Raymond Yeung, ANZ’s chief economist for greater China, says the US-China trade war is more complicated than it initially seemed, with China's growing role as a technology powerhouse a key factor

Raymond Yeung, ANZ’s chief economist for greater China, says the US-China trade war is more complicated than it initially seemed, with China's growing role as a technology powerhouse a key factor

By Stephen Forbes

The China-US trade dispute has now become a technology war, according to ANZ’s chief economist for greater China Raymond Yeung.

And Yeung says if it isn’t resolved it could start to have a growing impact on Chinese manufacturers. The Hong Kong-based Yeung says the US appears to be trying to limit China’s growing economic might as a technology producer and this is a sign the stand-off has grown beyond the realms of a traditional trade war.

"The fact is the majority, or a large big proportion of this trade, involves the electronics supply chain. So basically these sorts of goods, particularly cell phones and laptop computers would be affected by the next phase of the trade war,” he says.

“From the US side there’s obviously much more [to this] than trade. I think the very nature of this is about the technology,” Yeung says. “We all know that the Chinese technology sector has been growing and it’s now up to a point where the US is deciding whether it wants China to be involved in this technology industry or not.

“So it’s much more complicated than we thought to start with. And that is the difference between the two countries. China originally thought this was a trade issue.”

He says it isn’t a coincidence that the US is focusing on tech companies that are involved in exporting to the US and are trying to expand their market share in the world. And Yeung says the US Government’s policies against Huawei have alerted the Chinese to what’s really going on.

Huawei is one of the world’s largest telecommunications companies and in 2018 it surpassed Apple to become the world's second biggest smartphone manufacturer.

But since last year the US Government has moved to restrict the Chinese tech company’s ability to trade with US firms. It has also added it to a list of companies that US firms cannot trade with unless they have a licence.

The American Government has tried to justify its actions against Huawei on the grounds that it poses a risk to national security. While Google recently announced its plans to restrict Huawei's use of its Android operating system on future phones and products. Some critics see it as an attempt by the US to contain a globally powerful tech giant with international plans to deliver 5G, or fifth generation cellular network technology that provides broadband access.

“I think this is a real issue that has currently changed the attitude of the Chinese leadership, all of a sudden they realise this is more than just trade,” Yeung says.

He says the US has been looking at it as a tech war while China has been looking at it, until now, as a trade war. 

“This difference makes the negotiations very difficult,” Yeung says.

Some critics see it as an attempt by the US to contain a globally powerful Chinese tech giant with international plans to deliver 5G.

Yeung says he can’t see the two parties coming to an agreement in the next few months.

He says the uncertainty the trade war creates could lead to a marked slowdown for Chinese corporates.

“I think from the Chinese perspective they always like to have an agreement with the US and they don’t really want to see a disruption of the supply chain and the activities along the supply chain, primarily the factories in China that are still looking for opportunities to export to the US.”

But Yeung says the Chinese Government’s response might be to accelerate the country’s structural economic reforms and use stimulus in order to fuel economic growth.

“There is positive and there is negative and I would be keener to look at it from the positive side. In the end nobody wants to see the two sides escalate the tensions to the next level, beyond trade, beyond economics.”

Yeung says he’s hoping China's President Xi Jinping and US President Donald Trump can meet at next month’s Group of 20 (G20) Summit in Osaka and agree to revive the stalled trade talks.

The IMF’s World Economic Outlook released last month predicts a global slowdown in 2019 for 70% of the world economy. With global growth expected to drop from the 3.6% recorded in 2018 to 3.3% in 2019. The IMF report blames the global slowdown on a number of events, including the US-China trade tensions.

The US launched an investigation into China’s trade policies in 2017. It then followed it up by imposing billions of dollars worth of tariffs on Chinese goods last year. The China retaliated in kind, slapping tariffs on a range of US exports. But when the dust settled both parties agreed in December last year to halt the hostilities and hold trade talks.

However, the talks between the two countries ended in May without a deal being reached and Trump followed the communication breakdown by raising tariffs on US$200 billion worth of Chinese imports and said he was prepared for a protracted battle. Trump has signalled plans to impose a further US$300 billion in tariffs which could come into effect in June.

Any rapprochement between the world's two biggest economies looks like it could be some time away. 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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David P Goldman has a piece in exactly this mode: the restrictions that the US is attempting to place on China, in the name of prevention of IP theft, is simply gonna result in China speeding up its own R&D - already a multiple of the fraction of GDP that the US devotes - and replacing Windows, Unix and Android with Chindows, Chinux and Chindroid, plus use entirely its own semiconductors.

