The tech war between the U.S. and China escalates

The tech war between the U.S. and China escalates

Economic stress in between the U.S. and China continues to escalate but is shifting in focus– far from the tit-for-tat trade war and toward a more direct conflict over the future of technology at the heart of the conflict in between the world’s two largest economies.

Why it matters: The battle between the U.S. and China was constantly about tech supremacy and the direct conflict could result in an accelerated splintering of global supply chains and a substantial decrease of worldwide commerce.

  • There are $700 billion of U.S. business’ assets in China, producing $500 billion in domestic sales each year, per Barron’s

Yes, but: The gush of anti-Chinese rhetoric by the Trump administration recently has been countered by much softer actions, as the administration attempts to “thread the needle” of looking hard heading into the election while having the Chinese continue to buy U.S. goods, Mary Lovely, senior fellow at the Peterson Institute for International Economics, tells Axios.

  • ” The tech issue is the big one … for the long term, but for the election it’s not clear to me that the tech issue is the huge one.”

Between the lines: The U.S. trade deficit to China has actually increased especially this year and China’s manufacturing sector has gained from exporting medical devices and its recovery from the coronavirus pandemic being far ahead of other economies, specifically the U.S.

  • The Chinese likewise have insisted they are increasing purchases of U.S. items in line with the “stage one” trade deal, though they remain well behind a speed essential to meet the arrangement.

Driving the news: President Trump provided his “true blessing” to an offer for Oracle and Walmart to form a brand-new entity called TikTok Global, headquartered in the U.S., that will permit the video-sharing app to keep running in the country but asked for $5 billion during a speech as part of the deal to create an “education fund for American youth.”

  • The Trump administration also tried to prohibit Tencent’s common WeChat app in the U.S.
  • Apparently in retaliation, China has threatened to “obstruct” a deal between U.S.-based Nvidia and Japanese-owned SoftBank for U.K.-based computer system chip designer Arm.
  • China’s state-run Global Times did not information how Chinese regulators might block the offer.

The big picture: “The trade war is blowing over and the tech war is warming up,” David Dollar, senior fellow at the Brookings Institution, informs Axios.

  • ” There are more genuine areas of concern as China’s tech capability grows and I think there’s more awareness on the part of the United States.”
  • ” Part of it is simply people getting up and realizing that companies have a great deal of access to information about us and we don’t truly understand what they’re making with that.”

With the U.S. also aiming to obstruct Chinese companies like Huawei from access to U.S. technology, Chinese companies are working to develop a home-grown environment to replace products from companies like Intel, Oracle and IBM.

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Information: FactSet; Chart: Axios Visuals

What’s happening: “U.S. actions on TikTok are just the most recent example of the White House seeking to impede or penalize Chinese companies from prospering in gaining essential take advantage of in innovation and global communications and have actually increased Chinese level of sensitivities,” Steven Skancke, a previous Treasury Department official who now acts as primary financial consultant at Keel Point, informs Axios.

  • ” While TikTok is a highly visible rebuke of a China innovation company, it is probably less tactical than what China worries would be a more hazard to its prepare for Huawei gaining dominance in worldwide interactions.”

That’s got financiers betting big on tech business from China, which have seen a bigger run-up in stock prices than even U.S. tech shares.

Enjoy this space: The tech war might escalate to the point that U.S. companies as large as Apple might be expelled from China, Laura Martin, senior research expert at Needham, told me on the most recent episode of the ” Market Small talk” podcast

  • ” I believe if Trump gets re-elected, he keeps turning up the heat on China.”

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