The cold war between the US and China is getting colder.
There might not be any talk of missile threats yet, or of nations tip-toeing the line of nuclear war, but the tension is there all the same.
Both nations are engaged in a very public war of words, with pursed lips and barely hidden animosity — with the US employing a strict tough love stance and China on the defensive.
Right now it all seems to be swinging in the US’ favour. But trade wars are not always ‘good, and easy to win’, as Trump tweeted back in March.
He’d do well to remember the Banana Wars of 1898, the Watermelon War of 1856, and the First and Second Opium Wars that kept the UK and China at odds for decades.
Trade wars have a nasty habit of turning into real wars
The things we kill each other for seem silly when you reduce them to the commodity level. But as creatures of a few base desires (mainly food, shelter, fairness and appreciation), when one of those are threatened we revert to the animals we truly are.
Regardless, Donald Trump, the true master of escalation, has decided to make yet another move that will affect the current world order and completely shake up the realm of tech.
Huawei, the largest global maker of switch technology for phones and a global telecommunication network provider, is the latest target in Donald Trump’s War on China.
Declaring a national state of emergency, Trump has issued an order which bars US companies from using telecommunications equipment from companies like Huawei, which pose a national security concern.
To do this, Trump invoked the International Emergency Economic Powers Act, which aims to protect the US from ‘foreign adversaries to the nation’s information and communications technology and services supply chain’.
Although Trump has ramped up the trade war with this move, he and many others believe this is a necessary step to protect the data of the American government and people.
Multiple spy agencies have confirmed Huawei be a threat to the national security of other nations due to their links with the Chinese government. And as a telecommunications provider and major phone brand that’s used across the world, that’s an allegation we just can’t ignore.
Aside from that, the US Department of Justice (DOJ) also has evidence that Huawei stole trade secrets from competitors like T-Mobile through an employee incentive program. And the DOJ believes the company violated US sanctions on Iran.
In response, Chinese foreign ministry head, Geng Shuang, has accused Trump of using politics to interfere in China’s economy, ‘which is hypocritical, immoral and unfair bullying’.
It’s no surprise to anyone that a Chinese official would say that, however. The Chinese Communist party isn’t exactly known for their transparency, or their willingness to admit fault. And no one is buying it.
In perhaps the biggest move of all, Google has announced it will be restricting Huawei’s access to its services. This means Google will not work with the Chinese company on launching new devices, or updating existing ones.
Until Trump provides further guidelines, US chipmakers including Intel, Xilinx, Qualcomm and Broadcom also won’t supply any parts to Huawei, as the companies make a tactical choice to proceed cautiously amid the growing tensions.
The US is also pushing other nations to follow in their footsteps and cease use of Huawei’s technology in their 5G networks.
The US, Australia and New Zealand have heeded this warning already, banning Huawei from building their 5G mobile network due to the security risk. Canada and Germany are also doing the same.
Moreover, this week four major British and Japanese mobile carriers have also delayed the release of Huawei-made 5G handsets, and Microsoft has removed all Huawei laptops from stores around the world.
Of course, Trump could have been vastly more tactful in his dealings with China so far — ceasing his Twitter taunts would be a start. But there’s no doubt this trade war was necessary.
This war pushes us in the opposite direction of globalisation
For the past 40 years China has been enjoying trading privileges it shouldn’t have had. As The New York Times explains, for too long China has maintained the upper hand ‘…by forcing technology transfers from U.S. companies, subsidizing its own companies, maintaining high tariffs, ignoring W.T.O. rulings and stealing intellectual property.’ Donald Trump was right in taking a stand before China became an even larger superpower.
When it comes to our data and 5G networks, the last thing we want is for it to be in the hands of a nation that has been ramping up their authoritarian controls, and using their technological advancement for repression rather than liberation (remember China’s use of facial recognition technology and social credit systems).
But overall, what is perhaps most interesting about this war is that it pushes us in the opposite direction of globalisation. If China is forced to stop their reliance on US manufacturers, they will rush to develop their own chips and semiconductor technology — making the US and China into two distinct technological hubs.
Competition between the two nations will increase, and perhaps other nations will naturally follow suit.
Given how important 5G networks will continue to become in our near future, we may also see nations independently developing their own networks with home grown tech. Rather than relying on foreign and untrustworthy companies like Huawei, Australia could take charge of their own 5G destiny. (Harje Ronngard has a new investment report on two ASX opportunities which are doing exactly this, right here.)
Trump has finally been able to build his wall, except this one is around China. And we’ll all be better off for it.
This week in Money Morning:
Mitsubishi wants to bring out an AU$391 toaster which toasts one slice at a time. Sounds ridiculous to a Westerner, but in Japan they could soon be all the rage. And as Harje noted on Monday, these Japanese toasters are showing you what our world could soon look like. A world where globalisation is dead.
To learn why, click here.
What does a Liberal government mean for Aussie stocks? What does a falling yuan imply? Who will be the winners and losers when this trade war debacle is over? These are the questions that Harje tackled on Tuesday. Click here to read his predictions.
Abenomics managed to lift Japan’s economy 2.1% in the first quarter of 2019. Yet few were impressed. Imports fell hard as consumers cut back on spending. Exports, which drive Japan’s economy, didn’t improve all that much either. But as Harje wrote on Wednesday, the people are suffering so the government can pay down their humungous debt burden. And we’re already seeing the effect on global stock markets.
To read the full story, click here.
Governor Philip Lowe recently said that lower interest rates could be on the cards. Lower rates might stimulate spending, assets purchases and construction jobs. But as Harje wrote on Thursday, the game Lowe is playing might end in disaster for us Aussies…
To learn more, click here.
Phillip Lowe wants to see consumers spend, businesses spend, even the government spend. All this spending is supposed to get us out of the economic rut we find ourselves in. But as Harje wrote on Friday, this isn’t going to happen. Why? Find out in Friday’s Money Morning, here.
Until next week,
Editor, Money Weekend
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