Trade war becomes tech war, to be No. 1

After almost clinching a trade peace deal with China recently, US President Donald Trump had the Huawei chief financial officer arrested in Canada so she could be extradited to the US to face charges for allegedly violating its sanctions against trading with Iran, disallowed US companies from using Huawei and tried to convince countries around the world to stop buying Huawei.

A few days later, the US embargo extended immediately to limiting the future sales of chips, hardware and application software from US companies to Huawei as well. Trump declared a national emergency to “protect America from foreign adversaries who are … exploiting vulnerabilities in information and communications technology…”
Steve Bannon, former White House chief strategist, says driving out Huawei is more important than the trade deal.

There was no actual stated case of “exploited vulnerability” by the largest telco equipment supplier in the world. There was no specific spying case. So what brought about these drastic moves?

The US-China war is no longer centered on trade (but also finance, education, research, etc.) or deficits (Trump lowered corporate taxes, increased government spending and not raised issues over growing deficits with other countries) or human rights or authoritarian forms of government (the closest allies of the US include some of them).

This is a full-range worldwide war — it is about the ability to dominate the next generation of technology, in this case 5G, which can conceivably extend into economic and military dominance over the next half century.

The US, by its innovativeness, market size, geography, etc., will always be a world power. Trump will not allow market or legal forces to determine the next No. 1 superpower. And China has already become a nation with a combined economic and military size, diversified and technical capability strong enough to be a rival.

Technologies of one form or another have been instrumental in making possible many of the world’s superpowers in the past. The use of metals, horse, guns, technologies of mobility in transport, the industrial revolution, variously were foundations of the Roman, Mongol, Turkish, British, US and other empires. They could not attain their size and sustained dominance without converting their military might into economic prowess. Those who used their technology for prosperity but not for military build-up usually eventually got conquered by the superior military powers.

China in the past century, which, while weak and corrupt, was rich enough to be coveted by Western nations, and later Japan, to divide among them. Egypt became a granary for Rome. Japan itself, a country that mostly kept to itself, was forced open by the gunboats of Admiral Dewey.

5G is a technology recognized as such a fundamental source of future power, especially in conjunction with AI, Robotics and IoT or internet of things. It brings precision and consistency of communication, sensing, processing and execution to such levels that the limits of the past would be exceeded, e.g., in autonomous vehicles, monitoring and dispensation of medical, security and maintenance functions by sensors and robots, decision-making, even where men cannot inhabit, etc. Work, lifestyle and governance will be redefined.

Germany has developed its industrial revolution 4.0 strategy, considering these technologies, while South Korea has set its eyes on other strategic space. The others are catching up.

The US has been able to reinvent itself several times, along with using a little old arm-twisting on Japan to maintain the top spot when Japan was a rising economic challenger in the 1980s. And Japan never recovered. The US is trying to buy time again, to damage or slow down China.

Currently, despite criticism of China’s incapability to innovate, the world is faced with the leader in 5G and robotics.

Henry Chan of the National University of Singapore points out that China chose frequencies that, while less powerful, have higher coverage area: “In a report by the US Defense Innovation Board released on April 3 … the typical Chinese standard 5G trial … can cover five to six times more area than the regular US 5G trial.” This makes it more economical to set up, operate and maintain China’s system; it has invested more in building and installing the ecosystem, so that its experience and applications are ahead. [Read More: 5G Use it to leapfrog, others will be left behind]

The comparison is almost parallel to that between Nikola Tesla, who invented AC (alternating current) electricity, and fellow genius Thomas Edison, who invented direct current. Edison was able to delay the mass adoption of AC through his marketing, networks and use of media. Today, AC is what we use in our homes, since it incurs much less friction and could travel wider distances, allowing fewer parts and less maintenance, therefore, it could reach more people economically.

Will the economics always “trump” the politics? Not always. At some point the predominance of applications in a market can make it uneconomical to switch.

Both superpowers are motivated.

China has trillions of US dollars in reserve, while the US has a robust economy and can simply print world reserve currency. The battle may be long, and won’t just be in the arena of trade.
While the US has threatened sanctions and the withholding of intel cooperation with European countries that dare to patronize Huawei, the EU has refused to definitively say it will not buy Huawei. There are issues of sovereignty, and tremendous increase in costs for the UK, Germany, Italy, etc. with some of the orders having already been manufactured. European telecoms equipment manufacturers admit they cannot supply the technology, which neither the US is ready to match.

What is going to happen then? One can never count out a resourceful nation. Will this war end up in a market of divided standards? What will happen to Huawei? And what about concerns over spying and other criticisms directed against each other? How will the Philippines make decisions that are good for the Filipino?

George Siy is a Wharton-educated industrialist, international trade practitioner and negotiator, serving as director of the Integrated Development Studies Institute (IDSI). He has advised the Philippines and various organizations in trade negotiations with the Association of Southeast Asian Nations, Japan and the United States.

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