How trade war sparked technology war

There is a popular idiom that says ‘'if it ain't broke, don't fix it.'’ This means that if something is working, leave it alone.

In May 1977, Thomas Bertram Lance, then the director of the Office of Management and Budget in President Jimmy Carter's administration was quoted by the newsletter of the US Chamber of Commerce, Nation's Business explaining that the trouble with government was “fixing things that aren't broken and not fixing things that are broken."

In the recent past, President Donald Trump’s administration did exactly what Lance had stated. The US barred Chinese companies from accessing its technologies like Google’s Android operating system, microchips from Qualcomm and other hardware components.

Exports to China didn’t need fixing. The balance of trade favours China. The response from China has been swift. Huawei released Harmony, its own version of operating system. This is a journey they have travelled before.

When they suspended the Google search engine from China, they quickly built Baidu. In e-commerce, Alibaba soared. And in messaging, social media and mobile payment, they developed Tencent in 2011, which by 2018 became the world’s largest mobile app with more than one billion active users.

A new report, ‘‘Is China Catching Up to the United States in Innovation?’’, released in April 2019, Robert Atkinson and Caleb Foot writing for Information Technology & Innovation Foundation (ITIF) noted that China is closing the innovation gap.

The report, using 36 different metrics, showed that China has either caught up or leapfrogged the US in terms of innovation. It is not just a copier as policy makers want to believe, the report says.

These back and forth reactions have sparked of a new technology race. China’s advancement in semiconductor research is closely monitored by the US Semiconductor Industry Association (SIA) as noted in their April 2019 report, ‘‘Winning the Future: A Blueprint for Sustained US Leadership in Semiconductor Technology’’, which calls for an increment in federal funding from $1.5 billion to $5 billion annually.

Reports show that the Chinese government is injecting more than $5 billion to support the country’s microchip industry research.

From a third-party view, it is an unnecessary race since the two countries very much depend on each other. In terms of market for example, China is the lifeblood of some US tech giants.

Qualcomm, one of the largest chip manufacturers in the world, had revenues of $22.7 billion in 2018 of which China and Hong Kong contributed $15,149 billion, South Korea ($3,175 billiion), US ($603 million), and the rest of the world ($3,805 billion). Disrupting such a huge market is akin to shooting yourself on the foot.

If the trade war continues, companies that are dependent on the Chinese market will suffer. Qualcomm’s revenues, for example, are projected to drop by 26 percent and could have a huge impact on its share price. Clearly, it is a mistake to rattle China with a trade war. On mobile phones, International Data Corporation (IDC) shows that Huawei sold 206 million smartphones in 2018, of which more than 51 percent were sold in china.

It is noteworthy to know that the trade war will not completely shut off Huawei from using the publicly available basic version of Android operating system. They will, however, not be able to use some of Google services some of which the Chinese government had blocked.

China, therefore, will have time to perfect Harmony. Having leapfrogged several other ICT services like search engines, e-commerce and social media platforms, it won’t be surprising to see Harmony vaulting ahead of Android and iOS in record time.

There is no doubt that by the time the dust settles, China will have greatly benefited from the disruption. They will intensify their research capability and begin to leapfrog some of the technologies that have taken years to perfect.

They have shown ability to astonishingly shorten their technology learning curve. Having come from behind, they have a point to prove. Besides, several countries, including some European ones, may be sympathetic to their predicament with Trump.

In my view, the US-China trade war may be a blessing in disguise for the Chinese. Economic analysts have always argued that no one really wins in a trade war.