Trade war? No, the US and China are vying for technological supremacy, and the markets are catching on
- The US implemented tariffs because it sees China as its long-term rival for technological supremacy. This not only means ongoing restrictions on companies like Huawei, but a stark global realignment
These moves suggest that more investors have become pessimistic about the prospect of a grand solution to the dispute and are increasingly factoring in the impact of a prolonged trade war.
And Chinese tech firms are not safe from the intensifying tech rivalry. Last year’s sanctions against ZTE by the US government were a clear warning, while the banning of Huawei products in the US and the constant lobbying by US officials to boycott Huawei technology in other nations are ominous signs of more troubles to come.
This is not to deny that Trump could be using Huawei as a bargaining chip in future trade talks with China. But that narrative is misleading because it puts trade at the core of the Sino-US conflict and technology at the periphery.
A simple thought experiment: if a trade deal were struck tomorrow, would the US immediately remove all the sanctions against Huawei, embrace its 5G technology and encourage its allies to do the same?
The answer, very likely, is no. This is why we think that the struggle between the world’s two superpowers for global leadership in technology is likely to be much more intense, broad-based and significantly longer-lasting than the trade conflict.
Sadly, no one is likely to win from this tech war.
For China, the rapid rise of Huawei and other tech companies like BAT – Baidu, Alibaba and Tencent – is a testament to its rapid convergence with the global technological frontier.
But even with that progress, China is still reliant on US technologies in many areas (the reverse is also increasingly true). Hence, the US government’s current sanctions, should they become protracted, will be detrimental to Huawei, 5G and China’s overall tech development.
On the flip side, the US and its partners who decide to side with them also stand to lose from blocking some of the best technologies in the world, such as Huawei’s 5G.
By imposing trade tariffs and sanctions on technology, the US is forcefully reshaping the global supply chain for manufacturing goods and innovation.
The former will lead to a suboptimal allocation of resources, causing harm to the global economy in the near term. But the latter could severely hinder the speed of global technological progress, and potentially reset the world order for the coming decades.
Aidan Yao is senior emerging Asia economist at AXA Investment Managers