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US China Tech War – Has America lost the Artificial Technology Race with China?

US China Tech War – Has America lost the Artificial Technology Race with China?

Relevance:

  • GS 2 || International Relations || India & its Neighbours || China

Why in news?

According to a recent UN trade and investment research, India has emerged as a winner in the trade war between the US and China.

Background:

  • The global economy has fallen to its slowest pace in three years, according to the World Bank’s Global Economic Prospect, due to lower-than-expected international trade and investment. The trade war between the United States and China has had a significant impact on international trade.
  • Throughout 2018, the US government began enacting a series of trade measures to limit imports, initially targeting specific products (steel, aluminum, solar panels, and washing machines), and subsequently focusing on imports from China.
  • Early in the summer of 2018, the United States and China raised tariffs on $50 billion worth of each other’s goods. This heated up even further in September 2018, when the US imposed an additional 10% duty on $200 billion worth of Chinese goods, prompting China to counter by putting $60 billion in duties on US imports.
  • In June 2019, the United States raised the tariffs to 25%. China retaliated by hiking tariffs on a group of products that had already been subjected to them. In September 2019, the US placed 15% tariffs on a major portion of the $300 billion in Chinese imports that had not yet been subjected to duties.
  • According to a research by the UN trade and investment authority, India earned around $755 million in additional exports to the US in the first half of 2019, mostly chemicals, metals, and ore, due to trade diversion impacts of Washington’s tariff war with China.

US- China the new cold war:

  • In 1989, the second cold war between China and the United States The fall of the Soviet Union, the Gulf War, and Tiananmen Square all added to China’s perceived danger.
  • From 1989 to 2008, China’s objective was to stifle US dominance and prevent it from harming the country.
  • China began to work on all three fronts, namely economic, political, and military: from economic participation in international organizations to weapon selection and political engagement with the rest of the world.
  • Global financial crisis: China began to develop in 2009, especially with the advent of the global financial crisis. It has now entered an expansionist phase, with the goal of resolving all territorial disputes in its favor, acquiring bases around the world, evicting the United States from Asia, and remaking the world order in its more illiberal image.
  • Belt and Road Initiative & Asia Infrastructure:With its all-encompassing Belt and Road Initiative and institutions like the Asia Infrastructure Investment Bank and the New Development Bank’s contingency reserve agreement (CRA), China has devised alternatives to US dominance axes like the US-dominated International Monetary Fund, World Bank, and World Trade Organization.
  • Expanding the G7 to G-11: To control rising Chinese assertiveness, the US proposed expanding the G7 to G-11 without involving China, as part of its “pivot to Asia policy.”
  • Extraterritoriality claims: China has used “salami slicing” tactics in the South China Sea, first by land reclamation and subsequently by constructing artificial islands for extraterritoriality claims, taking inspiration from US methods used during the two World Wars to gain control of the Atlantic Ocean through Caribbean islands.
  • Odds on several economic fronts: The United States and China are at odds on several economic fronts, from trade disputes to 5G telecommunications issues to currency wars. This was exacerbated by the deterioration of the donor-recipient relationship between the United States and poor countries, as evidenced by China’s commitment of $2 billion in response to the COVID-19 outbreak, ushering in a new era of donation diplomacy.
  • Blamed China for the spread of the coronavirus: Trump and his aides have blamed China for the spread of the coronavirus, but China has retaliated by claiming that US soldiers may have been the virus’s original source during a visit to Wuhan last October.
  • Marine trading: China’s claims to sovereignty and control over much of the South China Sea, including important marine trading lanes, have been increasingly challenged by the Trump administration.
  • China’s ambitions to infiltrate other countries: China has long been accused of stealing American technology by successive US governments. This was exacerbated by calls for Huawei, China’s largest technological company, to be blacklisted internationally, accusing it of being a cover for China’s ambitions to infiltrate other countries’ telecommunications infrastructure for strategic advantage.

Implications:

  • Bilateral trade has dropped sharply:Chinese consumers would face higher prices, while US exporters will suffer losses and other countries will benefit from increased trade. About $ 21 billion (or 62 percent) of the $35 billion in Chinese export losses in the US market was redirected to other countries, while the remaining $14 billion was either lost or recovered by US producers.
  • Consumers will pay higher prices:Consumers face higher pricing as a result of tariffs placed by the US on China, which are affecting both the US and Chinese economies. According to the data, US tariffs prompted a 25% drop in exports in the first half of 2019, costing Chinese exports $35 billion in the US market for tariffed items.
  • Effects of trade diversion:
    • Increased imports from nations not directly involved in the trade war as a result of trade diversion.
    • The trade diversion impacts of the US-China tariff war were estimated to be over $21 billion in the first half of 2019, meaning that net trade losses were around $14 billion.
    • These trade diversion effects have benefited Taiwan (a Chinese province), Mexico, and the European Union significantly.
    • Korea, Canada, and India had lesser but still significant trade diversion gains, ranging from $0.9 billion to $1.5 billion.
    • India gained $755 million in additional exports to the US in the first half of 2019 as a result of US tariffs on China, including more chemicals ($243 million), metals and ore ($181 million), electrical machinery ($83 million), and various machinery ($68 million), as well as increased exports in areas such as agri-food, furniture, office machinery, precision instruments, textiles and apparel, and transport equipment.

Opportunities for India:

  • Export excess agricultural items: The trade gap between India and China is expanding. The ongoing trade war may provide India with an opportunity to drastically cut its trade deficit.After the drop in exports from the United States, India might export excess agricultural items such as soybeans to China.
  • India’s software industry:As it seeks to replace the US predominance of technology businesses, India might become China’s software industry partner. India requires some solid pegs to pitch to China, and India’s software industry has the potential to advance.
  • Increasing trade tensions between China and the United States could boost Chinese investment in India.
  • Trade and Development:After China’s goods were barred from entering the US economy, India might look into ways to meet the US’s demand for goods. According to a research released by the United Nations Conference on Trade and Development, just around 6% of the $300 billion in Chinese exports subject to US tariffs will be picked up by US businesses (UNCTAD).India, as well as other countries, can gain from this.
  • More business opportunities:If Chinese exports to the US slow down, India may be able to grow its textile, apparel, and gems and jewellery exports to the US.

Concern associated with tech war:

  • Trade deficit: Every member of the G7 grouping has a trade deficit with the United States, which has been growing year after year. The US has a $21.3 billion trade deficit with India, whereas India enjoys a trade surplus (FOREX earnings), which is threatened by the ongoing trade war.
  • Impact on domestic production: The US wants India to lower tariffs on Harley Davidson motorcycles, stents, knee implants, and medical gadgets, as well as dairy and poultry products. India has already decreased the tariff on high-powered motorcycles from 75% to 50%. Further pressure for duty reductions, on the other hand, could have an impact on domestic production.
  • India should be wary of China’s aim to dump its excess steel and aluminum due to US trade restrictions.
  • Rising oil prices threaten to worsen India’s current account deficit, putting the country’s macroeconomic stability at risk.
  • Weak currency: Due to the continuing trade war, India’s already weak currency may lose even more value.

Conclusion:

With governments increasingly blocking Chinese participation in 5G networks, other global firms may gain a competitive advantage. The European players Ericsson and Nokia, as well as Samsung of South Korea, are the other market leaders in telecoms network equipment. Reliance Jio, based in India, has likewise planned and constructed a complete 5G solution from the ground up. This could have ramifications for the worldwide 5G rollout, particularly outside of North America and Europe.

Mains oriented question:

A full-fledged trade war between the United States and China is in no one’s interest; a full-fledged trade war would only harm the global economy. Discuss. (250 words)