Trump’s new tariffs on China signal it may not be just a trade war – but a war for global technology dominance.

By David Walker

Posted on May 24, 2019

Global trade observers are treating the US-China trade war as the latest phase of a global battle for technological dominance.

There are fears the intertwined US and Chinese economies will be forced to at least partially decouple, at a heavy cost to the growth of both nations and their allies.

Australian Treasury deputy secretary Meghan Quinn this week was quoted describing the growing dispute as a “as war of technology [as well as] a war in trade”. She said Australia should seek to ensure nations continued “technology transfer and fusion of technology” instead of having a “bifurcated world”.

Professor Greg Austin at the University of New South Wales also wants Australia to push against the creation of a new “technology iron curtain”. He told ABC Radio the US administration did not appear to understand the way that the information and communications technology market operated globally.

The effects of a trade war are highly unpredictable. The US’s Smoot–Hawley Tariff Act of 1930 is widely credited with pushing that country into recession. At 25 per cent, Trump’s tariffs would be similar to those enacted in Smoot-Hawley, say analysts at the US’s Peterson Institute for International Economics (PIIE).

Mary Lovely, a PIIE senior fellow and Professor of Economics at Syracuse University, said the US would pay a price for the tariffs in innovation and growth. And she said there could not be a real trade deal unless Trump lifted his tariffs on China.

“The goal was to increase market access into China for US exporters, to improve the treatment of our intellectual property and of our companies that do business there,” she told the Bloomberg news service. “What we’re seeing is something entirely different … a game changer in terms of how our tech companies operate.”

In mid-May, US President Donald Trump’s administration ramped up tariffs on US$200 billion of Chinese imports; China responded with similar measures on US$60 billion of US goods. Then a US government order this week forced Google to flag the end of Huawei Technologies’ licence for the Android operating system, a potentially huge blow to one of China’s technology giants.

The US wants China to make significant concessions on technology transfer demands and intellectual property. Trump appears to be betting that the US is better placed than China to withstand the pain of a trade war over that issue, with many US voters seeing him as effectively defending their interests and those of the nation and standing up to a bully.

The battle has continued to grow through this week as both sides signalled their determination to assert their power:

  • The New York Times reported on Tuesday that Chinese video surveillance equipment maker Hikvision Digital Technology could also face limits on its ability to buy US technology.
  • Major telecoms companies including Ymobile in Japan began delaying launch plans for Huawei’s new P30 Lite smartphone.
  • A report on the trade war’s repercussions for Australian farmers said Trump’s tariff moves have threatened the current rules-based trading system and were “creating uncertainty for Australian agriculture”.
  • Chinese President Xi Jinping visited a rare earths firm, sparking speculation the sector could be the next front in the Sino-US trade war. China dominates global product of rare earths, although they are actually not that rare and are produced in other countries, including Australia.
  • The head of the American Chamber of Commerce (AmCham) in China said his members were worried about possible Chinese retaliation, as a report said, such retaliation had already started.
  • In an open letter, 173 footwear firms including Nike and Adidas urged an end to the new and threatened tariffs.
  • China’s Foreign Ministry said China opposes US “smearing” of Chinese companies and urged the US to provide a fair and non-discriminatory environment. The ministry has also rejected a Trump claim that the new tariffs are moving manufacturing out of China to Vietnam and other Asian countries, saying investors remained enthusiastic about China.
  • The government-run Chinese news agency, Xinhua, on Wednesday paraphrased President Xi as saying that China was on a “new Long March” with risks and challenges from “home and abroad”. The agency had earlier published an op-ed article saying China was “well armed to deliver counterpunches” and was “not bluffing”.
  • Japanese exports contracted for the fifth month in April, due in part to a slump in shipments of chip-making equipment to China – a statistic that underlines the intertwined fates of national economies.
  • The Trump administration is considering paying soybean farmers a US$2-a-bushel subsidy to compensate them for losses in the Chinese trade battle, Bloomberg reported.
  • The office of US Trade Representative Robert Lighthizer said he will meet EU and Japanese officials in Paris to talk about joint efforts to address the non-market-oriented policies and practices of other countries. The meeting is expected to focus on Chinese subsidies.

Oxford Economics has calculated that US GDP would suffer a 0.5 per cent hit from an across-the-board 25 per cent tariff on Chinese exports. That would be enough to wipe out the effects of recent tax cuts of low- and middle-income families, it said. China would lose 1.3 per cent of GDP, a bigger decrease.

But the Chinese economy is also growing faster – probably around 6 per cent, double the US rate. And Trump faces an election next year, a pressure the autocratic Chinese leadership does not have.

On the optimistic side, the Chinese Ambassador to the US, Cui Tiankai, told Fox News that Beijing was still open for talks. And a Nobel Laureate for his work on trade, Paul Krugman, wrote this week in The New York Times that it was “hard to justify claims that the trade war, at least what’s currently in the pipeline, will cause a global recession”.