US-Chinese technology war

The technology war, the importance of dominating the 21st century

The technology war, the importance of dominating the 21st century.

The US government seems to have found the time to play hard and wants to ban Huawei permanently. China is going to respond and a third party may tip the balance of power.

The news, still hot, that “Beijing is already preparing a response to the abuse of litigation” by the United States related to issues of the pandemic by the Covid-19, may be the domino tile that causes a chain effect of uncertain but clearly harmful scope for the world economy and determinants of a geopolitical “new normal”.

The coronavirus crisis is the perfect excuse. The “hawks” in the United States Congress are betting big on making the government tougher on China, pressing for punitive measures against Beijing. It is not only Republicans Marco Rubio, Tom Cotton or Josh Hawley who are lobbying in this regard, but they have also joined the influential Democratic senator Elisabeth Warren.

The current trance of the economy is presented as the opportunity to definitively adjust the US trade balance with respect to China, with the redefinition of relations in global value chains for the benefit of national production. Although in reality, although the commercial issue is very significant, what underlies it is the domain of high technology.

In this sense, the Covid-19 has slowed down the deployments of 5G networks, a technology that China largely dominates with its warriors Huawei and ZTE and in which the United States is visibly relegated. However, delaying Fifth Generation mobile technology launches allows Washington to save time and create an alternative of its own. Soldiers are not lacking for it: Qualcomm, Intel, Cisco, AT&T and Verizon among others can contribute to an open standard (OpenRAN), where Nokia, Ericsson and Samsung would also join eventually, achieving a front that can compete against the Chinese.

Washington would be advancing in a permanent blockade of Huawei, translated not only in restricting its sales in the United States and suggesting the same position to allied countries, but in hindering the provision of semiconductors to China, whether they are of North American or foreign manufacturing.

Beijing this time has picked up the gauntlet and threatens retaliation. According to government-related media (specifically the Global Times), if Washington makes progress in blocking the provision of technology to Huawei, China will activate a “list of unreliable entities” to investigate and / or restrict Qualcomm, Cisco and Apple, and suspend aircraft purchases from Boeing.

If the United States finally complies with the ban, China in the short term will suffer from a lack of components for its devices, mainly those provided by Qualcomm. If China responds, the United States will gradually lose commercial positions, and will have to rearm value chains without being able to count on all those links that it has deployed in mainland China.

The suggestive thing about this board is that the winner of the game, which aims at technological dominance, depends largely on Taiwan. Why? The reasons are in its semiconductor industry, the most advanced in the world, born and raised by (and from) the Silicon Valley, the Californian high-tech mecca: the TSMC (Taiwan Semiconductors Manufacturing Company) company already produces microchips with technology 5 nanometers (measurement equivalent to 5 billionths of a meter). The only firm in the world to match TSMC, due to its location on the technological frontier, is South Korea’s Samsung Electronic.

Why is TSMC so important in this chess of the geopolitics of technology?
Mainly because it is currently both a supplier to mainland China and the United States, an example of Taiwan maintaining strong industrial, commercial and security ties with the North American on the one hand, and history, commerce and culture with the mainland on the other ( the continent).

It should be recalled that the island of Taiwan has concentrated since 1949 the Chinese nationalist dissent that was expelled from the continent, establishing a self-government based in Taipei, in charge of the Chinese Nationalist Party (Kuomintang), led by Chiang Kai-shek.

Originally, the Kuomintang had the intention of recovering the mainland, but over the years and the growing strength of the Chinese Communist Party, its wishes changed towards the aspiration of international recognition of Taiwan as an independent nation (today only 15 countries recognize it as such).

Its claims have been sustained with strong economic, military, and logistical support from the United States, to which Taiwan reports as part of the geopolitical plug that the Americans have created around China. From a strategic point of view, Washington, despite not recognizing Taiwan as a nation, has propped up its ally in the China Sea, at the same time recovering relations with the mainland. In this way, the particular condition of geopolitical rivals and trade partners between the United States and China was strongly outlined. Today the condition of commercial partners would be falling apart.

Returning to Taiwan, if Taipei prioritizes its history and moves closer to China, the short-term damage that the high-tech industry of the Asian giant (dependent on the United States) will suffer will be remedied shortly, and both Huawei and ZTE will be able to overcome (not without difficulties) such a transformation. Currently the value chains of these firms include North American firms such as Intel, AMD, Qualcomm, Broadcom, Microsoft, Nvidia and Texas Instruments among many others. But the core of the matter is in the semiconductors TSMC produces.

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