Financial Times: US-China trade war risks global technology split

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US-China trade war risks global technology split
Decoupling will not support American security or economic interests
The editorial board
Forcing Huawei to move to its own system may weaken US security, according to Google © Reuters

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The editorial board June 12, 2019

Chinese technology firms such as Huawei have been among the chief targets of the trade dispute with the US. The Trump administration’s desire to exclude them from the US is driven by security and economic concerns, and the hope of preserving America’s tech dominance. In reality, banning Chinese companies may do more to harm the US.

A “Fortress America” approach, restricting access to the global marketplace, may only spur Chinese innovation. At worst, it could lead to the splitting of the internet between US and Chinese spheres. In the long term, the Trump administration could be hoisted with its own protectionist petard.

American restrictions on Chinese technology have intensified since 2018. Last August, a defence bill prohibited the US government and its grantees from using Huawei telecoms equipment. The Chinese company was added last month to the US “entity list”, requiring American companies to receive a government license to sell to it. President Donald Trump has also empowered commerce secretary Wilbur Ross to ban any technology company considered to pose a national security risk. Mr Ross is due to make his decision in just over three months.

The desire to protect national security is understandable, not least given the close relationship between Chinese tech companies and the state. Security in the digital age is porous, however. By engaging with Chinese technology, western intelligence services can glean important information. Forcing Huawei to move to its own system may actually weaken security, according to Google. The US tech group, which restricted Huawei’s access to parts of its Android operating system last month, has warned that a Chinese version might be more vulnerable to hacking.

The second belief is that the US can stifle Huawei and other tech companies by delinking China from global tech supply chains. In the short term, the US blacklist will limit Chinese companies’ access to components from outside the country. HuAccessibility help
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Huawei’s problems with mobile phone chips — over half of which it imports from the US — may strengthen the argument for this militant approach to trade.
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Wednesday, 12 June, 2019

Forcing Chinese technology companies into a corner, however, could speed up domestic innovations. These companies could source products from cheaper markets such as South Korea and produce their own software. At the most extreme, competing Chinese and US-led internets could emerge — as former Google chairman Eric Schmidt has warned. An industry body said this week that standards for 5G internet were at risk of this kind of divergence. That could mean devices produced in one market might be incompatible with those from the other.

This would force countries, and companies, to choose sides in the technological trade war. Recipients of Chinese funding through programmes such as the Belt and Road Initiative will face a diplomatic balancing act. Malaysia’s prime minister has said the country would use Huawei’s technology as much as possible. Powerful US allies including the UK and Germany have come under pressure to ban Huawei. At least two European telecoms groups, meanwhile, have been reported to be weighing setting up separate units for the eastern and western hemispheres.

Keeping supply chains global does not mean being naive. Suppliers should be carefully vetted — particularly when there are historical grounds for concern. But isolating China will not improve national security, or remove the economic threat of Chinese tech groups. Despite its apparent appeal, protectionism is a self-defeating ideology.

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