U.S. vs China Tech War: Overview

On 22nd February 2019, US President Donald Trump said that “US shouldn’t block technology”. On 6th March 2019, the Chinese company Huawei sued the United States for banning its activity in the country. This “move”, along with changes in the trade tariffs, came to intensify the trade war between these two countries. On 15th January 2020, the “Phase One” Trade Deal was signed, putting a medium/short-term end on this conflict, but it seems that the two continue “fighting” over a technological war.

As it was written in our January 2020 newsletter, China was the leading country on the 5G race mostly through Huawei. It still looks that way and, apparently, American corporations still have some work ahead to keep up with this company, but why is this war so important, and why do both the US and China keep on banning each other’s advances? Firstly, there’s the will to have economic power. The more advanced a country is and the bigger its technological power, the better its influence and economic output. There’s also the ideology aversion. These two countries usually represent the extremes of political ideologies and, but not only, this factor often triggers different conflicts. The history of these nations is also a factor to have in mind since there’s usually some hostility going on (either it being directly related to them or between other countries). Last but not least, the worries on military and defense of each country. The US banned Huawei and warned other countries to do so due to the risk of the Chinese government using it for spying purposes. Recently, Trump has been expressing about banning other Chinese apps, like TikTok and WeChat, for tracking user’s data and for its danger to the country.

It’s hard to define a leading country in this war. This Bloomberg article helps to see and reflect on some areas. We can see it’s tough to establish a global leader. On this article, Bloomberg puts the US one point ahead, but how stable are they? The 5G vantage for China could value more than one score. The growth of China could be setting them to the top. The US attempt to weakening China is not only by the prohibition of its technology, but they’re also cutting its crucial suppliers. However, if China was a follower in the tech sector a few years ago, today is gaining advantages and is innovating. And, even though the last months have been covering mostly the US moves on Chinese tech, this “banning” battle indeed started earlier, around 2009, since China has already banned more than 50 American websites and apps. Which means that this Tech War is also a test on the nations’ economic strengths, especially to the tech American and American backed companies that export to China.

It seems like there’s a world division going on. For example, the principal chat apps used in the US (WhatsApp and Messenger) are banned in China; if the US ban WeChat (most used in China and third on the US), there’s a clear division between these that will reflect more globally. It is, above all, a political war and recently the US Secretary of State Mike Pompeo said he wants a “clean” internet. With all the banning activity and the speech given, it looks like a “Chinese movement” coming from the US (to control the internet content like the Great Firewall of China). I don’t believe in such an extreme position from the US, but what would be the safe Chinese app for the US government to allow? With elections in November and a defeat to the Republicans, Democrats may take a more moderated position. But who knows? With this chain of events, I consider that the present circumstances form an anti-globalization movement. For decades the world has been moving to be more globalized, for better connections and transactions, for a better flow of capital, ideas and assets. Although there’s been a constant struggle to unite countries like the USA, China and Russia, e.g., one could see these too, in some way, become more connected and even gain some advantages. The better flow of assets, capital, ideas and people allowed for countries like China to trade, absorb investment and to invest and allowed for countries like the USA to send factories and production centers to undeveloped and cheaper countries. “A free-trade world contributes to a win-win situation between those involved where war is a lose-lose situation”. The division and the barrier to globalization have the power to change the geopolitical scenario of today. China’s internal market is big, but the US’s is wealthier, and they are not enough to feed the economic activity of neither. We may see Europe to “choose” a side or divide. The same with Asia, and especially Southeast Asia and its working force. Companies with factories in China may have to reallocate them and the USA may not be the solution. The relation between productivity and salary is not favourable in the USA. Besides, Southeast Asia, Latin and South America may be targets of the low-income workforce. A continent that hasn’t been “under the radar” is the African. The existence of factories in underdeveloped countries brought them work and income. Although low, it is something, and perhaps it could help poor African countries and even industrialize them. It could help both the US/China and the country in question. Of course, it would help every country, but I believe that African undeveloped countries could take this opportunity to attract jobs and wealth. Concluding, I believe that there are some worries and changes to develop: the anti-globalization movement that will affect not only the US and China but every country and average people; the possible fall onproductivity and production processes; the difficulty for everyone to access possible advances in each country; the advances that will be missed due to non-cooperation; among others. A lot will be written about this issue, but I believe that with China’s internal market and economic growth and dominance China is on their way to be a “winner” of this war.

Article published in our August Newsletter

Diogo Marques, BSc in Economics

Published by lisboninvestmentsociety


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