Rather than getting pulled towards a decoupling by the geopolitical inertia of the times, there is more logic in integrating the Chinese market with US technology. Qualcomm, the leading US chip provider, is a model. In 2019, the company’s total revenue was approximately US$24.2 billion, of which China accounted for 47.8 percent (about US$11.6 billion). If Qualcomm were to retreat from China, it would be significantly less profitable and would have to spend much less on R&D. Now, take Huawei, Qualcomm’s partner and competitor. According to its founder, its imports of US components increased from US$11 billion in 2018 to US$18.7 billion in 2019.
Does it make sense to disrupt this mutually beneficial supply chain? Is it right to argue that the principle of comparative advantage is outdated and should be abandoned? Or is what we really need stronger global governance that ensures that international trade is fair and mutually beneficial?
Third, the real concerns for both China and the US are not what each is doing that generates fear and loathing in the other. The problems are domestic: the dysfunctions of politics and society in the United States, China and practically every country, all the more so now that Covid-19 pandemic has ravaged economies, exposed inequalities and torn up social contracts. Social protests, from Chile to Hong Kong, are not driven by the poor and downtrodden but by the educated middle classes, especially young digital natives who are empowered by social media as well as susceptible to its ills, i.e. fake news, disinformation and misinformation.
Where will the new economic prosperity come from once the Covid-19 pandemic is over? Will it come from the richness of 5G, from the magic of the Internet of Things, AI, and other Fourth Industrial Revolution wonders? The next wave of good times might have to wait until the commercialization of 6G, edge computing, L4 autonomous driving, and digitized transportation systems? This would mean sometime after 2025. Getting from here to there will be a challenge not just for China and the US but for all major economies and certainly the smaller players now deeper in debt, vulnerable to the pandemic, and possibly the last in line for the vaccine.
Both democracy and authoritarianism have their dysfunctions
What the world needs now is not decoupling but global collaboration and a stable supply chain. To achieve post-Covid-19 prosperity will require the promotion of free trade, more global collaboration and integration, and innovation. But the world is moving in the opposite direction as citizens have lost faith in globalization, opening the way for a backlash of nativism, protectionism and populist politics where facts do not matter.
Yet most decision-makers may still have enough wisdom to accept the logic of collaboration. China must insist on this path rather than be distracted by trade, technology or finance competition with the US, especially when Chinese jobs will be at risk due to a significantly slower economic growth rate and higher inflation, amid a global recession. In the midst of the mess left by the coronavirus, multilateral collaboration will be essential to bring back order, sense and indeed fairness to the world.
That is where the politics comes in. The lines between democracy and authoritarianism are blurring. Democracy does not necessarily bring equality, while a centralized or authoritarian system is not always cruel. Both types of governance need reform. Yes, democracy has been good for innovation, but centralization has had its advantages too. Consider the epidemic. China has managed effectively to control the coronavirus domestically and has even been able to send aid to Italy, Spain, Serbia, Iran and other countries.
It is, however, useless to argue right or wrong between China and the US. Instead, the focus should be on finding practical solutions to the real global challenge after the Covid-19 pandemic: to restore economic prosperity by investing in ICT infrastructure construction, technological innovation, the cultivation of talent, and the promotion of free trade globally. If after this tragic encounter with the alien virus, countries continue to behave ideologically by, say, creating a “NATO for trade” rather than adopting a collaborative spirit in managing the economy and harnessing science, there will be no stopping war, whether it be cold or hot.