Sanctions and export controls apply only to a relatively small part of our bilateral trade. If we wanted to be generous, we could say 10 percent, and the other 90 percent is operating pretty much free of any of the controls put on the high technology sector. So if you're in ag, consumer goods, financial services, energy, retail, wholesale, chemicals or industrial, it doesn't really apply to you. But it is very important to the high technology sectors where it does apply. And that would be in telecommunications, high-speed computing and semiconductor manufacturing equipment.
There, what we have seen is a kind of contradictory and paradoxical trend, where there is a huge amount of trade, but those trade flows are being constricted and are flowing into the lower technology rungs of the industry. I think the controls will certainly impede any joint research and development activities that may be underway.
In terms of a response, we have seen no material response at all from the Chinese government thus far. And I think that's because if they reach out and sanction or block companies in this industry, it will boomerang back on them and hurt China more than it hurts anyone else. And thus they've been very cautious and careful not to engage in retaliatory behavior yet. Now, they do have those tools, and they could retaliate if they wished. But let's recall that it's not only trade. … There's a lot of investment in this area as well. Global supply chains are intricately interlinked, and it's important to the Chinese side, as well as to the Americans, not to disrupt the flow of either high-end or low-end semiconductors.
Both governments have expressed a desire to reduce their dependence on the other, particularly in the technology sector. And both governments have put into place policies that will lead to greater self-reliance in high technology. Now, AI is unique in this regard because, unlike semiconductors, where there's a relatively small number of companies involved, AI is everywhere and it affects everyone. It is predominantly a civilian technology, developed by civilians for civilian purposes. And so it presents a real conundrum to both governments as they kind of maneuver or seek leverage to gain advantage. Will they be able to control both trade and investment in AI- related products, companies and industries? I suspect that it will be very difficult to do.
AI, at the end of the day… it's just an algorithm, and algorithms are traded pretty quickly, with a stroke of a keyboard on a global basis. And so it's hard to restrict another's development of AI. … Both governments [will] grapple with a rapidly developing technology with a regulatory framework that's very 20th century for an industry that's very much 21st century. … Can it be done? That is a question on which many of us will be interested in finding an answer.
I am hopeful that as we enter 2023, we can help to stabilize the relationship and make its foundations more predictable and stable. That will not be easy. In a year where we are preparing for a U.S. election, I think it is going to be more difficult than previous years. But we're hopeful that the two presidents both want a good APEC meeting in San Francisco.
That there's a political will on both sides to stabilize the relationship, to bring down the temperature and recognize that both governments have a responsibility to the global commons. They should be working together on issues such as climate change, public health, anti-narcotics, peace and stability in Northeast Asia and on, for example, North Korea, putting guardrails around areas of really sensitive, strategic importance, including Taiwan.
I think the nexus between competition and cooperation and conflict is a very important one. We accept that this is an incredibly complex, dynamic, multifaceted relationship in which cooperation, competition, and conflict are all apparent every day. Naturally, we wish to maximize the areas for cooperation and minimize the possibility of a crisis leading to conflict. I think the balloon was really a stark reminder, at least in part, that because of COVID there has been a lack of military-to-military and government-to-government dialogue between the two countries. The balloon incident and the panic it created really underlines the fact that we're not well prepared for crisis management and conflict avoidance. In my view, that's the most urgent imperative of the relationship right now: to encourage our military to talk to the Chinese military, to encourage our national security leaders to talk to each other.
The United States and China have the largest militaries in the world and they're not talking with each other. This is not natural, nor is it healthy for such a dynamic relationship. So conflict avoidance should be a top priority of both leaders, and more practical actions need to be put into place to encourage the men and women in uniform on both sides to visit with each other to talk with each other, to talk about the rules of the road in the air and on the sea — or, indeed, under the sea, so that we avoid mistakes, miscalculations and accidents. At this stage, in my humble opinion, that is the most important requirement to stabilize the U.S.-China relationship.
