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Splitting down the middle?

After 40 years of engagement divisions between the US and China are becoming more obvious and acrimonious, and China is certainly less willing to accept US leadership than it was at the turn of the century.

What does this mean for the global economy and the technology sector as they look to recover from the global pandemic? Could we see the global system breaking into two parts and if that was to happen, what would that mean for the very nature of the global economy?

While trade between these two is worth around $540bn, it’s been suggested that China and the US may end up splitting their supply chains with both nations eventually having to make their own production equipment, software, semiconductors and systems.

The clash over trade has escalated in recent years and now there is talk of placing limits on the integrated supply chains between the two, along with calls for export controls and curbs on investment.

The Trump administration has recently strengthened restrictions on China’s Huawei Technologies and sanctioned China-owned apps TikTok and WeChat and Washington has also rolled out a “Clean Network” initiative that will look to exclude Chinese tech firms perceived as threatening the country’s national security. The UK’s decision to exclude Huawei from its 5G network shows the pressure the US is putting on its ‘allies’.

These threats are having an impact on companies that operate in China and recently Foxconn, the world’s largest contract manufacturer, said that it had plans to move more of its production outside China.

In fact, the company’s Chairman Young Liu was quoted as saying that China’s “days as the world’s factory are done,” and went on to say that India, Southeast Asia or the Americas would see the development of their own manufacturing ecosystems.

According to Lui the shift in production out of China should be described as a ‘megatrend’. He pointed to a predicted 50 per cent reduction in PC production in China over the next three years, to be replaced by the likes of Vietnam and Taiwan.

Protecting the global supply chain is important for companies but for many global brands they also need to avoid US criticism and the threat of fines and trade restrictions should they be found to be violating export controls.

China, in response, seems to be backing the creation of its own integrated supply chain replacing US technologies. Local governments and state firms are looking to procure domestically sourced tech displacing equipment from the likes of Intel, Microsoft, Oracle and IBM.

It doesn’t look great, but can we really expect the US tech giants to simply sit back and let this happen let alone allow the decoupling of well-established supply chains?

Neil Tyler

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