Wednesday, September 30, 2020

Breakthrough in Cold War?

May 06. 2018
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By Suwichai Songwanich
CEO, bangkok bank (China)

There were high stakes on both sides in the summit that’s just taken place between US and Chinese trade officials headed by heavyweight Treasury Secretary Steven Mnunchin.

The central issue for both is China’s challenge to American supremacy in technology. China’s goal is to dominate the 10-biggest industries of the future cited in its “Made in China” 2025 policy – including electric cars, robotics, aviation, and AI. This is “frightening”, according to US Trade Representative Robert Lighthizer, while Commerce Secretary Wilber Ross called it an “attack on American genius”.

To thwart China’s ambitions, the US has targeted the 10 industries in its latest batch of sanctions with a proposed tariff of 25 per cent on items ranging from aerospace equipment to industrial robots, satellites, semiconductor parts and machinery. The US is also seeking to restrict China’s access to sensitive industries – this includes considering blocking the use of Huawei’s telecommunications equipment by US carriers, and already-announced bans on sales of chips and components to China’s second-largest telecom equipment maker, ZTE.

Both the pending tariffs and the trade restrictions reflect long-standing grievances by the US such as forced technology transfers, intellectual property theft, discriminatory trade practices, subsidies and informal quotas for local enterprises.

While China faces stiff penalties if the US takes a hard line on such issues, the US also stands to lose as technology giants such as Apple and Intel, which are heavily dependent on China, may face retaliatory actions.

Given that it would be a lose-lose proposition if no compromise is reached, there should be ample room for negotiation. However, no-one expects a quick resolution in this battle for long-term economic supremacy. 

Many countries, including Thailand, are trying to follow a similar path in response to the rapid transformation of the business and technological landscape. Thailand, like China, is also targeting the development of robotics, AI, electric vehicles, aerospace and advanced medicine, while Germany is focusing on the development of the Internet of Things in high-tech manufacturing.

However, China stands out because of its clearly stated and achievable goal of dominance and its strategies, which are considered unfair by the Americans.

These include its state-owned companies which are supported as “national champions” to dominate the domestic then international markets, massive investments in R&D, and China’s intention to replace up to 70 per cent of imported components in the target industries with components from local suppliers by 2025.

It won’t be easy, but hopefully an agreement will be reached between China and the US in this round of negotiations so there won’t be a full-blown high-tech cold war. This would be the best outcome if the Thailand 4.0 policy is to remain on track.

For more columns in this series, visit www.bangkokbank.com

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