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Trade War Is Turning Into a Technology War

President Trump knows that in the current trade war, the Huawei issue is perhaps one of the most important issues for the Chinese government. It directly undermines the Chinese prestige and the ban create global anxiety. This is resulting in discussions in many countries, assessing their relationship with China. It highlights the domination of the Chinese in telecoms manufacturing, but at the same time, it opens up other discussions in relation to Chinese dominance and influence. For example the distribution of Chinese propaganda material by the Chinese Communist Party at universities around the world that have large number of Chinese students. Another international worry is the dependence on China the country is creating. Vulnerable countries in Africa and Asia are provided with loans and investments through the Belts and Roads system. If they can’t repay, China offers to take over these assets and as such, can extend its global reach.

Countries are also reflecting on the internal politics within China, such as the social code and the law that requests Chinese people and businesses wherever they are always to put their loyalty to China first. Its level of censorship and social and economic state control is in stark contrast with open democratic systems.

Through these policies and through an increasing economic dominance, the country could potentially be able to more and more push its values onto others; potentially undermining more democratic values in other countries.

For decades other countries have accepted that under the WTO agreement of 2001, China was exempt from certain international trading rules as it was seen as a developing country. This has, for example, led to a situation that allowed China to maintain a strong relationship between government and industry. It also allowed for the transfer of knowledge that required overseas companies to provide Chinese companies with access to their intellectual property. The banking system was also able to develop in a less transparent way than was required from other countries.

Obviously, with China’s economic strength, it is very understandable that other countries are now arguing that these special arrangements from 2001 should be abolished and that China should adhere to the global rules. It is just a pity that these discussions are now overruled by the trade war ignited by the USA who wants far more swifter action. Trump doesn’t trust global institutions such as the WTO and therefore, has decided to do it alone.

The Huawei issue gets far more media coverage than any of the other issues of the trade war. This hurts President Xi Jinping and his government politically. Trump is cleverly using this in his trade war battles, obvious in the hope to force the Chinese to make more concessions on issues relating to transparency in industry policies, transparency in industry structures such as banking and telecoms, better opportunities for American tech companies without the current restrictions that are in place and other issues such as cyber security, protection of IP, etc.

With a threat towards more trade restriction around Chinese technology, the trade war is heating up significantly. The integrated global system around technologies means that this will affect all countries. Components, software and knowledge are sourced from around the globe and the end products will have elements in it from many different places on earth. If an important country such as the USA is going to boycott this, than all will suffer. The trade war is rapidly becoming a war around the control of technologies.

The Google issue reveals another element of globalization. The sheer monopoly that this company has on the internet search, access to Android applications, messaging, etc. means that if you, for example, produce smartphones that will not be able to connect to Google you basically can’t sell your product overseas anymore.

The way the Chinese society is structured around its political system means that—longer term—a trade war will affect China less than other countries. The country will simply turn more inside, might suffer some short term economic and social problems, but this will be tightly managed and financed by its government. Other countries with open economies based on democratic systems don’t have the same buffer to withstand such a trade war and therefore they will—longer term—suffer more.

What is also interesting here is to see what happens if indeed China and the USA will be able to resolve their trade issues. This could end the ban on Huawei and clearly shows that the issue was politically motivated rather than technology related. If that would be the case it would expose Australia in a bad way.

These trade-related problems should be solved within the international structures we have developed and not through a trade war under the disguise of security issues.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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