In March this year, the Trump administration blocked the acquisition of Qualcomm by Broadcom due to risks to national security as it could provide a competitive advantage to Chinese chip manufacturers in the 5G industry. A month later, the Trump administration banned U.S. companies from exporting products (such as semiconductor technology) to Chinese telecommunications manufacturer ZTE. While the U.S. has not been hesitant to raise tariffs on Chinese tech, there was no reluctance on China’s part to retaliate against proposed tariffs with their own tariffs, and the proposed date of the tariffs on U.S. goods is at hand: the 6th of July. China and the U.S. are not only moving closer to a trade war, more specifically, they are moving towards a tech war.
This battle is about the concentration of capital and technological power in the world. The digital economy is currently organized around just two centers of gravity: the U.S. West Coast and the east coast of China. These gold coasts are home to nine of the top ten, and 18 of the top 20 internet companies, as measured by market capitalization. As the Atlas of Digital Hegemony shows, companies from these regions virtually dominate in every domain of the digital economy, such as e-commerce, online search, mobile, AI, unicorns and VC funding. And because of this, the battle for digital hegemony is largely between China and the U.S., which are virtually leading in all new development and deployment of next-gen technologies relating to our theme “sensor-based economy”: AI, 5G, quantum computers and nanotechnology. Thus, the stakes in the looming trade war between the U.S. and China are high: the U.S. risks losing technological and digital hegemony, adding an explicitly geopolitical element.
A recent NYT article, however, argued that Chinese big tech companies are already beating their American counterparts. This is supported by the Chinese government. Chinese President Xi Jinping outlined an updated vision for China’s future as an internet and technology power, pledging more state support for sectors caught in the crossfire of a trade war with the U.S. This is remarkable, given that China is increasingly setting industrial standards. The central strategic document is “Made in China 2025”, in which China sets itself the target of becoming largely self-sufficient by 2025. However, as we have written before, China faces considerable challenges with respect to digital independence. Even though China has been able to become largely self-reliant in technology domains such as online platforms (e.g. social media, e-commerce) and AI, it still largely depends on the U.S. when it comes to its supply of semiconductors, a key enabler for any computational endeavor. The semiconductor industry could increasingly face interference from government as the Chinese semiconductor industry becomes more competitive, resulting in an arms race when strategic motivations become leading.
As the trade war and tech war between the U.S. and China intensifies, other nations will be left behind in technological development as they cannot equal the superpowers in force. As we wrote in last month’s Risk Radar, while other countries have ramped up their investments in technology such as AI, the focus is mostly on the duopoly of the U.S. and China. As tensions between the two leading nations increase, this will disadvantage those who are lagging behind in new development and deployment of next-gen technologies, both economically and on a security-level.
RISKS MARKED ON THE RISK RADAR AS NUMBER 2:
AI ARMS RACE, TRADE WAR