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8- US–China Technological rivalry and global Competitive implications -The Geoeconomics of 5G

Updated: Jul 20, 2021


Technological innovation has driven and shaped the economic geography of the 21st century, connecting individuals and creating new ways of collaborating and sharing knowledge. This has led to a global innovation landscape with geographically concentrated clusters of innovation and centers of excellence


The emergence of geographical concentration of innovation is largely driven by economic forces. Although innovation tends to be concentrated locally, technology ends up being diffused across the globe through the mobility of labour, Market forces and Knowledge.


The private sector is generally considered the main source of technological innovation. Today, investments by large tech companies are a key driving force behind innovations such as AI, robotics, The State plays a critical role in driving and managing innovation(significant public funding), particularly in terms of shaping how firms innovate and how technologies are developed and diffused.


Governments strive to enable the creation of these tech centres, as they are associated with societal and economy-wide benefits. For example, tech centres attract foreign direct investment and provide sources of new knowledge that can benefit the region as a whole and reinforce a nation’s prominence as a technological leader


Innovation is a highly uncertain, collective, and cumulative process and requires access to high-risk and long-term finance. The competitive advantage over other innovation clusters and regions, become over time challenging and can ultimately lead to international conflict.


Recently the private sector has shifted away from long-term investments due to corporate governance structures that prioritise short-term profits rather than technological advances and macroeconomic conditions that incentivise share buybacks or repurchases



Geoeconomics and the US–China rivalry


The connection between international economics, geopolitics, and national security – known as geoeconomics – is growing in significance in the context of foreign policy. Geoeconomics is concerned with how geopolitical extends into the economic sphere. it can be broadly described as “the interplay of international economics, geopolitics and strategy”, between major powers and includes the use of:

  • Economic tools to advance certain geopolitical objectives; (trade and investment, financial and monetary policies, economic and financial sanctions, aid, energy and natural resources, and cyber threats)

  • Geopolitical power to achieve certain economic results.


The rise of geoeconomic rivalry, which is usually based on zero-sum logic (where one side’s gain is the other side’s loss), signals greater competition and conflict between leading powers.


Geoeconomic power has played an influential role in shaping international relations in the post-Cold War era creating global economic interdependence due to :

  • the increase in economic resources at a state level, driven by the revival of state capitalism and the establishment of state-owned enterprises;

  • The intensification of global economic linkages and global integration of financial markets, which provides states with a wider range of economic tools; and

  • The ongoing global power shift away from the US and the West towards the rising powers of Asia (in particular China), which has intensified the use of economic instruments for geopolitical purposes


In an era of globalisation, where goods, services, and capital flow evermore freely across boundaries, and national economies are integrated, both firms and states are economically dependent on one another. This interdependence is economically beneficial, as it allows for a deeper international division of labour; however, it also exposes societies to external shocks and disruption. these shocks can be asymmetrical. Asymmetrical interdependence can thus be weaponised in the context of geopolitical rivalry, a phenomenon that plays into the US–China technological conflict.


US–China its global implications

In the “new Cold War” between the US and China, the two powers are competing to shape the development and implementation of global standards, especially in emerging technologies such as 5G, which enables the Internet of Things, and other areas where the US–China rivalry is heightened, such as semiconductors and AI


Technological innovation will be the focus of international competition and conflict in the years to come, while geopolitical and geoeconomic tensions will probably determine the context in which companies and societies engage in technological innovation.


Implications are relevant because we could assist to a shift away from globalisation and towards the dismantling of supply chains A need for other countries to “pick sides” and disengage with either the US or China. Governments and firms are beginning to critically examine their economic interdependencies and re-evaluate the balance between efficiency benefits and vulnerability risks.


In the US–China conflict, the US is taking advantage of its central role in digital networks and using weaponised interdependence.( global economic networks as tools of coercion to achieve strategic objectives and which arises from persistent power imbalances among states ). such strategies may cause a disintegration of global networks and the emergence of insulated regional networks.


Response strategies to reduce or manage global tensions, focusing specifically on multilateral rules and institutions that could mitigate this conflict. Dr Newman believed the conflict to be beyond most international institutions’ competencies due to the unilateral nature of the coercive powers being used by the US and China. In other words, international institutions have a limited ability to intervene in instances where coercive power – the use of force underpinned by the ability to punish a party for non-compliance – is used unilaterally by one country against another.




The Geoeconomic consequences of 5G battle between USA and CHINA


Economic


US’s decision to use its power to stop companies around the world from using software or HW that originally comes from America to manufacture components based on Huawei’s designs will have big geoeconomics consequences/implications for other Countries.Established global supply chains will be of course disrupted as the quality and technological innovation in the 5G network (loss of the technological know-how).Globally, the market is dominated by three players-Ericsson, Huawei(the largest provider of telecoms equipment) and Nokia.Removing the participation of Huawei in the rollout of 5G for political decisions means that many Governments will review its participation also because they have to balance security implications against other economic and industrial priorities.

More specifically restricting a key supplier of 5G infrastructure in many Countries would have consequences in the competitive landscape because a reduced competition will lower competitive pressure and lead to higher market prices.The remaining vendors will have to increase total investment costs leading to rollout delays in many more countries. Under this scenario higher prices and higher costs, mean that fewer people would be covered by the 5G network initially reducing reduced economic growth and national GDP’s growth.Such a delay would also result in slower technological innovation and in productivity improvements(the unrestricted firms do not face the same pressures to invest in R&D and innovation)



Geo-politic


US pressured Countries to exclude Huawei from 5G networks, claiming national security risks(key information ending up in the hands of Chinese authorities).Many Countries are stuck between the US, the biggest ally, and China, the biggest promise. Who would you rather be dependent on? Some Countries went for a ban on Huawei, while others only restricted its core components.


Countries have to find new resources to invest in their digital transformation while at the same time achieve digital sovereignty.That is why many are uncomfortable siding with America. EU's policy change on Huawei risk becoming a burden on Europe's new digital era.After missing the rise of consumer tech they now fear falling behind if they delay 5g.For many Countries China is already biggest trading partners and the Belt and Road project promises to improve relationship and economic integration further.


At the same time,the EU will need to make strategic decisions in its relationship with China, given the growing incompatibility between their political and economic systems.This requires start considering its long-term national security interests and assuming a more resolute and unified position for its economic relationship.This does not mean fostering a decoupling process.Instead it requires managing interdependence and rebalancing the relationship.


Western hegemony is now challenged by the advance of an alternative political model.The choice is between liberal capitalism(individual liberties and privacy under the US Soft Power umbrella)vs State capitalism(authoritarian).Probably the question for Countries is not choosing more interdependence or independence; rather, it is one of what degree of interdependence and independence is desirable and possible, in which areas, subject and which precautions to use. challenge: What happens when some stakeholders becomes or attempt to become too dominant or powerful? trying to establish legitimacy is risky when there are multiple interests . Power should be balanced with multilateral arrangements. Another problem is Internet governance at international levels

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