The Cold War Between US-China Tech Sectors

 

The widening gap of USA's tech industry from that of China's has received official sanction, as per a leaked report by a group of leading D.C. insiders and influential tech leaders including the likes of ex-Google CEO, Eric Schmidt who are calling for "bifurcation" between the U.S. and Chinese tech sectors.

The Biden administration seems to be fixed on its intent to carry forward the baton handed over by the Trump administration in matters concerning USA's treatment to Chinese tech industries. Although the ensuing battle of tech supremacy is historical between the 2 nations, Trump had officially approved a flurry of measures to restrict the Chinese tech influence in US. The measures have mostly included bans, export sanctions, and trade restrictions aimed at completely cutting off Chinese tech investment in US, furthering Trump's poll plank of America first.

The leaked report by Axios indicates that USA's anti-China policy is one that Biden would most likely not fiddle with much and advocates a definite technological bifurcation, if US is to redeem itself as the global tech superpower and keep at bay, China's growing influence in the tech industry.

The most obvious attacks have been on the complete ban of Chinese telecom industries such as Huawei, out of concerns of possible Chinese surveillance and asymmetrical rules. Additionally a slew of trade barriers and tariffs were introduced in 2017, effectively reducing US' dependence on Chinese manufacturers, and to produce key technological equipment locally. The report states that it would do well for the Biden administration to continue with these barriers to develop a systematic approach to effectively counter the threat to global competition in the tech sector that Chinese companies exert.

The bifurcation has been long overdue due to China's anti-global policies that on one hand restricts any attempts by US to approach the Chinese markets, and on the other place Chinese tech giants in the US economy. From Facebook, to Google, to Amazon, China has their own national counterparts to all these tech services and has since time immemorial blocked these US tech applications in China.

US is however unlikely to continue with the previous administration's stance towards immigration of Chinese engineers, scientists and students, who regularly migrate to US in promise of better livelihoods and thriving scientific culture. In general, Biden's pro-immigration policies are geared towards retaining the smartest Chinese brains in key areas such as STEM research.

The leaked report also makes a case of constraining the reach of Chinese applications and websites into the American tech market sector, while leaving room for implementing complete embargos on such apps to put a final death knell to the Chinese tech industry's influence in US. The recommendations also explore the imposition of stringent technical requirements that existing Chinese companies in US must adhere to, including end-to-end encryption, data localization, open source software coding.

US has taken the lead upfront in building a global alliance to counter China's hegemony and unfair trade practices in the tech space. A two-tech system is inevitable between the 2 countries, because the alternative is a world where China's non-democratic designs have won.

China could potentially end up losing more than the U.S. from the ongoing trade tensions that are now spilling over into the technology sector, according to a Hong Kong-based investment services firm.

That is because major U.S. tech firms operating in China are already under pressure from President Donald Trump to shift their manufacturing businesses back to the United States, and create more jobs for the domestic economy, Gavin Parry, managing director of investment services firm Parry Global Group, told CNBC. He said that if such a shift happens, there would likely be job losses in China.

Earlier this week, Trump unveiled a list of Chinese imports his administration aims to target as part of a crackdown on what the president deems unfair trade practices. Sectors covered by the proposed tariffs include products used for robotics, information technology, communication technology and aerospace - which some economists note are areas that would benefit from China's industrial upgrading plans.

"China's actually got a fair amount to lose from an economic point of view, whereas most people are talking about the U.S. as the biggest loser coming out of the trade war," Parry said.

One example Parry pointed to was Apple. The tech giant sources parts for its iPhone devices from various companies like South Korea's Samsung Electronics and SK Hynix. Those components are then assembled together by firms like Taiwan's Foxconn.

Much of that iPhone assembly happens in China. According to a report from state-owned newspaper China Daily last year, data indicated that nearly half of the iPhones were manufactured at Foxconn's Zhengzhou plant in Central China. The report said that there were 94 iPhone production lines operated by 350,000 workers at the plant. So, if Apple and Foxconn were to potentially shift some of those production lines to the U.S., it could result in job losses in Zhengzhou.

In January, Apple announced investments to support the American economy - that included predictions that the company would contribute about $350 billion to the domestic economy and create around 20,000 jobs over the next five years, as well as to support innovation among domestic manufacturers.

Beyond Apple, Parry said the Trump administration could offer tax concessions and other incentives to push more U.S. tech firms to bring their operations back stateside. That would, theoretically, boost the domestic economy while the import tariffs could continue to put pressure on China. Parry added that Beijing still needs value-added jobs that many U.S. firms in the country offer, to increase the purchasing power and grow the middle class in China.

"It would cause ripples in China," he said. "Not huge ones but enough for Trump to turn around and say let's talk broadly. It gives him some kind of (room for) negotiations."

The office of the U.S. Trade Representative said this week that the tariff targets were developed using a computer algorithm designed to choose products that would inflict maximum pain on Chinese exporters but limit the damage to U.S. consumers, according to a Reuters report.

The tariff list proposed by the U.S. focuses on technology parts and components - such as printed circuit assemblies, transistors and semiconductor devices - instead of finished goods like mobile phones or computers, according to Ma Tieying, an economist at Singapore's DBS Bank.

"China's (information and communication technology) exports to the U.S. largely consist of finished goods, especially relatively low value-added computers and consumer electronics," Ma said in a recent note. "Most of these products are not directly targeted by the U.S. in the tariff list."
That means U.S. consumers may not experience a significant rise in the price of imported electronics goods from China.

Parry said that ultimately, both Washington and Beijing will sit down to work out existing trade disputes - and the recent moves announcing tit-for-tat measures were just to strengthen their respective hands. On Wednesday, China announced additional tariffs on 106 U.S. products, including soybeans, cars, aerospace and defense. One commentator told CNBC that Beijing's decision to target soybeans is a political maneuver designed to hit Trump's support base.


Ananda Rahman is a
freelancer and a columnist.