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.