The latest battle in the ongoing trade war between the US and China has claimed another victim.
Amid simmering tensions between the two superpowers, President Donald Trump and his administration have sanctioned a ban on software exports to Fujian Jinhua Integrated Circuit Co. The state-owned Chinese chipmaker is one of the country’s leading tech companies, but US security concerns now threaten to cripple its enterprise. As announced on October 29, the US Commerce Department has restricted sales to Fujian because it “poses a significant risk of becoming involved in activities that are contrary to the national security interests”.
The move is not only another play in the latest international trade war but a dent to China’s global tech ambitions. Despite being a leader in terms of end-products with regards to chip manufacturing, China relies on other countries for many of the internal components. This lack of internal expertise is one of the country’s main weakness and a threat to its aspirations of becoming the dominant tech hub.
US Strikes Reverberate Across the Atlantic
In the wake of the latest strike, the Dow Jones has taken a tumble. After showing signs of strength over the summer months, price markers on the industrial-average tracker sunk to their lowest point since July following news of the recent tech embargo. For Europe, the effects of the current trade war can’t be ignored. Hitting back against the moves made by the US, the European Union has increased tariffs for Harley Davidson and Florida orange juice imports.
However, beyond individual strikes, the US-China trade war has unearthed two potentially important opportunities both in Asia and Europe. Throughout the history of international trade wars, embargos have actually proved beneficial. When the US blocked grain exports to the Soviet Union in 1980, there was an initial shock that led to food shortages. However, within a few months of Jimmy Carter’s embargo being in place, the Soviet Union realized that it had the ability to sustain its own grain supplies.
The end result was an uptick in grain product across the Soviet Union while the price per bushel in the US fell from $4.39 to $4.00 between 1980 and 1981. In business terms, Trump’s tech embargo could have a similar effect in China. Without the help of US companies, Chinese firms will be forced to either forge relationships with other countries or develop its own products. If the former happens, it could lead to new trade relationships between China and Europe.
Europe Could Plug China’s Leaks
For example, German engineering group Siemens has already warned that tariffs could hurt investment opportunities. Similarly, French electronic equipment manufacturing company the Actia Group has warned 2018 may dip because of the US-China trade war. With each strike by the US or China being felt across the Atlantic, companies in Europe will be keen to forge new deals wherever possible. For China’s tech industry, European firms will be queuing up to fill the hole left by the US embargo. In turn, this would open up a network of new trade links in China.
Conversely, if Chinese tech companies decide to go it alone, it would open up more internal business opportunities. While the US-China trade war is having a net negative impact on the global economy, in times of crisis, new opportunities can flourish. If European companies can keep China’s tech industry running, businesses on both continents could flourish with or without the help of the US.