As a strictly amateur puddler in embedded software - Arduino and RPi - I'm constantly amazed at the quality, short delivery times and low cost of the Chinese versions of these. Same for most electronic componentry. Getting into a trade stoush over all this is, as Goldman points out with his usual eloquence, pointless. The IP has gone West, the terms of engagement have moved, and the best the US can do is the equivalent of another Moon shot to develop some new stuff, and then to keep it under better guard. Whether or not the US is actually capable, let alone willing, to do just this, is another matter entirely.

"China speeding up its own R&D - already a multiple of the fraction of GDP that the US devotes"

WIth all due respect, that's absurd to the point of laughable. What R& D are you talking about? Semiconductor design? Aviation? Military hardware? China has institutionalized IP theft to a height (?) never before seen. They can spit out a heavy lift aircraft in record time because someone else did the R&D, and no, it's not a coincidence that tail assembly looks exactly like a C-17. Want to know what the next PLA design will look like 18 months from now? Look at whatever someone else is doing today.

All military usage are strictly designed and made in China.

Civil usages were largely depend on imports from the US because it was economical for businesses in China to do so.

After the tech cut by the US, in long run, the US will face Chinese competition on all high tech fronts. Good luck to compete with China, US. And wonderful for everyone on earth for many better products to come.

"All military usage are strictly designed and made in China."

Uh huh, OK.

https://www.wired.com/story/us-china-cybertheft-su-bin/

They have still a looong way to go yet. Recently, Indian's air force reported that they can track the latest Stealth J20 from far away with their ordinary radar on SU30.. The yank's F22 was developed in 1996 and rolled out in 2005 - so it's now old technology and still miles ahead!!!

The world should-be from the US prospective - I am the only superior nation and I can do whatever I want with my terms and at others costs.

The world should-be from China's prospective - Nations co-exist harmoniously on this planet. Every human being have a shared future. We share the common and respect differences of each other.

We will see which prospective will be more welcoming in the world when both China and the US are on the same technology level.

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Really? Respecting differences? Try telling that to the millions of Uyghurs in "re-education" camps or under surveillance.

500 social credit points for trying though.

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Come on Xingmowang! Even for you that's laying it on a bit thick. The CCP does not respect Chinese citizens let along any other countries.

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Working, on and off over the years, with not a few mainland Chineze, I am aware that, uncomfortably for your happy-clappy words, there is an underlying attitude of 'we are a 5000-year-old Superior Civilisation, and we look down on Youse Westerners as recent, and fading at that, Upstarts".

in reply to your comment, China did invent many things, but never expanded on them, unlike the WEST, gun powder a good example, also they never were real explorers or adventurers and never reached every continent in the world, the West did and EVEN THE MOON if fact NO Eastern, Middle Eastern or any other civilization on this earth EXCEPT THE WEST got to the MOON . think again before looking down at the WEST

Blatantly false.

Donald now imposing 5 percent tarrifs on all Mexican imports.

Well they've not got Elon Musk helping them build new electric cars out in China with the Tesla Model 3 vehicles. Despite Mr Trump trying to get US car manufacturers to stay in the US.
Reuters article: Tesla CEO Musk breaks ground at Shanghai Gigafactory to launch China push
https://www.reuters.com/article/us-tesla-china-electric/tesla-ceo-musk-b...

Maybe the Sumo Wrestling images seen recently from the Trumps Tour of Japan, could be a hint of what happens in Osaka - soon in June.

The two superpowers are operated under two simple principles; One tells you to behave as they tell you to and the other one's "Hey it's mine and I will take it".
You can figure out which is which.

Hmmm, pretty sure both statements apply to both superpowers..

Trump can do all these things to China, China WILL NEVER LOSE FACE to the rest of the world to please him NEVER.
he will find out the hard way, in fact the USA needs to spend billions of dollars to catch up to China, they did this in the 1950s for different reasons and became the most powerful trading country in the world, so it can be done

Chances are that the trade war might not have started if China had acted as a more responsible global citizen. It is building military Islands in the South China Sea. Xi Jingping has threatened Taiwan with invasion if they do not submit to Chinese rule and a million Uyghurs are in Chinese "re-education camps". The ending of term limits on Xi Jingping's Presidency ends any hope of democratic reform in China.

If the trade war stops China becoming a super power rather than just a great power then the worlds democracies will be able the breath a little easier.