Huawei bust re­veals a sec­ond, stealth­ier trade war be­tween US and China

Mint ST - - NEWS -

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

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