What would a US-China Tech Decoupling Mean for the Global Economy?

More and more Chinese digital products and network equipment are being barred from the US market on grounds of alleged espionage or harmful functionalities.

May 4, 2021,

The accelerating competition over dominance between China and the US is starting to impact the technology industry. If the intensifying race for technology dominance between the world's two superpowers leads to a tech decoupling, it would have far-reaching implications for the future of global trade, tech companies and market regulations.

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US-CHINA DECOUPLING: How did it all start?

In May 2019, the US government declared a national emergency and barred US companies from using telecommunications equipment made by firms posing a national security risk. The order was squarely aimed at Chinese companies, namely Huawei and ZTE Corporation, for concerns of potential espionage.

The accusation by the US government has severely damaged Huawei’s fight for supremacy in becoming a champion 5G equipment vendor in the world. For example, British Telecom (BT) has chosen Nokia as its primary provider of 5G network equipment, meaning that BT effectively ended a strong relationship with Huawei that dated back to 2005.

Moreover, suspensions over security concerns are not limited to national network infrastructure, but they impact consumer software as well. For instance, in 2020, the Trump administration attempted to ban the Chinese video-sharing app TikTok and China’s popular messaging and payments app WeChat. The concerns behind these restrictions were related mainly to the Chinese National Intelligence Law, which states that private companies are obliged to hand over data to Chinese intelligence services upon request.

 

From tech to trade decoupling?

With more and more devices in our daily life becoming connected to the cloud, security assurance and transparency in product design will increasingly become a priority for both individuals and nations in the future. If suspensions of digital products over national security concerns lead to a tech decoupling between the great powers US and China, it may reshape global trade and supply chains, potentially creating geoeconomics blocks with China’s allies on one side and the US and its allies on the other.

Considering the fast-growing middle class in China and the country’s technology consumption, which is increasing at rates that are at least twice as fast as the global average, this would particularly impact tech companies in the West. For example, major US companies such as Apple, Disney and Walmart have been pushing back against the White House’s planned ban on WeChat over concerns of negative business impact.

Following US President Biden’s recent ban on seven additional Chinese supercomputing firms, the IMF has also warned that technological fragmentation could lead to losses of about 5% of global GDP. Thus, in the future, balancing national security concerns and the related economic impacts will likely become an important objective for policymakers.

Yet, on the other hand, there is also the possibility that competition accelerates technological development. Fear of losing can drive countries to fund even larger projects. If this happens, it could lead to significant leaps forward, similar to what happened with the US regarding moon landings, for example.  

 

Would you like to discover how this phenomenon may impact your organisation's strategies and what you can do to be future-ready?

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