After the U.S. and China signed the Phase 1 deal, all eyes are now on Phase 2. While Phase 1 largely dealt with issues like purchase commitments from China and reduction of tariffs by the U.S., Phase 2 is expected to revolve around technology.
A tech cold war
China sees technology as a tool to gain global economic and military dominance. As such, it sees the U.S. as the leader that must be “dethroned.” This is why Beijing focuses on creating its own tech ecosystem independent from the West that will be under its control.
“This is a national strategic logic to avoid more dependence on sometimes unfriendly countries… What happened with the trade war, especially with the tariffs that threatened to disrupt trade, has only strengthened the Chinese government’s instinct to become more independent,” Graham Webster, who leads a joint initiative between Stanford University and the think tank, New America, focused on China’s digital policy, said to Business Insider.
In contrast, the U.S. deems it essential to arrest China’s technological growth until and unless it becomes a full-fledged democracy with transparent business policies. To allow the communist regime in China to become a tech leader is to give an authoritarian power leverage over other democratic, open nations. To avoid this, the U.S. has two options. The first is to restrict the expansion of Chinese tech companies. An example of this would be the ban on Huawei in countries like Australia, New Zealand, and so on.
The second option would be to force China to give equal access to the market for foreign companies. Beijing would have to cut subsidies and other benefits offered to local tech firms. This would allow American and Western companies to expand in China, reducing the influence of Chinese tech companies locally and internationally. China will never allow option two to happen. And as long as communists rule China, America will ensure that option one is implemented as widely as possible. This is basically the tech cold war facing the world right now.
Alex Capri, a visiting senior fellow at the National University of Singapore, is the author of the report How a New Era of Techno-Nationalism is Shaking up Semiconductor Value Chains. He points out that the real conflict between the U.S. and China is not trade, but tech. Moving forward, technology is going to be linked to a nation’s economic prosperity, security, and social stability.
In the semiconductor industry, the decoupling between China and the U.S. will “have a traumatic impact on the entire technology industry, and alter the global economic landscape… Even if the two superpowers are able to repair ongoing trade tensions and hammer out a series of trade deals, there will be no turning back from the pervasive effects of techno-nationalist policies,” says the report (South China Morning Post).
Phase 2 unlikely?
Chris Rogers, a research analyst at S&P Global Market Intelligence’s supply chain analysis group Panjiva, is not sure that there will be any more progress in the trade deal between China and the U.S. He feels that the Phase 1 deal is very limited in its scope.
“The big outstanding issues that weren’t addressed in Phase 1 really speak to the heart of capitalism-with-Chinese-characteristics, namely, the support for state-owned firms and the system of state-directed enterprise. Furthermore, the trade war isn’t really about trade, it’s about technological superiority. In that regard, the United States is becoming more, not less hostile,” he said in a Reuters chat (NASDAQ).
Rogers believes that any Phase 2 talks between the two nations will likely be limited to simple biannual talks and nothing more. He also pointed out that many companies are pulling out from countries like Vietnam since they feel that the U.S. administration might impose tariffs on these nations given that some of their trade practices can be classified as “unfair” from the American perspective.