Investors banking on a quick resolution of the tit-for-tat tariff increases between the US and China, ‒ the so-called ‘trade war’ ‒ would be wise not hold their breath. These trade disputes are the opening phrases in what is going to be a long-drawn-out debate between two superpowers looking for technological dominance.
Some argue that Chinese property rights are the problem: they allege Chinese companies copy the best of the West, saving on the cost – and risk – of researching and developing new technologies. This is old news, however: many Chinese companies are now at the frontier and cannot afford to wait until their competition innovates if they hope to move beyond the ‘made in China’ stigma.
Chinese companies are making huge strides in areas like facial recognition, for example. This example is telling of the fundamental divide between eastern and western technology. Information technology companies are ultimately in the business of selling tools that help people cope with a quantity of data growing exponentially.
In the West, the general populace uses these tools to express itself in ways ranging from the banal (no shortage of examples here) to the revolutionary. Westerners express opinions on all sorts of hot topics. At the extreme, Western communication technology even enables hate speech (and worse) to be broadcast to the entire world in seconds.
Westerners also tend to have a natural suspicion of governments overstepping into their daily lives. Employees working for the many of largest IT companies in the US have all protested against what they perceived to be projects violating their values. Microsoft employees protested against the use of its technology to help the US military. In Google’s case, employees protested plans for a censored search engine in China.
In China meanwhile, technology is harnessed by the government to ensure the fabric of Chinese society does not come undone. Facial recognition can be used to detect people jaywalking and their faces can then be plastered on screens to name and shame (although not without hiccups). Can any investor seriously expect Trump’s demands that the Chinese government open up to American technology to be met? Clearly, there is much more at stake here than a trade deficit or surplus: technology has the potential to change the fabric of a society it permeates.
At best, we could see another temporary truce or perhaps an agreement on areas like agriculture and manufacturing. It is likelier that this slow and tortuous process is here to stay as trade disputes are symptoms of a much deeper, irresolvable culture war.
Matthew Farrugia is an Economics graduate and Investment Analyst at the BOV Wealth Management Unit.
This article is not and should not be construed as an offer or recommendation to sell or solicitation of an offer to purchase or subscribe for any investment. The writer and Bank of Valletta have obtained the information contained in this article from sources they believe to be reliable but they have not independently verified the information contained herein and therefore its accuracy cannot be guaranteed. The writer and the bank make no guarantees, representations or warranties and accept no responsibility or liability as to the accuracy or completeness of the information contained in the article.
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