As I write this, Robert Lighthizer, Trump’s trade negotiator, is expected to be in a session with Chinese officials. Speaking in front of the Senate finance committee this week he admitted that trade talks have entered their “final weeks”.
However, this does not mean that an end is in sight. I believe that a resolution to this (disguised) tech war will be kicked down the road, pending very modest Chinese concessions that will allow President Trump to claim the world’s second biggest economy has capitulated to the first. In reality this will be nothing more than a temporary resolution, lightly covering a series of issues still to play out.
In his recent speech to the National People’s Congress, Premier Li Keqiang dropped any explicit reference to the ‘Made in China 2025’ government-led industrial program. Perhaps in a bid to placate the US. Instead he stated that the government would promote “advanced manufacturing” – ‘Made in China 2025’ by another name. Whilst the name may have changed, this is sure to concern President Trump and US officials in several ways:
Firstly, while the United States of America remains very divided at present, the nation seems to be in agreement regarding the threat of Chinese technology. No one has articulated how it is a security issue quite yet, but China’s National Intelligence Law states that organizations “support, cooperate with and collaborate in national intelligence work”. People in the highest ranks of western governments are afraid that if 5G networks are entirely built by, and reliant on Chinese technology, information of a sensitive nature could potentially be accessed by the Chinese. Moreover, Beijing would be in a position to simply turn the switch ‘off’ on the rest of the world should they choose to do so. In short, the US is afraid of technological terrorism.
The second problem is that everyone has been left behind by the Chinese, who have been the harbingers of change and advancement in the technology space. They are light years ahead of the rest of the world, with their development of 5G technology. The US, Europe and other developed nations have made forays into the technology, but are too far behind, and it would take billions in investment to catch up. In Europe, reports state that 30-40 percent of the 5G network remains committed to Huawei.
Moreover, Trump remains in a real dilemma with regards to what to do with the Chief Financial Officer of Huawei (and daughter of the founder), Meng Wanzhou, who has been arrested in Canada and is awaiting extradition to the US. The long-term political and legal ramifications of any action, or inaction, in the case will be felt both in the US and China.
At home, the US president will be aware that he needs to demonstrate that he is still a deal maker to his electorate and establish an agreement with China as part of the trade talks – especially after the disaster of the North Korea summit in Hanoi – to secure re-election, and at the very least to save face. No doubt he will have to make some concessions, but where these will be, we do not know. Until then, we are reliant on the updates from Robert Lighthizer.
For its part, China is a unique case and will continue to trundle along. It is an isolated market, in many senses, and centrally-controlled. There is evidence regulators have tried to press the accelerator on credit creation to get it firing on all cylinders again, like they did in 2016, but even if it does not work, it is still in healthy growth territory and will do OK.
The key is, with its dominance of 5G development, China has taken the future and is running with it. So, while the tech war may be hiding in plain sight as a trade war, the battle lines are deeply drawn – and one side seems to have outmaneuvered the other already.
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