2010. Additionally, more than 500 cities in China have smart city initiatives; total investment over the next 10 years will be approximately US$300 billion.     

China is not the only country that sees IoT and other technological developments as a key strategic resource. In 2013, Germany adopted its “Industry 4.0” plan that focused on improved production efficiencies nationwide by using intelligent manufacturing processes. In 2017, the Japanese government urged domestic manufacturers to use the IoT and other technologies to alleviate serious workforce shortages and address industries (such as in banking or insurance) where Japan’s technologic adoption pace has fallen behind those of other countries. In 2018, South Korea launched a strategy to promote technological development with the goal of enhancing innovative growth within 13 sectors—including IoT, smart city, and self-driving vehicles. 

Government Is Not Always the Problem

RECOMMENDATIONS


Under the current and previous administrations, the U.S. government has stayed on the sidelines as the IoT market has continued to grow and mature. IoT investment in the United States is a bit sporadic, with no clear top-down goals. The U.S.’s current policies are seemingly knee-jerk reactions to the proactive policies that other countries have been strategically implementing for years. This strategy has worked somewhat well so far, but it only works to a point. Other countries who have enjoyed strong private and public sector support are starting to catch up.

Over the past few decades, the United States has tended to lean more on the private sector to guide its industries through innovation due to this overly simplistic notion that government is not the solution but rather the problem to everything. This has caused lawmakers to take a hands-off approach when it comes not only to regulating but also being able to provide guidance and support. IoT is already affecting so many industries in which the U.S. government already has a hand—from defense, commerce, health, and national security to agriculture, energy, transportation, and education—and its lack of IoT guidance at this stage in the market’s development is striking. The U.S. government has relied on industry alliances, working groups, and other commissions to determine what role it should play to help drive IoT growth and support U.S. economic, consumer, and national security initiatives, but it has thus far failed to take any significant proactive action to effectively support the IoT market.

Instead of creating a collaborative environment between the private, education, and public sectors to drive innovation by providing substantive financial and public policy support to players in this space, current U.S. policy is to reactively compete by using brute tariffs and bans. Its policies are currently aimed at defending itself from the outside in, when it should be aimed at offensively offering guidance and support to U.S. companies from the inside out. This failure to act has allowed other countries like China to take the reins and the United States to fall behind. Moving forward, though, the United States needs to increase IoT investments and initiatives—particularly regarding the assessment of the competitive environment to establish best practices and the support of security research to create an industry-backed cybersecurity program. The role that each country plays within the market will continue to transform over the next couple years, and hopefully the United States will shift to more proactive policies that will encourage innovation and growth from within.  

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