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The real causes of the US-China trade & tech war

Many of us have been wondering over the past year how a relatively limited tariff dispute between the United States and China has escalated into such a bitter and, apparently, all-embracing trade war. Why does America seem willing, almost eager, to jettison 40 years of trying to bind China into the liberal world order -- a process that has been hugely beneficial to the economies of both countries and the world at large? Most of us have been quick to blame the idiosyncracies of US President Donald Trump and are hoping this harsher US attitude will be of short duration.

Not so, cautions James Kynge, the Global China Editor at the Financial Times, who has spent more than 20 years reporting from the mainland. In a recent seminar in Hong Kong, organised by scoutAsia, he argued -- persuasively -- that America's new policy towards China is based on a fundamental reassessment of the relationship. This goes far beyond Mr Trump and his tweets and is a widely bipartisan movement. At its heart are several factors that are not widely known. As far back as 2012, Beijing rolled up the CIA's spy network in China, an operation that led to some 20 executions and deeply disturbed the US security apparatus and the government at the highest levels.

Then 18 months ago, the US Justice Department charged a group of Chinese hackers known as APT10 (Advanced Persistent Threat 10), with more than a decade of espionage activities against scores of companies and government agencies in the US (and also in other countries). More generally, the US asserts that theft of intellectual property by the Chinese is worth some $540 billion a year, twice the value of the US trade deficit with China. 

Beyond that, there is growing concern over Beijing's "Made in China 2025" plan, which lays out boldly and baldly the range of industries in which China wants to achieve leadership, by replacing market share held by foreign companies with domestic ones. It even gives percentages by category, for example an aim to have 70% of the robotics market in mainland hands by 2025. The message to corporate America (and indeed foreign multinationals generally) could not be clearer.

Even more worrying, perhaps, is China's desire to achieve dominance across the technology sector, from renewable energy to microchips and, above all, artificial intelligence. In fact, there is a separate AI plan, which lays out a path to world leadership and revenues of RMB1 trillion ($140 billion) from core AI industries by 2030, with revenues of RMB10 trillion from related AI activities by the same date.

For the US, all of this amounts, effectively, to a declaration of war. Policymakers, academics and, increasingly, politicians on both sides of the House are realising that China's roadmaps are not just blue-sky thinking but really need to happen in order for the Communist leadership to generate enough growth and employment to stay in power. Consequently, the threat to America is equally existential. Which explains the all-out attack on Huawei by the White House; the fact that 140 Chinese companies are now on the list of entities being accused of IP theft by the US government; and the rising pressure from Congress on big US pension funds to disinvest from Chinese stocks.

China, meanwhile, is hitting back by no longer inviting the likes of Qualcomm, Intel and Cisco to bid for domestic contracts -- a freeze that could easily be extended (quietly and unnanounced) to a much wider range of US businesses, many of which are heavily dependent on profits from China these days.

It is hard to see how this conflict can be contained, let alone resolved. A less strident tone from the US president might reduce the emotional temperature. But judged on all of the above, Mr Trump's categorisation of President Xi Jinping and his nation as an "enemy" of America seems more rational than we have given him credit for. If China is determined to advance, economically and politically, at the expense of everyone else and if it is not going to succumb to the blandishments of western liberalism, then it seems only realistic for the US to start treating it as a strategic opponent.

Which leads to the conclusion that this trade & tech war will not disappear and could even escalate into a new cold war. There will be beneficiaries here and there: think of Asean countries and India gaining as factories relocate out of China to avoid tariffs. But for the world at large, this is unalloyed bad news.

 

 

 

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