Isaac Hanson
US-China trade tensions have been rising since the Trump presidency imposed sanctions on Chinese goods in 2018, and are now at a fever-pitch. A new GlobalData report sheds light on what is fuelling the ongoing trade war, and how technology ended up at its centre.
Geopolitics in Tech, Media, & Telecom 2024 argues that the dominant force affecting the sector today is the trade war, with impacts reaching far beyond just the two countries. As each tries to decouple from the other, the processes of onshoring and friendshoring will become increasingly important, providing opportunities for friendly markets closer to each country.
As globalisation accelerated in the post-Cold-War period, offshoring led to Western companies moving much of their manufacturing and customer service work abroad to nations like China and India where wages were lower. Though this is still an integral part of the global economy, geopolitical tensions and increased awareness of issues such as climate change have meant a fundamental shift is taking place.
Manuel D Medina of Medina Capital discusses the markets and market players driving growth in data centre investment – and why Florida is well-positioned to benefit.By FPL
“The era of hyperglobalisation is over,” the report explains. “We are now moving towards a period of decoupling supply chains. Optimising production costs remains important, but the new order places a higher weight on security and resilience. The fragmentation of US-China relations has bifurcated supply chains and incentivised companies to reshore closer to home markets.”
EU caught between two superpowers
The EU finds itself caught between the two great powers, with its reliance on the US for political and military alliances encouraging the bloc to follow the country’s lead on China policy despite its close economic ties. For instance, the Dutch government banned tech company ASML from exporting machines used in semiconductor manufacture earlier in the year despite the company’s protestations, reportedly at the behest of the US.
The report suggests that the EU’s position, whilst difficult, could allow it to benefit if it sells itself as a neutral third party for companies that find restrictions from either country too damaging to business. It also notes that a Trump victory in 2024 could be detrimental to US-EU relations given the former president’s vocal criticism of aid to Ukraine, a key geopolitical issue for the Europeans. This could encourage lawmakers to think twice about building closer ties to the country.
India stands to benefit from US-China trade war
India has long hoped to draw some of the major outsourced manufacturing from China to its shores, and the trade war offers a golden opportunity, if the country is able to take it. Far-right leader Modi is likely to win a third term later this year, allowing him to continue his Make in India initiative that aims to encourage businesses to do just that.
The country faces hurdles to becoming a manufacturing hub, however, particularly in the tech sector. For one, “significant and urgent improvements to India’s physical infrastructure are necessary—notably to roads, rail, water, and electricity.” The country is also dependent on China for key components used in its manufacturing plants for consumer technology, making a complete decoupling “virtually impossible.”
Latin America will gain from US-China tensions
Latin America is perhaps the region with the most to gain from China-US tensions.
Due to its proximity and historically close – if not always warm – relations with the US, Mexico is “a prime location for friendshoring,” the process of moving manufacturing to friendly nations to minimise the political risks of outsourced production. Though the two countries’ relationship is partially dependent on the outcomes of the Mexican and US 2024 elections, it will remain a viable possibility for moving production throughout the 2020s.
Further south, the lithium mines of Argentina, Chile and Bolivia make them potential kingmakers in any future geopolitical disputes. Lithium is a vital component of batteries, which are only becoming more vital as the green transition continues. However, the three countries have quite different approaches to utilising these resources.
Chile hopes to nationalise its lithium industry, but due to neoliberal reforms made by previous governments in the 20th century, it is locked into deals with American companies currently in control until the 2040s. Whether geopolitical events will allow the country to break these arrangements – legally or otherwise – remains to be seen, but it is currently unclear how this process would be achieved.
Bolivia on the other hand is allowing FDI from longstanding allies Russia and China, providing key access to the resource. This is particularly important to Russia, which not only lacks a developed domestic lithium industry but also faces heavy sanctions from the west following its invasion of Ukraine in 2022. China has a relatively large lithium industry, but ensuring future access to the massive reserves in South America will provide security in the long term.
Argentina’s approach to global trade has been dramatically altered by new president Javier Milei, who has vowed to move the nation away from trading with China. However, the report notes that the nation’s ongoing economic crisis is likely to soften his stance given the importance of relations to Argentina: “Argentina is highly dependent on China and used the Chinese currency swap line to repay part of its IMF debt in October 2023.
“Chinese mining companies have also increased their presence in the country, with Tibet Summit Resources investing $1.7bn into two new lithium mines in June 2023 and Ganfeng Lithium purchasing an existing mine for $962m in July 2022.”
Despite these opportunities, the potential for decoupling is not limitless. Trade between the US and China still ran to more than half a trillion dollars in 2023 and China remains the largest exporter to the EU. Additionally, the cost-of-living crisis and other major domestic challenges mean that the US is likely to focus on internal politics over foreign affairs during the 2024 election cycle.
Although tensions are fostering an increased awareness of the political risk of being tightly bound to China for trade, it will remain a key trading partner for the West for years to come.
No comments:
Post a Comment