Trade war or tech war?

This is not a fight that either side can back down on; you can imagine a compromise on tariffs and trade that Trump and Xi tried to hammer out but there can be no compromise on the technological race

The arrest of Huawei Tech-nology’s Chief Financial Officer, Meng Wanzhou, by Canadian authorities in Vancouver on behalf of the United States represents an extraordinary escalation in tensions between Beijing and Washington — just days after a truce seemed to have been declared in the trade war by American and Chinese leaders at the G-20 meeting in Buenos Aires. Meng was arrested because the US accuses Huawei of subverting sanctions against Iran — the details of the case are still not clear, however, as the US has kept some details secret. But it is worth noting that Meng is no ordinary corner-office occupant. She is the daughter of Huawei’s founder, Ren Zhengfei — a former army engineer who maintains close links to China’s military establishment. Many believe she will take over Huawei one day. Nor are the details of the arrest “normal”. Meng was changing planes at Vancouver airport; and it is very rare to arrest an individual in a third country for sanctions violations. 

Unsurprisingly, Chinese public opinion has been inflamed — and, certainly, this looks like over-reach from the United States. The White House has sent out typically conflicting signals: Donald Trump insists he did not know, while his National Security Advisor John Bolton has said he did know of the arrest — which took place as he sat in the room in Buenos Aires with Trump and Xi Jinping as they discussed de-escalation. 

What has been openly revealed by this, however, is that two common beliefs about the Sino-US disagreements are basically myths, or at best misconceptions.

The first myth is that it is driven by Trump’s impulsiveness or by backward-looking trade scepticism. And the second is that this is a trade war over tariffs — the US’ are too low and China’s too high. 

The truth is that these tensions are not about Donald Trump. There is a consensus up and down the American establishment, even among former China doves, and across both Republican and Democratic leaderships, that engagement with China has not paid off the way it should have, and the time has come to try containment. This is a concern that goes beyond the effect on domestic economies of China’s rise; the drift towards greater authoritarianism and centralisation under Xi certainly has something to do with this changed attitude, as does the more assertive foreign policy of the past few years. Even if Trump is voted out in 2020, the harder US line will not change. 

And nor are these tensions about tariffs. Some may want to take Sino-US economic relations back to a point where trade was less unbalanced — but, more than anything else, the war is in fact about the future of the world economy, and not about the past. It is about high technology — who builds it, who owns it, and who gets to use it. The electronics behemoths of the People’s Republic — companies like Huawei — have successfully moved up the value chain in recent years. They may not have surpassed the West’s industrial complex in terms of quality or innovation, but they are now certainly competitors. The question in this case, for example, is whether US technological sanctions on Iran count for anything at all. In the past, when the West controlled all technology, they would naturally matter. In a future in which Chinese companies control some technology and choose to ignore US diktats, they will count for far less. 

Trump himself has frequently referenced the theft of US intellectual property by Chinese companies. This is a frequent complaint from Western companies: That the price of doing business in or with China is either theft or the “extortion” of intellectual property. Even if these claims are overstated, and even if the People’s Republic has cleaned up some of its intellectual property rights regime, it is nevertheless true that the rapid ascent of some Chinese firms up the value and technological ladder owes a great deal to the appropriation, one way or the other, of outside know-how. 

Whoever controls the technology of the future controls the networks of the future and the profits of the future. This is not a fight that either side can back down on; you can imagine a compromise on tariffs and trade, precisely the sort of thing that Trump and Xi tried to hammer out in Argentina, but there can be no compromise on the technological race. Both sides feel hard done by: The West feels its technology has been taken, the Chinese feel that their companies are unfairly targeted. 

India will not be able to sit on the sidelines. It is, thanks to its own failures, not a player in the high-tech wars. But it is certainly a consumer. Recently, a list of possible 5G providers to India was released that excluded Huawei; presumably after a bit of lobbying, Huawei was put back in. Are we willing to aid Beijing’s plan to dominate the high-tech future? Is that in our interest? These are questions we cannot avoid asking. 

Email: m.s.sharma@gmail.com; Twitter: @mihirssharma