Analysis: US-China Technology war

Reading time: 8-10 minutes.

There are different kinds of war that takes place and some of them end up costing lives. However, a Technology war doesn’t cost you lives but it might end up with both positive and negative impacts.

A Technology war is a fight to become ssuperior in technological advancement. This becomes significant because of the use of technology is not only restricts to industries but Military. The weapons in this war can be restricting tech export, high investment in R&D, subsidies to the pertinent businesses etc.

How did it start?

The Technology war came as a part and parcel to the Trade war between US and China. The catalyst to this trade war was Trump’s concern that the US imports $540 Billion every year from China which is 17% of their total imports. Whereas China only imports $120 Billion each year from the US which is only 4% of the US exports.

The US had $420 Billion deficit over China. Trump’s concern that the US is giving them so much business but China is not doing the same for them. Trump also concerned that they are helping China come closer and even become better than them where they both are actually competing against each other.

On March 22, 2018, Trump imposed 25% tariff on some products from China. To tackle this, China started tit-for-tat measures and increased tariffs which has led to this trade war. Since 1979 China has never conceded to the trade threats issued by the US.

China had the advantage of Cheap Labour, strong manufacturing setup etc whereas the US was good at innovation, technology development. Both the countries were dependent on each other for their resources.

Significant Developments

After several attempts for negotiation between the countries, the trade war lasted for almost two years. On January 15, 2020, the countries signed ‘Phase 1’ deal for relaxations from the tariffs. The deal running into 86 pages required China to buy more of the US Products including $200 Billion of farm produce over the period of next two years. On the other side, the US will relax the tariffs on $120 Billion worth of goods. However, it retains the tariffs imposed on $360 Billion of goods so that it makes sure China holds its end of the bargain.

US have accused China of technology theft, cyber espionage and other IP violations. It was also accused of ‘Forced Technology Transfer’ by the US, EU and Japan.

Both countries have tried to topple each other through various measures in the recent past. China’s unfair policies for foreign companies and the US banning Huawei. Hence, the ‘Phase 1’ deal needs China to refrain from forced technology transfer and the ban on Huawei is also relaxed.

Trump insisted on signing on ‘Phase 2’ of the negotiations right after the implementation of ‘Phase 1’ without waiting for the elections at the end of the year. But, since the pandemic outbreak, the deal is nowhere close to being contemplated upon.

Implications for India

A study by the UN body estimated that India gained about $755 million in the first half of 2019 due to the trade war coupled with technology war.

India can be a substitute for the US manufacturers who are looking for mildly skilled and cheap labours for various technological companies for eg. Apple Inc. India’s non-alignment policy in a dispute of two countries gives it an opportunity to form amicable relations with both the US and China. India can provide both the countries with its services and take advantage of the trade war given India makes improves its policies accordingly.

Critical Analysis

In a period of reverse globalization by major economies of the world restricting foreign competitors and promoting domestic businesses, the steps by both the countries are justified to an extent. Both the countries were doing what was necessary for their national interest. Even Russia declared to replace Wikipedia with Russian and more reliable version. Bills were also proposed to preinstall Russian tech in computers and smartphones.

The competition between US and China is clearly more than economic advantages. It squeezes the diplomacy, power and ideology involved.

After Trump took the office of President the relations have depreciated because of his aggression toward China. The administration has stated that the US wanted to reduce the trade deficit with China. They have also contested that they have been treated unfairly by the existing rules and that the rules need to be changed. These problems have led to slower growth and rising public debt.

The US wants to protect national security by confining the transfer of technology to China. The companies warn the government that cutting the market access to China can affect them instead since the revenue from the big market is collected which allows us to infuse that into innovation and technology.

Due to the Huawei ban, it has also decreased US attractiveness to European and other countries. Foreign companies have already started to avoid American components and technology since they worry that the access can abruptly cut off.

On one hand, companies are threatening to leave if the rules are not relaxed whereas on the other hand it is said that national security is threatened by China and some short-term revenue loss is warranted.

To contrast the tariffs imposed on China, it has adopted a firmer approach by doubling the indigenous innovation and development of technologies. China has directed government institutions to remove foreign computer equipment and software in three years.

Considering China’s ambition to make themselves a high-tech powerhouse and technological leadership, Trump wants to slow down China’s progress toward emerging as a high-tech superpower.

In fact, the US has trapped itself by challenging China. China will eventually develop similar technologies or even surpass the Americans and force them out of business. China will do the same in high tech industry what it did to Steel and Aluminium.

China cannot be blamed for their progressive policies for becoming technologically superior as this has been the central goal for decades. It is sensible for any country to pursue technological advancement to grow their economic and fortify national security. China has been repetitively failed to do that; hence intensified measures are justified.

The concerning part is the strategy adopted i.e. supporting domestic industry at the expense of its foreign competitors.

Conclusion

The conflict between the US and China for power was unavoidable looking at the MIC 2025 launched by the Chinese Government in 2015 to build a superpower economic empire.

The current war has established China’s dependence on the other economies for technology and hence, the decisions of the Chinese government are even more appreciated.

A technology war, unlike other wars, is an unending competition to become better than the other country. The US can cut them off the important technologies but it will only delay the development but cannot stop them. This war definitely slows the pace of innovation but creates competition to come up with better technology.

The problem lies in the complex technologies and their immersion in our societies leading to growing insecurity. What appeared to be only a technological or economic conflict but it endangers international peace, development and stability.

Author: Vishal Mandal from Symbiosis Law School, Pune.

Editor: Silky Mittal, Junior Editor, Lexlife India

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