The US and China are engaged in an economic battle that has so far shown little prospect of a positive resolution. But the current dispute between the world’s two largest economies goes far beyond trade tariffs and tit-for-tat reprisals: the underlying driver of this clash is a race for global technological supremacy.
Under President Trump, the US has publicly criticized China’s trade surplus as well as Chinese practices and policies regarding forced technology transfers, intellectual property (IP) theft and cyber espionage. Underlying this rhetoric and recent actions is a deeper concern that the trade playing field is not level. Moreover, among US political elites and leaders from the so-called Five Eyes countries there is suspicion that China’s ‘Made in China 2025’ industrial upgrade strategy, introduced by Beijing in 2015, poses a serious threat to US and Western competitiveness in high-tech sectors.
In the eyes of the current Chinese leadership, technological prowess is one of the accoutrements of power. With a strong sense of self-reliance, the focus now is on surpassing the US in a broad range of technologies while asserting that China can afford to decouple from the US in terms of pursuing an independent technological development path.
In today’s highly integrated global economy, it is difficult for governments to restrict technological integration on the basis of nationality. Instead of building a coalition against China, President Trump’s rhetoric and actions against long-standing allies around the world have raised questions about the reliability of the US as a partner and ally. While the EU and other allies share some of the US’s concerns regarding China, they also want to maintain good relations with both countries – and avoid having to pick sides. Thus, US allies are not necessarily willing to go along with the more aggressive aspects of the US approach.
China’s technological capability, together with its distinctive political system at home, is now reshaping the global technological and economic order. Beijing’s ambition is not only to adopt cutting-edge technologies, but also to set international technology standards. These issues create the basis for a longer-term economic and technological confrontation between the US and China.
The purpose of this research paper is threefold: firstly, it examines the impact of the US and China’s domestic politics on the trade war and technological competition, and the measures taken by both countries to gain a technological advantage. Secondly, it assesses China’s ability to shape global technology governance and standard-setting. Thirdly, it looks at the longer-term implications of the US–China trade war (and the US–China tech race more generally) on trade and investment flows in the Asia-Pacific region.
The paper examines the risks associated with greater strategic competition – and the instability this brings for countries that wish to preserve relations with both the US and China – as well as the broader implications and potential solutions for mitigating the impacts of the US–China economic confrontation.