The Big Read: The long sting of the US-China tech war, as history threatens to repeat itself

SINGAPORE: As a teenager three decades ago, Mr Alfred Siew watched bulldozers take apart the Berlin Wall on a grainy television, believing that the Cold War, along with the tensions and distrust among nations that came with it, was gone for good.

This was a time after China had opened up to the West, and astronauts from Russia and America were working together in space, he reminisced.

“The world was meant to become more united and stronger together after that,” said Mr Siew, 44, a technology journalist who co-founded the website Techgoondu.

But Cold War-era rhetoric has once again seeped into the lexicon as the United States and China wage a trade and tech war against each other, threatening to undermine the globalised and free trade environment reigning today.

READ: Here’s why the US-China trade war won’t cool down anytime soon, a commentary

“This is not the future that was envisioned,” said Mr Siew wistfully.

Since the trade war kicked off in earnest in 2018, the US has imposed punitive tariffs against some US$250 billion (S$344.4 billion) worth of Chinese goods while threatening to tax another US$325 billion of Chinese imports. China hit back with its own tariffs on US$110 billion of US goods.

The US has accused China of forced technology transfer, intellectual property protection, non-tariff barriers and cyber theft. China has rejected the US allegations.

In its latest move, the US placed Chinese phone manufacturing giant Huawei on a US export blacklist on May 16, amid concerns in Washington that Huawei’s devices could be used by China to spy on Americans.

The move, said Singaporean and international analysts, threatens to kick-start a technological cold war — or a “digital iron curtain” — that will have far-reaching effects on the rest of the world, even though Huawei has been given a 90-day reprieve which will expire in August.

READ: Delay on Huawei ban doesn’t mean much, won’t last long, a commentary

Sure enough, in a retaliatory move, China’s Commerce Ministry said on Friday (May 31) that it will draft a list of foreign companies, organisations and individuals that it deems “unreliable” for harming Chinese companies, state-run China National Radio reported.

The recent developments crossed a line, said Mr Siew. 

Smartphones and communication technology. These were meant to bring the world together, but are now used as weapons in a cold war.

Days after Washington’s announcement, Google, Qualcomm, and other US-based tech companies and component manufacturers revoked Huawei’s licence to manufacture products or use software provided by them.

The threat to Huawei, which depends on its US partners, is an existential one. Its chief executive Ren Zhengfei told the Chinese press: 

The media should understand that these US companies and Huawei share the same fate. We are both players in the market economy.

Even in the nascent stage of a tech war, the man in the street has not been spared of the impact: Mobile phone shops in Singapore have stopped buying used Huawei phones from customers. The shops say they are concerned that they would not make a profit as these used Huawei phones may no longer command high prices — and there may be no takers anyway.

Meanwhile, Singaporeans, being a practical lot, are mostly concerned about whether their Huawei phones can still work the way they are supposed to, Mr Siew noted.

A visit to a Huawei concept store in VivoCity last week during the evening found the outlet to be largely devoid of customers, despite the large advertisements for its P30 Pro mobile phones throughout the mall. A sales attendant shared with this reporter how quiet his store had been since news broke of the Google ban.

Placed at the front of the store was a sign that read: 

Huawei will continue to provide security updates and after-sales services to all existing Huawei and Honor smartphone and tablet products, covering those that have been sold and that are still in stock globally.

It was a line all too familiar for the lone sales attendant, who recounted that for the entire day, he had to inform the trickle of walk-in customers about the US-China situation and why buying a Huawei phone now comes with caveats.

“I’ve memorised and repeated the same statement many, many times. I tell people, ‘it’s the trade war, we have no choice, perhaps wait till August?’” he said.

WORLD BRACES FOR A DRAWN-OUT CONFLICT

The Huawei saga might not be resolved so quickly, said analysts.

They said the Huawei export ban and the tit-for-tat tariffs between the two superpowers are the opening salvos of what could be a long, drawn-out conflict over technological and economic primacy.

READ: China will not abandon Huawei, a commentary

For some, the US-China trade war has historical echoes of the Cold War fought between the capitalist US and the communist Soviet Union from the 50s until the 90s.

The Cold War was also marked by a technological conflict — culminating in the space race — as well as espionage and a build-up of military forces by both sides.

