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Trump and XI in this file photo. The US and China are embroiled in a supremacy battle over trade.

Fifth Estate

Protectionist trade tendencies will Frustrate Technological development and innovation

A few years ago, it was unimaginable to think that the next global war would come from technological innovation; it was largely thought to be from oil. Tensions over minerals across the globe, especially oil in the gulf-states and some parts of Africa, tensions over minerals and bickering over strategic infrastructure dominated the global discourse on where the next world war would emanate from.

But as it seems, this might be the case. The next world war is likely to be on who controls the race in the technological innovation- just look at the wars between the USA and China over the 5G network. It might be boardroom wars across countries, and they are going to frustrate those already seeing technology as the panacea to current myriad challenges facing humanity. The determination to cut off some trade links and break critical value chains in technological development is worrying.

Largely, the trade war that now threatens to embroil the world for the near future is between the USA and China. Latest moves by the USA to enforce protectionist trade rules on US companies, previously doing trade with Chinese companies, largely with smartphone maker Huawei, threaten the technological growth trajectory. I am sure, all the countries have alternative ways to come out of the trade standoff, but at a huge cost for a lot of corporates involved, both directly and indirectly.

Studies so far indicate that regional trading blocks and interdependence within the value chain globally are best practices in improving trading opportunities, and any attempt by any one country to protect its companies from the competition in a liberalized world or to make decisions without consulting will be counterproductive.

While the initial thinking was about spying claims and counterintelligence within the technology wars between the two countries, it seems, it is more than just that- something that can push a country to break known trade protocols without considering the huge cost associated with such move, and alter international trade flows, must be really strong.

The US Foreign Direct Product Rule, aimed at imposing restrictions on the use of microchips that are used by the tech giant in making its phones and network infrastructure- essentially the rules require that no American company, both the USA or based outside the USA sells to Huawei any of the essential tools required in the manufacture of the company’s products.

Obviously, this has a huge implication on the demands of the microchips and associated products in the supply chain, and whether Huawei had already purchased huge stocks, because of the earlier threats, it’s not certain how long the stocks will last and, what happens to the US companies that have been producing them.

They must now look for new markets or have to use huge investment amounts to covert the manufacturing establishments. Following the bellicose attitude by the two countries’ leadership that saw failure in trade talks, was worsened by the COVID-19 pandemic outbreak and related conspiracy theories, suspicion has escalated between the US and China, and the US has proceeded to show its intention to bar trade between companies from the two countries.

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And the 5G network is at the center of the trade wars. While specifically, technology growth will suffer, the 5G network, which seems to be unsettling many countries might not have the desired implementation and impact. What I know is that the 5G network might and will not require the technology especially masts used in the 4G and 3G networks, and the war over 5G networks might largely because of insincerity between trading partners. Is there a feeling of betrayal or what might be behind this approach by the US leadership?

While the current discussion is on the new rule that are targeted at restricting chipmakers from free trade, we are not sure what sector will be targeted in the next wave of restrictions on US companies against trading with Chinese counterparts. It started as a small experiment but it is now a full-blown trade war between the two countries and the casualties are private investments that might not have seen this coming in this manner and magnitude.

The writer is the Head, Media Development & Strategy at the Media Council of Kenya

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