Long-term threats from both the US and China to dismantle the two countries’ interdependent tech economies are finally giving way to reality.
Why it matters: A divorce will be messy, with a lot of near-term pain on both sides. And the end result may be a reduced, more fractured world compared to the one that existed just a few years ago.
Where it says:
- China has long produced a large part of the parts and hardware in US tech products. It has also become a major consumer market for certain American tech giants, including Apple.
- The US supplies the software and semiconductors that drive a lot of Chinese tech. Chinese companies that benefit from this scheme include conglomerates such as Tencent and Baidu, as well as device manufacturers such as Xiaomi, Lenovo and Oppo.
Now, by action of both countries, the scheme is burglary.
- A sometimes muddy pressure to attack the Chinese telecom giant Huawei is beginning to have a worldwide impact. Several U.S. allies have set limits on Huawei’s role in providing 5G networking equipment, and Huawei now says it’s stopping the chips it needs to make phones because it’s cut off from doing business with US suppliers.
- U.S. companies including Apple, Disney and Walmart are warning the White House that their planned ban on TenC-owned WeChat could shake up their entire Chinese business. WeChat is a multi-purpose platform with total ubiquity in China, used not only for messaging but also payments, social media and a number of other features.
- The Trump administration’s clean network proposal seeks to remove the reach of Chinese technology so that it ends up on China’s borders, and calls for a range of initiatives, including blocking Chinese devices from running US apps and pressure on other countries against using China’s submarine internet cables.
What follows: Both countries are already looking inward to make plans for greater tech independence. Much of it has centered around the high-tech semiconductors that each country seeks to speed up the entire chipmaking process, from research to manufacturing.
- China has long been working on developing its own chips, money goes into the sector, including with fresh taxes earlier this year.
- U.S. lawmakers are pushing for $ 23 billion in funding and tax breaks to support R&D and build domestic chip factories in must-pass defense legislation that overturned both the House and Senate last month.
Flashback: It is not the first time that barriers have been raised between the tech economies of the two countries.
The big picture: Even if the US and China both make the decoupling push easier, the split may already be done.
- Companies that do business primarily in one of the two countries may be reluctantly strategically dependent on technology from the other country after seeing that dependency is powerless.
- Already, companies like Foxconn that produce for Apple and other U.S. companies are aggressively trying to diversify their manufacturing companies outside of China.
Yes, but: A split could create opportunities – on opposite sides.
- There is a school of thought that companies like Huawei will emerge stronger from US ties, expanding their worldwide presence without defending the threat of US threats.
- Do not expect iPhones to be made in the US (If anything, production will shift to another empty, labor-rich market such as Vietnam or India.) But unlocking it could mean more American manufacturing, especially of semiconductors.
The other side: Not everyone bets on a total decoupling. Consider, for example, the continuing trend of Chinese companies going public on US exchanges.
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