The United States/China Technology War: Looking Beyond Trade Wars

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by: John M. Mason
Summary

The US/China "fight over trade is merely a skirmish in a larger technology war."

China wants to eclipse the United States in technology, a longer-term goal, and continually uses the myopic focus of US leaders, now dwelling on tariff wars, to achieve their goal.

Information spreads, and a nation can only maintain a leadership in the knowledge and knowhow needed to achieve and/or maintain technological superiority through a longer-term focus.

One sentence captured my attention this morning and continues to stimulate my thinking.

The sentence appeared in the David Zweig op-ed piece in the Financial Times and alludes to the perceived trade war between the US and China and goes like this: “The fight over trade is merely a skirmish in a larger technology war...”

Mr. Zweig is chair professor of social science at the Hong Kong University of Science and Technology.

The differences in one's focus, either upon a trade war or a “larger technology war” depends upon the time horizon one is referring to.

The focus of a trade war is upon the next year or two and relates to specific goods and services and deals with “accusations of cyber theft and encroachment of intellectual property rights...” and so on.

The various efforts used by China has “drawn the ire of Donald Trump’s administration.” The battle over tariffs has grown out of this.

The “larger technology war” has to do with information and represents the dreams of Chinese leadership to “reclaim its status as a great power” alongside the United States.

China believes that it can be an intellectual leader next to anyone in the world and that the evidence of this will come out in terms of the technological superiority that it craves. That is, the future comparison of cultures will not be on the basis of economics, or military power, but on the basis of technological advancements. Of course, economic power or military power is expected to accompany the technological superiority, but the focus is on building the base of knowledge and know-how that will exceed that of others.

This is a long-term strategy, but this is the “Chinese way.”

As I have written before, my whole understanding of China changed when I became convinced that Chinese leaders think in terms of decades whereas leaders in the West tend to think in terms of the next election, whether it be two years… or four years… or whatever.

And, this is just what is happening during the Trump administration.

China is doing and has done things that are not considered to be “above board” and/or unethical. There is no question about this.

Behavior such as this makes people angry. President Trump is very good at playing the “anger card.” It fits in very well with his base. And, these people have a right to be angry.

The tendency is to strike back, to inflict pain. And, this is what a trade war does. Furthermore, the immediate trade war can escalate into a “new cold war” that will, ultimately, benefit no one.

A cold war fosters disengagement and disengagement is a “negative sum game”… all lose.

There is no question that the efforts of earlier times have turned out quite the way that many of us thought it would.

We believed, for example, that Chinese involvement in the modern world of global exchange and trade would result in China opening up more and more, moving toward a more democratic and participatory environment.

There is no question that the participation brought a lot of good… to all parties involved.

Mr. Zweig writes, “40 years of Sino-American engagement have brought strategic and economic benefits to both sides.”

“Yet,” and here is where I am, “the new consensus in the US, including in the business sector, is that China has not changed in the way that had been hoped.”

In recent years, China has restored more of its central control and has seemingly backed off from any signs of moving more toward any democratic engagement with the West.

It is my belief that Chinese leaders have seen that their “longer-term” view of things gives them a perspective that can take advantage of the “short-term” focus that exists in Western countries.

For example, as the political leaders of the United States resort to “short-term” actions that will appeal to certain political segments of the population, China focuses upon how it can eventually use these actions to further their “longer-term” goals. In January 2017, right after Trump was elected President of the United States and began to pull back from trade agreements throughout the world, Chinese President Xi Jinping stepped up in Davos, Switzerland and declared that China would take on the leadership role in globalization.

Mr. Zweig concludes his article: “The Trump administration’s goal is to end China’s state-directed industrial policy. As China is unlikely to concede, this tech war will aggravate Sino-US relations and, if disengagement’ ensues, we are in for a much more rocky road than the imposition of a new cold war might suggest.”

In other words, if such a case ensues, we all will be worse off.

History, I believe, has shown that those taking a “longer-term” view of things tend to be more successful than those that just respond with “short-term” solutions. Those that always rely on “short-term” solutions are always responding to immediate problems and lose sight, over time, of what “longer-term” things need to be done in order to move a society forward.

China is focusing upon being number one in the battle for technological supremacy. The United States is focusing upon stopping China from stealing secrets, playing for the 2020 elections.

People who have read my posts over the past several years know that I believe that the latter efforts are doomed to failure. The reason is that information is intangible and information flows, sooner or later, to those that are seeking it. Again, I suggest one read the book “Why Information Grows” by César Hidalgo on this subject.

US investors contribute to this myopic focus as one sees US stock markets jumping up euphorically or dropping dramatically as the “state” of the tariff war between the US and China changes. This focus draws us away from the true battle going on.

The United States profited greatly when it created an environment and support for people in America to grow information, to build the knowledge and know-how that our nation is built upon. The important thing is that this knowledge and know-how grew and expanded. Yes, this information flowed to other parts of the world, but they were copying what was happening in the United States, not leading the growth.

The information is going to spread. Let’s focus upon the ability of the United States to lead its growth.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.