Within US foreign policy circles, it has become increasingly safe to say that the US and China have entered what amounts to “a Cold War type of relationship”, wrote Fulbright University Vietnam’s Professor Christopher Balding on his website Baldingsworld.com.

The expert on China said: 

If you believe the relationship between the US and China, whatever academic or popular term or historical analogy you prefer, is fundamentally in opposition, rather than a narrow or specific conflict over a technical dispute over financial aid to a specific industry, it is not a leap to at least tolerate the Trump administration’s actions.

The trade dispute is a mere pretext for the conflict between the two major powers, added Prof Balding, noting that tariffs or other punitive measures are all part of the confrontation.

However, Prime Minister Lee Hsien Loong stressed on Friday that there is “no strategic inevitability about a US-China face-off”. “But at the same time, if such a face-off does happen, it will be nothing like the Cold War,” said Mr Lee, noting that there is “no irreconcilable ideological divide” between the two superpowers.

Speaking at the Shangri-La Dialogue, Mr Lee warned that both countries will be making “a serious mistakes” if they continue the present path. 

Should a “new Cold War” arise, there can “be no clear division between friend and foe”, he reiterated. Neither is it possible to create the equivalents of a North Atlantic Treaty Organisation or Warsaw Pact, with a hard line drawn through Asia, or down the middle of the Pacific Ocean, he added.

READ: A mismanaged US-China relationship could force countries to pick a side, a commentary

Assistant Professor Selina Ho said that since the end of the Cold War, the US had operated on the premise of bringing China into the liberal international order, rather than leave it out.

“However, American policymakers have become increasingly disillusioned that China will transform into what the US hopes it will be, and there have been increasing concerns that China has emerged as a strategic competitor, primarily in the economic and technological spheres, but also in the military sphere,” said Asst Prof Ho, who specialises in Chinese politics and foreign policy at the Lee Kuan Yew School of Public Policy.

This goes beyond US President Donald Trump’s administration and started as early as 2008, when the global financial crisis exposed the weakness of Western economies and produced a sense of hubris among the Chinese, she added.

In 2015, during Mr Barack Obama’s second term as president, a US foreign relations report called for Washington to create “a new grand strategy towards China that centres on balancing the rise of Chinese power rather than continuing to assist its ascendancy”.

That same year, China charted its own economic path with the launch of “Made in China 2025”, which was seen as a direct threat to American primacy. The Chinese state-led industrial policy would make China a dominant force in high-tech manufacturing of quality goods.

“The US perceives this as a direct threat,” said Asst Prof Ho.

The aim of the Trump administration is to dislodge China from the central role it plays in the global value chain. It is forcing countries to look elsewhere for technology, supplies, and manufactured products.

For now, China has eased its Made in China 2025 rhetoric, knowing that it has caused alarm in the US and Europe.

READ: The trouble with ‘Made in China’, a commentary

“However, it has continued to pursue the plan’s goals. This means that the technology war will likely continue and escalate as both governments have shown no signs of backing off,” Asst Prof Ho said.

HOW THE GLOBAL PRODUCTION CHAIN COULD BE AFFECTED

Unlike the tussle between communism and capitalism in the previous Cold War, ideology does not play a critical role in the current strategic competition between the US and China, said Asst Prof Ho.

But if the trade war continues to escalate, it could unravel the global production chain that emerged in the 80s.

According to the World Trade Organisation (WTO) and the World Bank, this global chain is responsible for more than two-thirds of the world’s trade. Manufacturers could tap the competitive advantages of various countries to produce specialised goods that would otherwise cost far more to manufacture.

Counterpoint Technology Market Research associate director Tarun Pathak said devices today are far more complex than the past, comprising electronic components from all over the world.

But over time, the balance of power of the world’s tech and electronics industry became concentrated in only two countries — China and the US, said Mr Pathak, a mobile industry consultant who is based in India.

READ: China is just biding its time in this trade war, a commentary

The US took an early lead as the Internet and electronic giants — such as Google and Microsoft — sprouted up quickly in Silicon Valley. China’s domestic policies allowed its own state and private Chinese tech firms to flourish without strong external competition.

“The US has its strength in research and talent. On the other hand, China plays on its strength as an exporter to the world, and sees the rest of the world as its consumers,” said Mr Pathak.

