USA –China trade tensions likely to slow post-Covid-19 recovery

In Summary

• It's worrying however that political and trade wars threaten the potential role of technology

US President Donald Trump and Chinese President Xi Jinping.
US President Donald Trump and Chinese President Xi Jinping.
Image: REUTERS

While its not certain when the COVID-19 pandemic will end and the exact implication of the outbreak established as yet, its certain that technology will be critical in any recovery efforts globally. As experts build post COVID-19 scenarios, innovations especially Artificial Intelligence (AI) and machine automated applications will supplement human efforts to rebuild our lives including filing in the gaps that have been exposed in our public health policies around the world.

It's worrying however that political and trade wars threaten the potential role of technology in the post COVID-19 pandemic interventions as the big brothers try to square it out. Genuine businesses and huge investments will suffer rightly or wrongly, and whether the investments are involved in politics or not, it will be costly. The politics of the 5G innovation and its potential in the technological revolution seems mired up in the corona virus politics and a number of countries, because of the pandemic are taking or reviewing their international relation policies especially in relation with China. The main target or investor to be affected, though I am sure their have contingency measures, following what has been happening globally including around the 5G innovation is Huawei and its huge investment and impact.

The USA has proposed drastic changes on its international trade through the US Foreign Direct Product Rule, that if passed will impose restrictions on the use of technological equipment including over the existing production facilities of all semiconductor manufacturers around the world, at any time. For example, if these new rules were to take effect, even if a chip was not developed or designed in the US, and only one piece of US-origin equipment was used at any step in its production, then chipmakers outside of the US would have to seek approval from the US government before manufacturing chips. These rapt of measures done unilaterally will disrupt trade flows as others especially China will retaliate causing turbulence in the current a system characterized by openness, collaboration, and predictability where countries willingly operate according to established norms and rules. If the US is allowed to arbitrarily change the rules in order to exert dominance and control over the global semiconductor industry, it will set a dangerous precedent. Similar measures might be adopted in other industries (e.g., aviation, optoelectronics, etc.). Unfettered expansion of jurisdiction will dissolve the trust in globalization and free trade that the international community has worked hard to establish over decades, leading to a collapse of global free trade rules and bringing disorder to established industry ecosystems.

 

Experts have already forecasted that post COVID-19, ICT and the digital economy will play an important role in helping the world recover from the coming economic recession. They will help transform healthcare, education, industrial Internet, and numerous other industries, and boost economic development and continued prosperity over the next 10 years. When the COVID-19 pandemic is behind us, the global economy will be in urgent need of an open, collaborative, and stable global value chain. If the US takes restrictive measures at such a critical moment in our shared history, it will hurt the industry's confidence and seriously hinder the recovery of the global economy.

Now any attempts to the current global trade which currently seemed stable, mingled with the after effects of the COVID-19 pandemic will be disastrous to the global economy. However, the USA seems to be determined to throw caution to the window, even with the global health challenge at the alter of politics and trade. A global health pandemic followed immediately by an international trade war will not be desirable, and people must be worried.

For example, if a new rule were enacted that allowed the US to control the use of all automotive manufacturing equipment, including products that were purchased in the past, then the use of that single screwdriver would mean that the entire production line would be subject to approval from the US government before production could commence. The new rule threatens to strip chipmakers of the freedom to use their legally acquired private property. Whether based in Japan, South Korea, Taiwan, Europe, or Singapore, chipmakers the world over will see a precipitous drop in asset utilization and a rapid depreciation of their core assets. Major chip designers are located in the US, China, Europe, Singapore, Japan, and Taiwan, while chipmakers themselves are primarily located in Taiwan, South Korea, China, Japan, Europe, and Singapore. Potential victims of this trade war include all non-US semiconductor companies that use US components, including TSMC, Samsung, Hynix, and STMicroelectronics. Now should the Chinese government take up retaliatory measures, the global semiconductor industry will suffer tremendous losses – and standards will likely split. This will lead to even greater conflict across the industry, dealing a catastrophic blow to the advancement of semiconductor technology and the industry as a whole.

This change would force foreign companies that use US chipmaking equipment to seek licenses before supplying Huawei. Changing the Foreign Direct Product Rule in order to limit Huawei's chipmaking is different to traditional tech controls. This would severely infringe upon the rights of chipmakers outside the US to use their own chipmaking equipment, which is their private property. I am sure the USA has thought through process and has plan B while China has also another plan, what about the other countries.

The writer is the Head, Media Development & Strategy at the Media Council of Kenya