The Sino-U.S. tech war is more important than the trade war

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All things considered, the U.S. and China had amicable trade discussions this week. With the clock ticking on the 90-day trade-war ceasefire, both sides have impetus to resolve the trade tiff. The Chinese economy likely grew at its slowest pace in 30 years - 6.5% - in 2018 as U.S. tariffs battered exports. The U.S. economy remains resilient for now, but U.S. President Donald Trump is watching the mercurial stock market nervously. People close to the administration say that he hopes to reach a trade deal with China to rally investors.

Yet even if Beijing and Washington bring the trade war to a close, the broader competition between them in high technology will not dissipate. If anything, it will accelerate as the two countries move to gain a foothold in next-generation technologies like artificial intelligence, robotics and quantum computing. In November, the Trump administration forbade U.S. companies from doing business with Chinese state-funded chipmaker Fujian Jinhua Integrated Circuit Company, which has been accused of conspiring to steal U.S. semiconductor firm Micron’s trade secrets.

The Sino-U.S. tech tiff kicked up a notch in December when Canada, at Washington's request, arrested Meng Wanzhou, CFO of Chinese telecoms giant Huawei, for the alleged violation of Iran sanctions. The U.S. has asked Canada to extradite Meng while Beijing is demanding her release. The Chinese government has detained several Canadian citizens since Meng's arrest for alleged violations of Chinese law.

Huawei, while one of China's most trusted brands at home, does not have a stellar corporate governance record overseas. Allegations that it violated Iran sanctions are not implausible. Most people in China won't see it that way though. In December, long-time China watcher Bill Bishop said in his Sinocism newsletter that the case could be used "as another rallying point in the increasing efforts to reduce reliance on the US." Meng's detention "certainly fits within the broader campaign by the US to block Huawei from 5G networks outside of China," he said.

Meanwhile, last week U.S. senators proposed a bipartisan bill that would establish an Office of Critical Technologies & Security at the White House to fight state-backed technology theft and protect U.S. supply chains. In case there was any doubt about which country the bill was aimed at, Senator Sen. Mark Warner (D-Va.), the top Democrat on the Senate Intelligence Committee, said in a statement: "We need a whole-of-government technology strategy to protect U.S. competitiveness in emerging and dual-use technologies and address the Chinese threat by combating technology transfer from the United States."