In a sense, the trade and tech war today is inevitable, said Mr Pathak. Both countries want more control, thinking that one could gain simply by penalising the other party.

“Both sides have their own set of beliefs on how to resolve the trade dispute, but they are making assumptions about the other side. The unfortunate side effect is that it will impact all other companies and component players that are a part of these global value chains,” he said.

READ: Decouple from Chinese tech or reforms to China’s economic model? The US can’t have both, a commentary

Asked about the Republic’s exposure to a tech war, a Ministry of Trade and Industry (MTI) spokesman reiterated that Singapore is a node in this global community, hosting a diverse portfolio of tech companies.

“Singapore has been able to do this because of an open, rules-based multilateral trading system anchored by the WTO. We continue to support this because it provides a stable and predictable global trading environment, and gives all countries a shared interest in one another’s prosperity and stability,” the spokesman said.

All countries should collectively work to maintain and strengthen it. Singapore believes that trade disputes should be resolved within the multilateral WTO framework.

Still, UOB economist Barnabas Gan noted that Singapore’s electronics exports are at a level which is among the lowest recorded, coming in at S$2.72 billion for March.  

“Singapore is a price taker. Whatever that is happening between US and China will invariably affect us deeply,” he said.

Nevertheless, Asst Prof Ho added: 

But there are opportunities as well, because when the global value chain is reconstructed, Singapore can leverage on its strengths to become a key node.

Countries like Vietnam could also benefit if these supply chains re-orientate to South-East Asia, said Mr Pathak. But he stressed that this is a distant hope since affected companies need around two years and a lot of investment to relocate. Overall, the world will suffer a net loss as a result of the tech war, he said.

Professor Fu Xiaolan, the founding director of the Technology and Management Centre for Development at Oxford University, said if the value chains are broken, there will be significant far-reaching effects that could fragment global production and widen the divide between those who can easily access technology and those who cannot.

Prof Fu was appointed by the United Nations to participate in high-level talks between nations on technology facilitation, and also to the UN’s technology bank for poor countries.

“For innovation and knowledge creation to happen, what we need most is collaboration, and what we need least is protectionism,” she said.

THROWBACK TO US-JAPAN SPAT

Prof Fu noted that the current conflict bears a similarity to the industrial rivalry between US and Japan in the ‘80s and ‘90s. Japan was the second largest economy in the world then.

At the time, the US was saddled with a massive trade deficit and had made it a goal to protect its domestic economy from countries such as Japan, which was enjoying a trade surplus advantage due to its weak yen.

Japan was portrayed as a clear threat to US economic interests by the administrations of Mr Ronald Reagan and Mr Bill Clinton.

READ: ‘Villains’ of American woes – Japan then, China now, a commentary

In a letter to The New York Times in 1981, Mr Shannon Wall, the president of the National Maritime Union of America, wrote: 

We are suffering an economic Pearl Harbour while editorial writers continue to discourse on the principles of ‘free trade’ which are observed by no other nation, particularly Japan.

Five major economies — the US, Japan, Britain, France and West Germany — agreed in 1985 to a joint currency intervention plan to level the playing field, known as the Plaza Accord. Following which, the yen shot up dramatically against the US dollar, lowering the US trade deficit as American exports grew.

But Washington continued to pursue punitive trade action against Tokyo for unfair trade practices, such as creating a cartel for semiconductor chips. The US imposed a 100 per cent tariff on Japanese imports in 1987.

After that, the Japanese economy ground to a halt as prices of Japanese products surged beyond economic fundamentals. The asset bubble soon burst, and Japanese citizens responded by saving more and spending less, creating a deflationary spiral.

Japan’s economy is still recovering from its infamous “lost decade”, which remains a hotly debated topic.

Such experiences could give useful insights, said Prof Fu, adding that these global perspectives from other countries can be a major force to help resolve the current conflict, rather than leaving it to either China or the US to set the stage.

If the world stands together, these other voices can bring about a more objective third-party (approach) to think about the global challenge of protectionism.

On its part, Singapore is doing just that by working with like-minded countries to uphold and update the global trading system.

Earlier in May, Trade and Industry Minister Chan Chun Sing wrote on Facebook that the Republic is “pushing for an integrated global digital economy, rather than risk a fragmented world where small countries like Singapore are shut out”.

