Washington plays Monopoly, Beijing plays Go


US Trade Representative Robert Lighthizer, Chinese Vice Premier Liu He and US Treasury Secretary Steven Mnuchin in Beijing. PHOTO/AFP

China’s emerging high-tech giants don’t rely on the US market, creating an opening to undermine American leadership in key industries

The US and China are fighting a trade war, contrary to my expectations, and to the consternation of equity markets, which on Monday had their worst day since January 3. The broad market gauges fell by 2.5%, and the tech sector fell by 3%, led by semiconductors.

In tweets Monday morning and again during a press briefing with visiting Hungarian President Viktor Orban, President Trump reiterated his view that China’s economy was weak while America’s economy was strong. He believes that tariffs will shift trade out of China and to some extent back to the United States.

President Trump wants to restore a past in which America dominated world manufacturing, and his negotiating strategy recalls the Parker Brothers game Monopoly, in which players attempt to extract rents. China is playing the ancient strategy game of Go, with the goal of technological supremacy.

Both sides have vulnerability and both will suffer lower growth in a trade war, as presidential economic adviser Larry Kudlow indicated in televised remarks on Sunday. But China hopes to come out of the trade war with an unchallengeable lead in semiconductor manufacturing and design. If it succeeds, it will become not only the dominant economic power but the dominant military power as well.

Monday’s losses on the equity market mirror America’s vulnerability.

The biggest loser was the chip design firm Nvidia, followed by Apple, Caterpillar, Texas Instruments and Boeing. Semiconductor firms were the sector hit worst by the trade war. Financials also plunged along with bond yields. Lower term yields cut into the profits of lenders, and financial stocks have moved inversely with yields.

The US has pursued both a trade war (over China’s trade surplus with the US, theft of intellectual property and barriers to foreign companies) and a tech war, the latter aimed at China’s premier telecom equipment maker Huawei.

Huawei is the spearhead of China’s Belt and Road Initiative, which employs mobile broadband as well as transportation infrastructure to remake developing countries on the Chinese model. Huawei is the clear leader in 5G broadband, and the US has tried to cajole and threaten its allies into excluding Huawei. Continental Europe, as well as the UK, have ignored American demands, and the exercise amounted to the worst humiliation for American diplomacy since the ignominious end to the Vietnam War.

It does not seem to have occurred to Washington that Huawei became the dominant player in telecom equipment with virtually no access to the American market. China’s nearly $500 billion of exports to the US consists mostly of consumer electronics assembled in China from imported components; America buys 5% of China’s manufacturing output, but the contribution to value added is low. The high-value-added industries that China is now fostering are sold to Asia and Europe. Huawei overtook Apple as a smartphone manufacturer during the first quarter although it sells almost none to the US.

By contrast, America’s flagship chip design firms are overwhelmingly dependent on the Asian market. Most of Nvidia’s and Qualcomm’s revenues stem from Asia, not the United States. These firms set the world standard for handset and data processing chips, until late last year, when Huawei released its Ascend chips for large-scale data crunching and smartphone handsets.

Asia Times for more

Comments are closed.