The US-China tech rivalry is fracturing the world and affecting trade, firms and jobs
America and China are not engaged in a “trade war”.
The world’s two superpowers are locked in a much bigger systemic rivalry that will fracture the global economic landscape in ways not seen since the Cold War between America and the former Soviet Union.
At the heart of this rivalry is technology. For both China and the US, achieving supremacy in the industries-of-the-future has become paramount, as AI, robotics, semiconductors and other high-tech niches become multipliers of soft and hard power.
I call this emergent phenomenon techno-nationalism.
Techno-nationalism is a hybrid strain of mercantilist thinking that links technological innovation and capabilities directly to a nation’s economic prosperity, national security and social stability. States will increasingly intervene in markets and look to promote their own champions while, simultaneously, undermining other state and non-state actors.
Washington’s global campaign to block the adoption of 5G wireless technology made by Chinese telecom giant Huawei is a perfect microcosm of this new world.
The US has all but convinced other members of its so-called “Five Eyes” intelligence alliance (which also includes Australia, New Zealand, Canada and the UK) to either block Huawei 5G equipment entirely, or relegate Huawei components and equipment to peripheral, “non-core” infrastructure.
Following this logic, New Zealand’s policy makers blocked a proposal by Spark, the country’s second largest carrier, to use Huawei as an exclusive supplier for future 5G infrastructure and mandated a multi-supplier system, including Samsung and Nokia, who will build core infrastructure.
When it comes to semiconductors – which comprise the critical elements of telecom technologies – Washington’s effort to stymie Huawei have revealed the complexity of global value chains.
In 2018, Huawei bought U$70 billion worth of components, with U$11 billion going to US chip makers such as Qualcomm, Intel and Micron Technology. Imposing strict controls or outright restrictions on US technology to Huawei has thus put in motion a seismic shift in the tech landscape.
The Huawei spectacle has brought to light new techno-nationalist challenges for global commerce, including the de-coupling and restructuring of supply chains, as well as the rise of a new wave of industrial policies – especially in the West – designed to counter China’s model of state-centric capitalism.
The decoupling of American and Chinese firms is inevitable, no matter what happens in the next rounds of trade talks between Washington and Beijing.
To tackle this newfound vulnerability that threatens growth, Chinese firms will double down on efforts to “de-Americanise” their supply chains and attempt to replace US controlled technologies on the so-called “dual-use” list – defined as commercial items that also have military or national security implications.
In 2019, this decoupling process was accelerated when Washington blacklisted an additional 28 Chinese entities on the grounds of human rights violations in Xinjiang province.
China’s HikVision, the world’s largest manufacturer of surveillance cameras and facial recognition technology, was severely impacted. Nvidia and Intel, two US chip manufactures, were critical suppliers of computer processing and graphics technology for HikVision’s products.
The HikVision is another watershed in that it has galvanised Chinese companies to cut their reliance on US technology and decouple as quickly as possible.
It also highlights the glaring ideological contrasts between the US and Chinese political systems: Differences in privacy standards, surveillance practices and individual freedoms will define how techno-nationalist policies and restrictions provoke more decoupling in the future.
In some cases, the speed at which technology can be replaced or replicated is surprising. Huawei claims to have found alternate sources – or devised its own – for American technology in its P30 Smart Phone.
This includes the replacement of the Android operating system by Google, radio frequency chips by Oorvo, DRAM and NAND chips by Micron, critical design software by Mentor Graphics and Synopsis and other American firms.