WIDER IMPACT

As trade tensions persist, regional countries could be politically pressured to choose between the two powers, said experts.

Asst Prof Ho said: “Politically and strategically, countries in the region might have to start taking sides as it becomes harder for countries to tread the fine balance between the US and China.”

In South-east Asia, many countries traditionally see the US as a security guarantor and China for economic reliance, she said. These lines are more blurred now, she added.

She noted that the US administration has started to ask its allies in Europe and Latin America to boycott Huawei manufactured equipment in their rollout of fifth generation (5G) networks, citing security concerns.

Currently, Huawei has a headstart on the rest of the world in its 5G network equipment.

Said Prof Fu: “5G is a technology which can be highly regulated through laws that can ensure privacy standards are upheld. That is what governments should do, rather than ban a technology from a certain provider.

The reality is that the rollout of 5G might have to be pushed back and countries will have to weigh the diplomatic choice today.

5G networks are the next big leap forward for mobile and wireless communication, boasting 20 times the speed over existing 4G networks.

READ: Cutting through the 5G smoke and mirrors, a commentary

Beyond faster speeds, these networks enable other Internet-dependant technologies, such as autonomous vehicles and smart cities, to function properly.

Ms Stephanie Syptak-Ramnath, interim charge d’affaires at the US Embassy in Singapore said: 

The way that 5G is developed is going to have a lasting and profound impact on this world in which we live, and we encourage every country to look very carefully at every aspect of their choices in 5G networks.

An Info-communications Media Development Authority (IMDA) spokesman said that Singapore encourages “vendor diversity in its telecommunication systems to mitigate risks from dependency on any one vendor”.

The onus also falls on telco operators to ensure that the equipment purchased from vendors meets commercial operational needs and regulatory requirements in service quality, resilience and security, he said.

The IMDA has launched a public consultation on the 5G rollout, and is proposing to deploy 5G networks in Singapore from 2020.

WHAT IT MEANS FOR CONSUMERS

While there are deep, long-term geopolitical, economic and technological implications of the trade war and the Huawei ban, Singaporeans whom this reporter spoke to were mainly concerned about one thing for now — will their devices still work as normal?

Even that is a tough question to answer, said Ms Lim May-Ann, managing director of research consulting firm TRPC.

Huawei had a 13 per cent share of the Singapore smartphone market in 2018. Apple was first, at 37 per cent, followed closely by Samsung at 34 per cent, according to data from market intelligence firm IDC.

Several key component players said they would cut ties with Huawei soon after the Google ban was announced. This includes UK chip designer ARM, whose exit would deal a major blow to Huawei as it uses the former’s designs to manufacture its own processors.

There is growing anxiety among Huawei users, some of whom have also inquired their telcos about refunding or replacing their phones with another brand.

For now, there are many uncertainties but few answers, said Huawei customer Terence Lim, 30, a system administrator.

“I have only just bought my Huawei phone in April and now, I might need to buy a new phone off-contract,” he lamented.  

Huawei has said it is prepared for “a protracted battle” with the US restrictions. It plans to roll out its own operating system, HongMeng, in a China launch later this year. An international release is timed for 2020.

READ: Huawei may create a world split along tech lines, a commentary

Details are scant on HongMeng, a replacement of Google’s Android platform. One top concern of tech watchers is whether the phone will remain fully compatible with Android applications.

Such worries over compatibility are a potential sign of what may happen if the US starts to target more Chinese tech companies, said TRPC’s Ms Lim.

“If the US ban results in a global boycott of Chinese technology in general, we could see a fragmentation of how 5G technology develops — much like how we had two standards for VHS and Betamax. The markets will have to decide what they want,” she said.

Interoperability of technology will take a serious hit, added Mr Siew.

He said: “When you take your phone anywhere in the world (now), it just works. It took years, generations, for 4G to be unified in such a way. We no longer have to worry about whether our phone is compatible with GSM or CDMA networks.

READ: Huawei still the standard bearer for 5G, a commentary

If the trade war forces China to come up with its own thing, then it is surely bad for users who need to travel in and out of China.

His bigger worry: The tech world could become fractured behind iron curtains, just like in the Cold War days.

Mr Siew noted that in May, Russia passed a law to disconnect from the World Wide Web. 

“Will we see a world of three Internets: One for US, China and Russia? Nobody knows,” he said.