An epic struggle between the United States and China for control of the technologies that will dominate our future is unfolding- and investors are being caught in the crossfires.
The G20 summit will kick off this weekend in Argentina, against a backdrop of simmering, tech-related tensions between the world’s two superpowers.
US President Donald Trump this week threatened to impose tariffs on a range of tech imports from China including iPhones and laptops. Meanwhile, a key US government body proposed restricting exports on a range of emerging, advanced technologies that could be essential to the country’s national security.
The tensions appear to be about trade, but analysts believe they are really about much more than that. China’s tech sector is viewed as a strategic threat to the US, and there is also a belief in Washington that the country has engaged in industrial espionage against American companies.
“China is aiming to emerge as a ‘science and technology superpower’ and policymakers in Washington are waking up to the strategic challenge inherent in that,” says Fergus Ryan, an analyst at the Australian Strategic Policy Institute, who specialises in cybersecurity.
(Those concerns about espionage are not limited to the US, by the way. This week, New Zealand’s top intelligence agency banned Chinese equipment supplier Huawei from supplying equipment for a planned 5G mobile network in the country on national security grounds. That brings New Zealand in line with Australia, which took a similar step earlier this year. New Zealand and Australia are members of the ‘Five Eyes’ intelligence alliance with the US, UK and Canada.)
If the US does decide to limit exports of certain technologies to China, it might have some leverage. While China is a major manufacturer of tech products, and is moving up the value chain, it still depends on high tech components from the US, including semiconductors, or computer chips, according to Citi analysts.
Yet so far, the biggest victim of the Trump administration’s tougher stance on trade with China has unquestionably been America.
Apple shares have taken a beating over the past month, falling by about 20 per cent and wiping as much as $US200 billion from its market value.
Most Apple products are assembled in China, which is also a huge market for the company, accounting for about 20 per cent of its sales.
“Sentiment among tech investors is as negative as we have seen in many years,” wrote Wedbush Securities analyst Daniel Ives. “It’s been a perfect storm for Apple…the negative data points around XS/XR iPhone demand especially out of China is a clear worry.”
Most of Apple’s megacap US tech peers – internet companies unwilling to submit to censorship – are actually locked out of China.But Google has been working on a secret project to return to the country, upsetting sections of its own workforce.
Over the longer term, much more than just share prices are at stake.
The US Bureau of Industry and Security has proposed controls on exports of emerging technologies such as artificial intelligence, natural language processing, robotics and quantum computing because losing control of them could threaten the country’s national security.
These are the same types of technologies China wants to dominate.
Such technologies “will be crucial for deciding who will have the geopolitical upperhand in the future,” says Ryan.
“China recognises this and has targeted those areas and more in its ‘Made in China 2025 initiative. Their goal is to surpass the world’s existing high-tech economies like the US, Germany, South Korea, and Japan.”
President Trump is scheduled to hold a dinner with his Chinese counterpart, President Xi, in Argentina next week. It is possible they will strike a deal to resolve the escalating tensions over trade and tech in the short term.
But the long-term fight for control of emerging technologies poised to reshape the world is certain to continue for years, if not decades, to come.
By John McDuling