A full-blown tech war would hit financial markets and consumers, and may even make China self-sufficient in the long run
talks between America and China fell apart on May 10th, the effect on financial markets was muted. Most firms and investors are betting on a long struggle between the superpowers but not a sudden crisis or a financial panic. As the conflict over the tech industry escalates, however, that assumption looks suspect. On May 15th America’s Commerce Department said that companies would need a special licence to deal with Huawei, China’s hardware giant, which it deemed a threat to American interests .
The confrontation is a reminder of America’s awesome power. By stopping foreign firms from using its intellectual property and financial system, it can put them out of business. The White House is also right that the bill for a tech war will at first be asymmetric. American firms will lose perhaps $10bn a year of licensing revenue for chips and components.
The ripple effect would hurt America’s allies in Asia, because they host factories that supply China’s tech-manufacturing hubs and are home to companies that operate in China. In October 2017, for example, components for smartphones accounted for over 16% of exports in Malaysia and Singapore and over 33% in Taiwan. Two Taiwanese giants, and Foxconn , straddle the fault line of the tech cold war, having production and customers in both America and China.
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