The US-China relationship has become increasingly strained over the past year, but May was downright ugly. New tariffs, new threats, and no resolution in sight. With the potential for Presidents Trump and Xi to meet on the sidelines of the G-20 Summit in Osaka June 28-29, many are dismissing last month’s antics as posturing before an inevitable compromise. But any agreement the two reach will likely cover only their most trivial disputes.
That’s because trade was never at the root of these tensions. We’re watching a battle for pole position in the global economy. And that will be decided over the next decade by dominance in next-generation communications, known as 5G, and the industries its development will enable—from autonomous vehicles and smart cities to the internet of things. The issues shaping the development of 5G—forced intellectual property transfer, state subsidies, and market access—are too complicated to be decided on the sidelines in Osaka.
Can you hear me now?
The US and China have aligned their national policy ambitions with success in the private sector, particularly in 5G, given its potential for disruption. Previous networks were built primarily to enable voice-to-voice communications, but as demand for data has increased, the existing network architecture is at capacity as it relates to both the number of devices in use and the quantity of data demanded. Its rollout will take more than a decade and will be the first total rework of system architecture since mobile communications came online.
China views the development of 5G infrastructure as an opportunity to increase its global heft and hasten their transition into an advanced economy, a key aspect of their Made in China 2025 initiative. The US fears that China’s involvement will dilute technology hegemony and threaten military and security interests both domestically and abroad. The international standards that will govern the networks—both legally and technologically—will take years to hash out. Massive royalty payments, global influence, and untold advantages in future industrial development will all be at stake. On top of everything, this is the first major global tech initiative in which China could play a major role. No wonder political interest is heightened.
May’s biggest escalation was the US’s move to bar the world’s largest telecoms equipment company, Huawei, from purchasing US-made components and software. The decision was based on national security grounds, prompted by fears about the company’s ties to the Chinese government. As a result, many companies, including Google and Japan’s SoftBank, ended their relationship with the tech giant. Stepping up its legal response, Huawei filed on May 28 to expedite proceedings filed in March to challenge the 2019 National Defense Authorization Act. On the same day, China labeled the US’s move a violation of World Trade Organization rules. This is unlikely to sway the Trump administration, which doesn’t hold the trade body in particularly high regard, but China’s May 31 threat to make its own foreign “blacklist” just might.