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The West Is Shooting Itself in Its IT Foot

In our globalized economy, it is vital that we do establish levels of fair trade, and the USA is right in addressing that issue. However, making technology a key element of the trade war will backfire.

Let’s take (again) the Huawei issue as an example. The company has admitted that the US boycott is hitting them severely with an estimated loss of $30 billion in revenues. One of the other elements of the trade boycott is that Google is no longer allowed to provide its Android operating system (OS) to Huawei. With the enormous popularity of Google, this is a significant setback.

The question, however, is who will be the longer-term winners and losers?

Many companies—but technology companies in particular—depend on global markets. There is little economic and population growth in the developed countries, but there is enormous growth in Asia, Africa and to a lesser extent South America.

The current spread of the world population is as follows: North and South America 1 billion, Europe 1 billion, Africa 1 billion, Asia 4 billion. By the year 2100, the spread of the world population is estimated by the UN to be as follows: Americas 1 billion, Europe 1 billion, Africa 4 billion, Asia 5 billion. If we link population numbers to political and economic developments, it is clear where the global power will move to between now and then.

These new emerging economies are no longer following the neoliberal capitalistic model of the West. Instead, they look more to China and are following a more social democratic model. This model is based on mixed capitalism, governments playing an active role in the economy by supporting champion companies and actively steering investment in strategic sectors. The political systems here are more of a mixture of emerging democracies and technocracies. Looking at the global population, more people are now living in Asian-style economic/political systems than in western systems.

The current technology boycott will now mean that China will have to develop their own alternatives for those technologies that so far were available from the USA, but which are now blacklisted.

With or without trade bans, technology developments in Asia are continuing at great speeds, and we see that Asia (read China) is rapidly taking over international leadership in AI, EVs, 5G, semiconductors (Taiwan), renewable energy systems, smart cities and mobile finance. While the US is retreating from international cooperation and intends to become even more isolated, Asia is forging more and more global business relationships. China—including its government—is heavily investing in the R&D behind these new technologies. In the West, investments in R&D have dwindled, so no wonder that not only manufacturing but also innovation is shifting to the East.

The boycott will only force China to further step up its own R&D, which will lead to a further increase of Asian leadership in IT. This will most certainly lead to further growth of its market share in IT, especially in the developing economies. Even if the boycott is lifted, China will never want to rely on American technology anymore. This is a lightbulb moment for China and will only further propel Huawei—and other Chinese companies—in the lead as the West doesn’t have the political and economic systems in place to counteract Chinese hegemony in IT. Without access to the latest innovations and developments in IT, this could have very severe consequences for the economy in the West, which increasingly relies on modern technologies. The end result of the boycott will be an even more significant reliance from the West on China.

It is crystal clear that in the long term, the boycott will be more detrimental to the West than to China. While the USA and Australia are boycotting Huawei, the Chinese government simply sped up its own 5G licensing process so the company can compensate for a loss of business is from those countries through growth in their domestic market. On top of that, Russia also came with a massive order for the embattled company.

Huawei’s forecast for the next year will now be flat and is hurting, but it still stands at $100 billion. The company is now—together with other companies in Asia—developing their technologies including their own OS to no longer needing to be depending on US technologies. Huawei alone has 80,000 people working in R&D. China’s new push might have little effect on the global market in the short term. However, the need for China to now develop and manufacture more and more IT, plus the sheer economic power of the country and the support it will get from its government will create a serious increase in fierce new competition for the West. In relation to Huawei, this, in particular, will hurt the boycotters, USA and Australia.

Looking at the statistics above on which markets are growing and the fact that China is economically becoming more successful in these developing economies than the West it is not difficult to predict that this will seriously undermine the scale and influence of the international operations of the IT companies in the West.

Under its neoliberal capitalistic structure, many manufacturing sectors have moved away from the West. Trying to now rebuild those lost industries—as Malcolm Turnbull recently suggested for the telecoms industry—will be nearly impossible within the current neoliberal structures in the West.

If the West wants to stay relevant in technology, there is no other option than to go back to the international collaboration models we have so successfully build up over the last few decades.

Just to make sure, the boycott has absolutely nothing to do with security. If we want to address this, we will need to make the underlying internet infrastructure more secure, and this again will require international collaboration.

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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