The world should beware a technology cold war

A drastic decoupling would carry risks for both the US and China.

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The latest strike in the trade battle between the US and China has landed, literally, on the desks of Chinese government offices and public bodies. Beijing has ordered the removal of foreign computer equipment and software within three years. Chinese buyers will have to switch to domestic technology vendors. The policy edict is not a surprise: Chinese technology companies, notably Huawei, have been among the chief targets of the trade dispute with the US. The move is a pre-emptive defence to protect China’s domestic supply base. Washington, driven by security and economic concerns, this year banned US businesses from doing business with Huawei.

In reality, both sides have much to lose. China, whatever its advances in technological research, still relies heavily on foreign knowhow and imports. The US, meanwhile, in pursuing a protectionist agenda under president Donald Trump, may end up spurring innovation in China rather than hindering its progress. There is also a wider significance. The decoupling of the technology sectors between the two countries is becoming a reality. The danger is that this decoupling turns into a giant rift — one that splits the internet between dominant US and Chinese spheres.

Beijing has been pursuing a “decoupling” agenda for more than a decade. It has long viewed self-sufficiency through the lens of national security. The country blocked the services of Google and Facebook among others ostensibly because public criticism of China’s political system is a breach of national security. Yet, at the same time, the market gap has been filled by domestic groups such as Tencent. Beijing should consider the risks of a more radical shift towards self-reliance: the country is heavily integrated in technology value chains with a large share of global exports and imports. In the case of integrated circuits and optical devices, for example, Chinese imports outstrip China’s domestic production by a factor of five, said a report by McKinsey, the management consultancy.

The new directive appears to have flaws: does an HP printer in a government office in itself present a national security threat? Analysts also question how easy it will be to implement; they reckon that up to 20m pieces of hardware would need to be swapped out as a result. Experts also caution that it will be difficult to replace software with domestic alternatives; most developers build products for US-made operating systems such as Microsoft’s Windows and Apple’s macOS.

For the US, too, the stakes are high. The desire to protect national security is understandable, notably given the close relationship between Chinese tech companies and the state. Western governments are right to be careful about allowing Huawei to build their 5G broadband networks. More than strategic interests are at stake. Nevertheless, completely isolating Chinese companies will not help national security. Signs of competing US- and China-led internets are already emerging.

The technology trade is different from others. It is a truly global sector, with highly integrated supply chains. It works best when it can collaborate across borders. A technological rift between the US and China would affect companies across all sectors and all parts of the world. It is in both Washington and Beijing’s interests to avoid a genuine splintering where companies have to choose between American or Chinese regulations. Robert Zoellick, a former World Bank president who has served in past Republican administrations, recently warned of the dangers of pushing Beijing into a separate system with different rules. There are no winners from a technology cold war.

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