Are we entering a US-China Tech Cold War ?
ex Google’s Eric Schmidt warned of 2 Internets, what does this mean in a connected world ?
The arrest in Vancouver, at the behest of the US Justice Department, of Huawei CFO (and founder’s daughter) Meng Wanzhou, is the first salvo in the US-China Tech Cold War. This singular event has sent shock waves in China’s elite circles, now convinced more than ever that America is out to “get them”. On the other side, America has been trying to navigate disparate and wholly antinomic interests: its manufacturing business community has sunk trillions of $ in China, while US workers have seen their jobs exported there over the last 3 decades, and its tech&entertainment sectors have been sanguine at China’s overt intellectual property theft.
This US-China Tech Cold War has deep roots and Meng looks like a first pawn the players are “testing”. Canada is clearly being used as a pawn, and its only silver lining is that China wants a free trade deal with Canada. Both parties seek it as China would secure its entrée to North America and Canada needs to diversify its resources export strategy.
Back to the US-China Tech Cold War, Eric Schmidt did not mince words at a private event in SF in September:
The most likely scenario now is not a splintering, but rather a bifurcation into a Chinese-led internet and a non-Chinese internet led by America.
If you look at China, [..], the scale of the companies that are being built, the services being built, the wealth that is being created is phenomenal. Chinese Internet is a greater percentage of the GDP of China, which is a big number, than the same percentage of the US, which is also a big number.
If you think of China as like ‘Oh yeah, they’re good with the Internet,’ you’re missing the point. Globalization means that they get to play too. I think you’re going to see fantastic leadership in products and services from China. There’s a real danger that along with those products and services comes a different leadership regime from government, with censorship, controls, etc.
Look at the way BRI works — their Belt and Road Initiative, which involves 60-ish countries — it’s perfectly possible those countries will begin to take on the infrastructure that China has with some loss of freedom.”
What Eric Schmidt, former Chairman of Google, lays out here is a lot to unpack. The clear implication of this bifurcation is a Digital Cold War between the US, progenitor of the Internet and China, whose Communist Party leadership has set a goal to electronically monitor their billion+ population using Chinese Internet tools.
Is our connected world ready for this Digital Cold War and who are the players ?
India, a foe/friend to both the US and China
India has graduated as a tech giant due to its global companies (Infosys, Tata) and the power of its own domestic market. Reliance’s Jio mobile data service has helped position India in the leading ranks worldwide. India has a tense, on/off relationship with China as both jockey for primacy in the APAC region. India’s common law legal structures, command of English and democratic society give it an edge over China’s Communist party control of the economy. America’s semantic jump to refer to APAC as the Indo Pacific is a blatant sign it will try and have India in its corner in this Cold War.
Europe, the FAANG’s 2nd largest market
China being almost off limits to the FAANG — Facebook, Amazon, Apple, Netflix, Google — due to the Great Firewall, Europe is a key export market. In 2017, Alphabet first broke down its revenues per geography. Europe’s importance as its #2 market after North America is quite striking:
This is why America’s frowning as Europe accelerates its calls for taxation and regulation of the FAANG will be moot as both will be accepted, and soon. Europe also houses major R&D centers for them (Paris for AI for Facebook for example) and is a training ground for scores of engineers they need and cannot recruit fast enough. China will try and drive a wedge between America and Europe and will make a number of strategic acquisitions (the Samwer copycat empire is an obvious target) but ultimately Europe will be in America’s corner.
the Rest of the World
Latin America, the Middle East, Africa, non-China and non-India APAC represent billions of digital consumers. China has made huge inroads in some of these markets and will continue. Huawei, whose CFO is awaiting her fate in a Canadian cell, is a prime telecoms supplier to these markets. The accelerating Tech Cold War, much like the initial Cold War, will see this Rest Of The World play the role of the unaligned, and alliances will shift from China to America/Europe depending on the specific angle and opportunity.
Huawei’s CFO’s arrest will be a test of wills between America and China, with Canada as a pawn between them. The Tech Cold War has started and its effects will be felt across the globe, just as the US-USSR geostrategic Cold War did. The core issue at hand will be de-globalization, as America has elected to retreat to its shores by a combination of hubris, ahistorical positioning and sheer stupidity. Its prosperity cannot be sustained with a domestic-only economy. Trump’s predecessor, Herbert Hoover, also made that fateful calculation and precipitated the Great Depression. Trump will also surely go down as a failed businessman President, who wrecked his party and kept it out of power for decades.
