Trade War
Two categories of reasons
- Economics
- Established power vs. new comer
Economics
Macro Economics
- U.S. trade deficit with China
- The fundamental reason is more on the consumption and saving rates
Micro Economics
- Issue of IP — Trump used the term IP theft
Tariff might not be the right instrument to deal with either
Established power vs. new comer
- Before there is Soviet Union, but they never had good consumer technology companies; They had science but the fundamental difference is they never used science for economics; Good science but mostly geared towards defense
- China has technology now and is using it for economics
- And the society is vastly different from the U.S., politically, social economically, and value wise
- China has Technology, Entrepreneurs, and VCs, and China is big so a lot of successful companies can come out; also the government is very supportive of technology
- However, I wouldn’t say Chinese government has a lot of direct impact on the successful internet companies like Alibaba and Tencent; A lot of their success is not because of the government; They are more likely to be successful if there is no government intervention
Trade war is more harmful to China than to the U.S.
When we look at the products that’s being imposed on:
- U.S. impose tariff on Chinese goods that’s competing with U.S. products ( 25 percent tariff on $50Bn products ranging from cars and helicopters to bulldozers and industrial tools and machinery)
- China has a competitive advantages in those (DJI on the other hand is an example for absolute advantages)
- Whereas China impose tariff on soybeans & other U.S. goods that are complimentary with Chinese business
- China cannot afford more inflation; more impact on China’s macro economy situation. China depends on the U.S. on export much more than U.S. ($500Bn vs. $150Bn)
When we look at political implications — who is going to blink first
- Typically democratic countries have difficult time in trade war because businesses would speak up and put political pressure on the government, more so than an authoritarian country; lower tolerance for pain
- In China they censor a lot of things and the pain doesn’t show
- However, in this case, it is different in the sense that U.S. companies don’t like China as much as they used to. 10 years ago, the U.S. business community unified to support / engage China; Now, because of China’s increasingly harder for foreign business to do well in China
- China is still very behind macro economically — per capital GDP is still very low, only ranked in the middle of the 195 countries in the world
Attitude for Technology
In the U.S. people tend to have a mixed view regarding the implications of technology:
- Job lose, instability, privacy, AI take-over
- Multi-party environment — politicians have incentives to describe technology as scary to gain votes from blue collar population
- Disconnect between DC and Silicon Valley
- Media thinks about different things compared to China — more Humanitarianism
- Also TV shows and movies — Blackmirror, Bladerunner; Dystopian
- Western culture is built up to guard the downside; Democracy has always been designed to protect people from the downside — check and balance, etc. Devise institution, take the least of all evils
Whereas in China, people are generally optimistic:
- People in China are more optimistic about technology. They grew up during a time where technology has always been positively correlated to the improvement of quality of life — this is the only side they’ve seen
- Chinese government has been trying to advocate more of the good side of technology — it makes sense; the government encourages more people to join the big wave of technology revolution to make China stronger, major media thus generally publish contents that praise technology
- Glorification of unification — praise being strong together
- But at the same time people are also educated to believe that technology can only be good
- Due to leapfrogging, people in China adopts mobile internet better than the U.S., and technology is more accessible to general public
- The single party government doesn’t have to win votes from the numerical majority of the population, but rather to some degree can push for what they believe is the most beneficial for the society as a whole which is technology
- People in China don’t care as much about privacy, and think less about the whole economy and society; The implication on the society doesn’t get discussed as much
- Although there have been incidents that people are more and more aware — Didi at a time got a lot of blame because elderly & kids who don’t have cellphone and cannot raise the price of rides can never get a texi by waving on the street, and it was huge in the news
People will find a way to adapt and survive with any societal change; the growth of service industry and entertainment industry is an evidence. However, it is our responsibility as part of the technology industry to help the transition to be as smooth as possible.
Long Chinese technology. The position that China has is going to be very good in the short term for Chinese technology industry to catch up and prosper, but can be risky due to the lack of the other side of opinions in the long run.
More communication between the two worlds will help.
