US/China trade war hots up: telecom industry in the crosshairs
- Trump threatens another round of tariffs
- China says it's now in a 'Trade War’
- Trump's real objection is to China's 2025 targets
Is it now time to be very afraid of the disruption President Trump’s trade policy threatens to visit on the IT industry, and the telecoms industry in particular? Two things have happened.
Yesterday the US senate voted overwhelmingly to overturn Trump’s original ZTE intervention, (see - Trump reverses ZTE trade ban with a tweet). Then the US president threatened to impose an additional 10 per cent tariff on US$200 billion worth of Chinese goods entering the US - not so much in reaction to the Senate vote (though who knows?) but in crisp response to China’s latest ramping up of its threatened tariff imposition. Tit is definitely following tat.
That ‘personal favour’ Trump extended to President Xi hasn’t turned out the way he’d hoped either, and with Congress standing in the way it looks like ZTE might be back to being a basket case, although with a trade war brewing it seems more likely that the Chinese government will step in and put it on life support while it pursues a component replacement strategy.
Certainly the rhetoric has ratcheted up and the stock markets - especially in China - have ratcheted down.
For instance, in the wake of Trump’s latest tariff salvo, the Chinese Commerce Ministry has declared that the US has “initiated a trade war”, and that it would respond with "comprehensive quantitative and qualitative measures and retaliate forcefully.”
And the consensus view from stock market watchers is that chinese stock markets are so far taking the biggest hammering - Shanghai is down by around 4 per cent and Shenzhen about 6%. US markets are less affected.
So what’s the outlook?
It’s possible that once both sides have upped the macho posturing some more Trump will declare that he’s won and that China will come to the negotiating table to agree a few changes to its trade policy. These probably won’t amount to much, of course, but he’ll try to talk up a win in advance of the all important midterm elections.
Whichever way it goes, however, it’s even more probable that China will double down urgently on its own “Made in China 2025” objectives. That’s the rallying cry that, in many ways, is China’s version of “Make America Great Again” and is regarded by many observers as the real thorn in the Trump side.
Forget about aluminium and steel, forget about Canadian dairy farmers, Mercedes Benz cars and all the other trade distractions, what’s really got under the presidential skin is China’s burgeoning IT and telecoms competence, hence the agitation over Broadcom buying Qualcomm.
When Trump talks about unfair practices and government subsidies he’s mostly referring to China’s targetting of a long list of strategically and technologically important sectors. Ten of them, in fact: next-generation information technology, including 5G networks and cybersecurity; high-end numerical control tools and robotics; aerospace; ocean engineering; advanced railway equipment; energy-saving and new-energy vehicles; power equipment; agricultural machinery; new materials; biomedicine and high-performance medical devices, all identified as sectors China wants to tackle and, ideally, take a lead in.
To push things along the Chinese government has established five national manufacturing innovation centres and 48 provincial manufacturing innovation centres. It’s earmarked subsidies, loans and bonds worth around US$1.5 billion to pursue the “Made in China 2025” objectives, with more coming from China’s local governments.These sorts of incentives are all industrial tools that many (most) other countries deploy, including the US.
Then there’s China’s so-called ‘demand’ that companies coming in to China share their technology if they want to take a chunk of the Chinese market. China has been doing this since at least the early 1990s and it seems to me to be totally reasonable. How else is an underdeveloped country supposed to benefit from globalisation if its objective is to climb up the value chain? The alternative is to remain a serf economy doing all the grunt work while western nations get to keep a stranglehold on the value-added services sector. In any case, no company is forced to set up in China.
Trump’s aim seems to be to slow or stall China’s technology advance and to do so he may well succeed in totally disrupting the intricately integrated global IT and communications sector along the way.
Be very afraid.
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