Huawei arrest offers clues to the US-China trade war psyche

For the real cause of rising tensions between the US and China, look no further than the arrest of Meng Wanzhou, chief financial officer of Huawei and daughter of the company’s founder.

Detained at Washington’s request while in transit in Vancouver airport, Ms Meng faces extradition to the US on allegations of financial fraud related to the evasion of sanctions on the sale of high-tech equipment to Iran.

US President Donald Trump appears fixated on simple imbalances in the trade of goods with China, which have only increased since he launched the first salvos in his trade war this year. But the collection of China hawks around him are focused on something else — maintaining America’s position as the world’s pre-eminent technological superpower. Whether Mr Trump fully comprehends it or not, that is the real reason for the current trade war.

Huawei is hated and feared in Washington because of its links to the Chinese military and intelligence services and because its success as a telecom equipment maker provides a glimpse of a future in which China’s technological prowess matches or exceeds that of the US.

Under the ambitious “Made in China 2025” agenda, Beijing has identified industries that it aims to dominate by any means, including through the purchase or theft of technology from the US and other developed countries. Chinese cadres have studied Silicon Valley’s antecedents as an offshoot of Pentagon research and development. They are recreating a similar military-civilian hybrid model for technological advancement that scares the heck out of US officials today.

The actual state of Chinese technology is both less and more worrying than the nightmares of American generals or the dreams of Silicon Valley plutocrats. China remains predominantly a low-margin, low-end manufacturing and assembly base for global supply chains. Consider ballpoint pens. About 3,000 companies in China produce about 38bn ballpoint pens a year, roughly 80 per cent of the world’s total. But, until January 2017, none of them was able to produce a precision ballpoint pen tip. As a result, some 90 per cent of pen tips and refills are imported from Japan, Germany and Switzerland.

Despite decades of effort and billions of dollars invested in the development of homegrown semiconductors, China imports more than 95 per cent of the high-end microchips used in locally made computers and servers. China spends more on imported microchips, about $227bn in 2016, than it does on oil, despite being the world’s biggest energy importer.

In many ways, Beijing’s state-led technological development mirrors its approach to sporting events such as the Olympic Games. Obsessed with gold medals, the state has poured enormous resources into sports that other countries often neglect, such as archery, shooting and curling, in search of quick wins. But popular involvement in organised sport overall is still very low, and China remains a distant laggard in sports such as athletics, football and basketball, where success depends on widespread grassroots participation. 

A similar phenomenon can be observed in cutting-edge technology. Apart from its impressive success in popularising digital payments, China has mostly made relatively incremental advances on technologies such as deep-sea submersibles and hybrid rice. Overall, China has had few genuine breakthroughs and most of its economy remains labour intensive and low tech.

Chinese cadres have studied Silicon Valley’s antecedents as an offshoot of Pentagon research and development

Chinese tech investors and executives say the country’s education system militates against innovation with its emphasis on rote learning and deference to authority. Likewise the political system, with its fetters on free expression. It is no accident that many of China’s smartest innovators are US-educated and chose to stay there after graduation.

China today is far less of a threat to American tech dominance than many in the US believe. But it is catching up quickly, particularly in military technology, where much of Beijing’s effort is concentrated. And, ultimately, the lessons of history are not on America’s side. 

For centuries, China sought to preserve its dominance of silk-making by executing anyone who attempted to export silkworms or their eggs. But in the fourth century AD it lost the secret to Japanese industrial espionage.

Then, in the late 18th century, Britain tried to stop its textile engineers and machinery from emigrating as it sought to deny its former American colonies the chance to industrialise using British technology. But America prospered and grew on the back of wholesale theft of technology from the UK and Europe. 

The Trump administration should take heed. Even if the US is able to hinder China’s technological advancement, its long-term efforts are likely to be just as ineffective.

jamil.anderlini@ft.com