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The tech war will change American capitalism

A digital iron-curtain separating East and West is now more likely than ever and the clash of civilisations between east and west accelerates. Washington needs to learn lessons from Beijing.

A digital iron-curtain separating East and West is now more likely than ever and the clash of civilisations between and west accelerates.  Washington needs to learn lessons from Beijing.
Garry white employee

by
Garry White

in Features

07.05.2020

Beijing and Washington have taken steps that could accelerate the move towards a “Splinternet” – a physical divide in the world wide web, with firewalls between countries and cultures. Donald Trump’s trade war continues unabated.

This war is driven by numerous factors, but one of the most irksome for Washington hawks relates to ‘technology transfer’. One key demand from the Trump administration was for Beijing to halt practices that it alleged were the “systematic theft” of US intellectual property.

This “theft” is achieved in numerous ways, but China has been good at getting hold of cutting-edge technology through restricting access to its own markets. Foreign direct investment in China is still partially closed. This means that many foreign companies must operate through minority stakes in joint ventures. Often the local partner is a state-backed business – and the Communist Party of China appoints senior executives in strategic sectors. This includes technology and telecoms. Once the state has the technology, other companies get access too, or so it is claimed.

Central planning directs business

Next-generation telecoms was a key area for the country’s central planners – and now Huawei is the world leader in providing 5G equipment. This achievement is a direct result of the Chinese central planning system. Many companies operating under the capitalist model wouldn’t have the financial backing to invest in such costly research and Western businesses operate independently of government. They do not toe any party line; they exist to make a profit.

Huawei’s success is seen by some as a significant threat to the West. The US hawks’ argument against Huawei is mostly framed in terms of national security. By installing components in local systems countries are handing Beijing’s spies an advantage.

But it is really all about the battle between the US and China to emerge as the century’s dominant superpower. The county that is to 5G what Google is to internet searches could control the “economy of the future”. The Trump administration is determined that China won’t get there first.

The economy of the future

The opportunity from 5G really is enormous. It will act as the infrastructure for self-driving cars and power the Internet of Things. But perhaps the biggest opportunity from 5G lies in its low latency – this is the time lag between a device pinging the network and getting a response. This real-time response could one day mean a surgeon may not need to be in the same room as a patient to perform a delicate operation.

These systems are the foundations of future wealth creation – that’s why it’s such an important prize. They will also be a source of massive sets of data that can be scrutinised and used for corporate or political purposes. In the technology world, data is the currency on which fortunes are built. It also matters who owns this data.

So, as well as putting governments such as the UK under significant pressure not to use Huawei gear in its 5G systems, the Americans are making some punchy moves.  

Two weeks ago, the US Federal Communications Commission (FCC) issued an ultimatum to four Chinese telecom groups that could ultimately lead to them being expelled from the country. The FCC told China Telecom Americas, China Unicom Americas, Pacific Networks, and ComNet that if they didn’t supply evidence that they had no links to the Chinese government they would lose the right to operate in the US. However, proving non-existence is a difficult thing to do.

Beijing wants more control

As Washington makes these steps to try and ensure American hegemony continues, Beijing has not been standing still. China’s rival to the Global Positioning System (GPS), the satellite navigation technology that we use in smartphones, goes live this month. BeiDou-3 will provide a Chinese alternative for a significant part of the internet’s infrastructure – and China needs to launch just one more satellite complete its array. The rival GPS is owned by the US government and operated by the United States Space Force.

Perhaps more significantly, Beijing has also submitted proposals to change the global architecture of the internet. Huawei recently offered the UN’s International Telecommunication Union (ITU) a technology that may drastically “change the way the internet works”.

Huawei argued that the global network infrastructure based on the Transmission Control Protocol (TCP) and Internet Protocol (IP) was not futureproof and several Chinese companies had joined forces to develop a new system. However, the UK, Sweden and the US reportedly argued that this new infrastructure would provide state-run internet service groups with complete control over citizens’ internet use – and ultimately lead to a split in the internet. China responded by saying it was already building this new internet architecture and it will be tested in early 2021. It appears, the Splinternet could be here sooner than we think.

The technology war between the US and China is not going away and, if America wants to catch up, it’s going to have to take some lessons from China. But perhaps, they already know this. In February, US Attorney General William Barr suggested America should consider taking a controlling stake in Nokia and Ericsson to “blunt” Huawei’s “drive to domination.”

This is not American capitalism as we know it, but neither is the $50bn bailout of America’s four largest airlines when they spent $45bn on share buybacks over the last decades. American capitalism is going to have to change in order to thrive. It’s not exactly time to fully embrace the state, but a bit more central planning may be in everyone’s interests.

A version of this article appeared in Saturday’s Daily Telegraph.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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