Huawei bust reveals a second, stealthier trade war between US and China
efforts to block Chinese access to US components are in the works. The Export Control Reform Act, passed this summer, increased regulatory oversight of US exports of “emerging” and “foundational” technologies deemed to have national security importance. Although national security is certainly a concern, it’s generally hard to separate high-tech industrial and corporate dominance from military dominance, so this too should be seen as part of the trade war.
A second weapon in the high-tech trade war is investment restrictions. The Trump administration has greatly expanded its power to block Chinese investments in US technology companies, through the Committee on Foreign Investment in the United States which has already cancelled a bunch of Chinese deals. The goal of investment restrictions is to prevent Chinese companies from copying or stealing American ideas and technologies. Chinese companies can buy American companies and transfer their intellectual property overseas, or have their employees train their Chinese replacements. Even minority stakes can allow a Chinese investor access to industrial secrets that would otherwise be off-limits. By blocking these investors, the Trump administration hopes to preserve US technological dominance, at least for a little while longer.
Notably, the European Union is also moving to restrict Chinese investments. The fact that Europe, which has opposed Trump’s tariffs, is copying American restrictions should be a signal that the lesspublicized high-tech trade war is actually the important one.
The high-tech trade war shows that for all the hoopla over manufacturing jobs, steel, autos and tariffs, the real competition is in the tech sector. Losing the lead in the global technology race means lower profits and a disappearing military advantage. But it also means losing the powerful knowledge-industry clustering effects that have been an engine of US economic growth in the post-manufacturing age. Bluntly put, the US can afford to lose its lead in furniture manufacturing; it can’t afford to lose its dominance in the tech sector.
The question is whether the high-tech trade war will succeed in keeping China in second place. China has long wanted to catch up in semiconductor manufacturing, but export controls will make that goal a necessity rather than an aspiration. And investment restrictions may spur China to upgrade its own research and development capacity.
In other words, in the age when China and the US were economically co-dependent, China might have been content to accept lower profit margins and keep copying American technology. But with the coming of the hightech trade war, that co-dependency is coming to an end. Perhaps that was always inevitable, as China pressed forward on the technological frontier. In any case, the Trump administration’s recent moves against Chinese tech—and some similar moves by the Eu—should be seen as the first shots in a long war. BLOOMBERG