A battle of words and dollars between the U.S. and China over technology intensifies by the day. Our leaders could be taking us towards a complete separation of the tech ecosystems of the world’s two largest and most powerful economies. That would be a disaster, and not only for the tech industry. It could plunge the world into a recession, or worse.
What began with concerns by U.S. and allied officials over intellectual property theft and security risks in equipment from one company–Huawei–has expanded into an ever-broadening set of worries and threatened or actual restrictions applied by both countries, overlapping with and complicating a pre-existing battle over tariffs and trade policies.
Huawei is China’s most successful global company–by far–and the world’s leading supplier of equipment for 5G wireless, the technology widely agreed to be indispensable for the next phase of a digital society. Because of its rampant government-assisted growth it has been able to offer super-cheap high tech wireless solutions. Many countries in the world are eager to purchase that cheap 5G from Huawei. But Huawei needs components from U.S. companies, especially complex semiconductors not made in China, and the Trump administration seems intent on denying them to it.
As threats of retaliation by China mount, U.S. companies worry that their access to the vast Chinese market may be in jeopardy. That matters to almost every major company, in tech and out of it. Virtually every major global company depends on the Chinese market for some part of its economic success. Apple gets 17% of revenues from China and manufactures the lion’s share of its products there. And recently, as the war of words escalates, Chinese leader Xi Jinping implicitly threatened to close American access to rare earths and precious metals–key materials for electronics-makers all over the world. They are used in much of the equipment that underlies the digital infrastructure of the modern economy.
Summarizing the situation this way underscores the fundamental problem for Presidents Trump and Xi Jinping–we live in an interconnected global economy. The two of them both seem intent on acting as if they still live in a world where supply chains and markets were either domestic or international. But that is not the real world. There is no such thing as a solely domestic market or supply chain anymore for almost anything, but especially for tech.
If every industry–especially the most important one, tech–is economically entangled, then so are our economic fates. President Trump’s attempt to punish China for the way its technology is used might hurt it in the short term. But it will almost certainly also achieve an unintended and possibly more lasting side effect–a slowdown of both economies, and the world as well. One reason the global economy has done so well in recent years is that our global tech ecosystem has been so well integrated, conferring efficiencies equally on every country.
As one action leads to another and punitive counterreactions accumulate, the net result could quite possibly be disastrous market effects. For example, if Apple’s sales in China were significantly hurt, that would pull down the stock price of the stock market’s most emblematic company, and almost certainly with it the entire market. If restrictions on rare earths were to broadly impact global electronics, that could harm every industry.
None of this should imply that Huawei may not be a security risk to societies that become dependent on its wireless infrastructure–the central argument of the Trump administration. But all of us have to pray that a more collaborative, longer-term approach to addressing this real challenge can be found.
What we need is a cool-headed recognition by the leaders of both China and the U.S. that we necessarily must all operate on the same turf, and that certain standardized global rules must therefore be found. Unfortunately, both Xi and Trump are playing to their nationalist constituencies for short-term political gain, so such head-cooling seems unlikely.
Huawei is an indispensable global wireless supplier even though many countries feel they cannot trust its products. That discordant reality is analogous to another major global tech challenge–the one posed by the power of a small number of giant global internet platforms. Huawei has grown into a global presence almost as impossible to dislodge as Facebook and Google. And the resulting dilemma is the same–how will fractured national governments respond to a global commercial and economic force?
In reality, we won’t make tangible progress restraining any of these global commercial leviathans until we develop global institutions capable of matching their global presence. We need the equivalent of a Paris Climate Accords for the emerging digital society, at a minimum. But there is little if any impetus towards that now.
In the meantime, the U.S. and its allies will take measures against China and Huawei that amount in large part to shooting ourselves in the foot. We have failed to develop a larger vision. The economic price we’ll pay for that could be very high.