China vs. USA – Much ado about nothing.

No change in technology outlook.

• The USA and China came to a very preliminary agreement on Friday which worked out better for China (in Alastair Newton’s opinion see attached) but did not address Huawei or the other technology issues meaning that the technology rivalry remains very much alive.
• By far the most important measure is the suspension of any further tariff escalation on both sides, the most important of which was a big increase by the USA that was expected on October 15^th.
• China has promised measures on currency manipulation as well as a promise to buy more farm produce.
• Alastair thinks that this is mostly driven by China’s need to import more farm produce anyway given the impact that African Swine Fever has had on domestic production.
• I think that this is merely a temporary truce to allow talks to continue in a reasonable manner without constant bellicose threats being made by both sides.
• It is also quite clear that there is not going to be a big resolution to this issue, but a series of small agreements that at some point should add up to a comprehensive working relationship.
• From a technology perspective two things are clear:
  • First, Huawei: There is no relief for Huawei or the other 8 companies that were recently placed on the entity list.
  • However, the implication is that there will be no more additions while the current negotiations continue.
  • In the meantime, Huawei is continuing to haemorrhage smartphone market share in its markets outside of China and Samsung’s preliminary results reported last week hint at where a good slice of that share may have gone.
  • This will put some pressure on Beijing but it is unlikely to last long as Huawei’s share is collapsing fast and once it hits zero, the damage that Beijing seeks to avoid will have already been done.
  • The other companies are unlikely to care that much as I do not think they are sourcing anything from the US that they can’t get anywhere else and they create their own software (see here)
  • Second, technology war will continue to be a long, drawn-out affair that continues way beyond any trade deal with China and whoever wins the White House in 2020.
  • One of the only issues that the Republicans and Democrats agree on at the moment is that China’s rise must be contained meaning that this is going to be on the agenda long-term.
  • This battle will be fought over new and emerging technology standards as in existing technologies like semiconductor manufacturing and smartphone software, China is hopelessly outclassed.
  • However, in AI (see here), the playing field is level and as new technologies emerge such as augmented reality, quantum computing and so on, I expect China to be a credible contender.
• Consequently, I expect to see dual standards begin to emerge for new technologies and other countries will be forced to choose one or the other.
• The net result is that the outlook for global growth in technology has taken a hit.
• This is because the total value available for all participants is much greater when everyone uses the same standard (e.g. 4G) compared to when there are two or more incompatible offerings.
• The best days of technology’s growth may now be behind it.