Paul Triolo is the practice of geo-technology at the renowned Eurasia Group, a political risk consulting firm. To this end, Triolo details the current interplay of technology, markets, and security and explains the effect that the pandemic will have on them.
Even before COVID-19, trade relations and technology concerns between the US and China were a significant issue. Under Xi Jinping, the ICT (Information and Communications Technology) sector in China has grown massively with the Party pouring tens of billions of dollars into it, creating formidable competition for the US. Other programs like Made in China 2025 and even the Belt and Road initiative have further strained trade relations between the two nations by growing ICT. On the security side, the implications of Chinese military-civil fusion (use of tech to blur the lines between civilian and military sectors) and aspirational plans like military applications of quantum computing and AI have worried American policymakers greatly.
Whether or not the US has overreacted to these threats from China is a matter of debate (Triolo says that stress over Mil-Civ fusion and aspirational plans is overstated), but the fact remains that the US should decouple from China over “base of innovation” and security concerns. The US’s supply chains are currently optimized for China, but in the face of a “tech cold war,” as Triolo puts it, it becomes an issue of national security.
The COVID-19 pandemic has accelerated the push for decoupling in the US. The idea that China has mishandled the outbreak has played into the idea that China’s governance is rooted in censorship and that it is not above taking advantage of a disaster. This line of thinking has created greater bipartisan support for decoupling. Regarding current trade talks between Trump’s and Xi’s administrations, there is still a desire to keep the pandemic out of consideration, which seems to be holding for now. Nevertheless, in other fields, such as the “tech cold war,” the US is seeking to punish China through new policies such as an updated “Direct Product Rule,” which would effectively stop Huawei from receiving and utilizing essential intermediate goods produced using US software and technology. The financial service sector is also getting drawn into the fray. Chinese companies will be delisted from US stock exchanges if they do not comply with strict US auditing regulations, cutting a vital source of funding for those corporations. There are, however, certain challenges associated with decoupling, as both nations are essential trade partners for each other. Many companies in both the US and China do not wish to decouple. In the semiconductor industry, for example, China is a critical buyer. In the event of decoupling, US manufacturers would lose a fortune, while Chinese industry would be crippled.
Triolo makes several predictions for trade and technology in the aftermath of the pandemic. The greatest challenge for a return to normalcy is the rise of a strong bi-partisan anti-China animus. Currently, there are 319 bills in congress with a China nexus, with many aimed to punish. In the future, the US will feel the effects of decoupling strongly, and must consider a middle path. The US must revisit its supply logistics in Asia to strike a balance between security and efficiency and return to an orderly decision-making process in the White House to carefully consider long-term economic impacts of China policy.