In today’s Money Morning…unyielding pride…divided intelligence…science and technological arms race… two emerging megatrends that will likely define the 21st century…and more…
In a somewhat comical turn of events, China is hauling Australia into a WTO trade dispute.
Yes, yesterday evening, it was revealed that the Middle Kingdom is ramping up its political attacks on us. Clearly trying to send a message by calling into question some measures and tariffs more than five years old.
It is plain to see for all that this is simply retaliation.
A way for China to try and get back at Australia for its own recent WTO claims over wine tariffs. As well as the ongoing war of words that was highlighted once more at the recent G7 summit.
There truly is no love lost between Australia and China right now.
But, while it is easy to look at this narrative through our own political bubble, I think it says a lot more than that. Because while Australia’s focus is first and foremost on our interests, the reality is China is making a lot of enemies.
A quick Google of ‘South China Sea’ will show you all you need to know. With stories covering tensions from Malaysia, the Philippines, Vietnam, Taiwan, the US, and even the UK.
So, make no mistake about it, Australia isn’t the only one having issues with China right now…
While I don’t want to oversimplify geopolitics, I think it is worth pointing out the common denominator. Because whether you have an opinion on China’s tenuous foreign policies or not, it is something that investors can’t afford to ignore.
As we’ve already seen, it has sparked trade wars; perhaps even the start of a real war…
A lot of which has to do with China’s pride and stubbornness. I mean, just take this frankly fantastic tweet from Filipino Foreign Affairs Secretary Teodoro Locsin last month:
The tweet has since been deleted, and Locsin has since apologised. Apparently, only the president of the Philippines can swear, not his ministers or staff.
Which simply adds another level of hilarity to it all from my perspective.
But jokes aside, it is pretty clear just how frustrating it is to deal with China’s stubborn pride. Something that is riling up a lot of their supposed trade partners or allies. A distinction that is gradually eroding by the day.
As for where this will all lead, well…that is the big unknown.
Perhaps it’ll all just resolve itself in time. Perhaps these tensions and disputes will become a mainstay of trade with China. Or perhaps we’ll see a full-blown war erupt out of the South China Sea.
No one really knows what could happen.
However, there is one thing that is happening. A result of Western decoupling from China that is likely to have a big impact on both geopolitics and markets.
And it all has to do with science and technology.
The most recent UNESCO Science Report has highlighted the growing rift between the US and China. With both superpowers having effectively split up the technological transfer that existed pre-2018.
Much like the Cold War between the US and Soviet Union, the two powers are in an information arms race. Pledging billions to new programs and endeavours designed to get a leg up over the other.
It is essentially a repeat of the ‘Space Race’.
An era that, unlike many others, turbocharged humanities advancement across several sectors. Pushing cutting-edge research to new heights ultimately resulted in the first man on the Moon.
But, while it led to some incredible outcomes, the Space Race also created division. After all, the US and Soviet scientists were in direct competition. Leading to two very distinct ‘blocs’ with very different approaches to research and technology.
This is precisely why some people now fear that we’re on a path to a similar situation. With a US/Western bloc of science and technology and an emerging Chinese bloc.
As one professor from China who contributed to the UNESCO report notes:
‘There is a real risk of decoupling between the two countries [China and the US] in terms of technology and talent. Should this decoupling become a reality, this would jeopardise the commercial and scientific bonds between the two countries, which may end up having two distinct digital and technology jurisdictions.’
And while it is easy to focus purely on the US and China solely, we are seeing this decoupling elsewhere.
For example, just last week, the CSIRO declared it was stepping away from a Chinese partnership. Concluding a five-year collaboration in June next year.
As for why, the rumoured reason is that ASIO stepped in and put their foot down, with the Director-General of Security Mike Burgess alluding to the matter with some vague comments in a Senate appearance recently.
My point is, this isn’t just a US and China phenomenon.
Just like the trade disputes aren’t just a US and China phenomenon.
In all likelihood, it seems more likely to be the world going up against China. With Western nations finding a newfound reason to stick together thanks to China’s aggressive stance.
So, as an investor, what are you to make of this?
Well, for starters, I think this science and technological arms race cannot be ignored. It seems pretty clear to me that both China and the West are desperate to gain an edge in several key areas.
But top of the list has to be artificial intelligence and quantum computing.
Two emerging megatrends that will likely define the 21st century. Or at the very least, the first half of it.
And with all this money and resources being thrown at research, we may get them far sooner than many imagined, which will open up the possibility for a lot of innovation and disruption. Something that savvy investors will be keeping a very close eye on.
Because whatever happens in this fight between China and the rest of the world, the real winner at the moment looks as though it could be science and technology.
Editor, Money Morning
Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.