History has been marked by periodic arms races – competitive rapid increases by rival states in peacetime in the quantity or quality of instruments of military power. The most famous was the contest between Germany and Britain to build battle fleets more than a century ago. Others have included the rival naval programs of Japan and the US to dominate the Pacific, and the hegemonic struggle between the Soviet Union and America to achieve military dominance in the Cold War.

Sometimes these contests led to monstrous armed conflicts – the first and second world wars. Others eased into a peaceful resolution.

In fact already for a while, there has been a standoff between Washington and China in the Pacific or what is called the South China to which I added on 18 Jan. 2018 that it is clear that China wants to keep the US Pacific fleet as far away from China as possible with an immediate focus on the so-called ‘first island chain’, comprising islands off Russia’s peninsula of Kamchatka down past Japan to Taiwan, and then to the Philippines and Malay peninsula. Eventually, we might imagine, China could seek to extend its naval influence further and perhaps as far away as Indonesia or even Australia.

Plus now we seem to be in the early stages of a new arms race. China and the US are both seeking to dominate the weapons of the modern era – the hardware and the software of information technology, which is becoming the keys to superiority in both military capacity and economic power.

America is currently the world leader in both. China is the challenger, determined to match and then overtake the US as the global hegemon. China’s economy, says Bank of America strategist Francisco Blanch, is already in size close to the US’s in dollar terms, “even bigger” than it in purchasing-power terms.

In terms of conventional military technology, America has a huge lead. It has 20 aircraft carriers, for example; China has two. But the key to future dominance in both military and economic power is going to be an unchallengeable lead in infotech, in the design and manufacture of microchips.

China has taken the lead in development in one of its key areas – telecommunications. Its Huawei company is reckoned to be the global leader in 5G, the next generation of network technology that will revolutionize interconnectivity – 20 times faster than the current mainly-used 4G.

Huawei has been targeted by the US because of fears that its equipment will provide backdoor access for the Chinese government to information and operations – including the military secrets – of any country where it is installed.

Washington won’t allow its 5G system to be used in the US and has demanded that its allies follow suit. Japan and Australia have agreed. Germany, France, and the Netherlands have refused. Britain is equivocating.

Clearly, different countries’ security establishments have conflicting views about the risks of allowing Huawei into their stables for fifth-generation systems.

Refusing to use Huawei’s 5G also has economic implications. Doing so amounts to failing to install what’s best and cheapest. This issue is particularly challenging for countries already using the company’s 4G equipment, because switching to other companies’ 5G not compatible with existing 4G infrastructure would be very costly.

Recent developments suggest that American policy is not just about security issues, but part of a broader strategy to prevent a Chinese takeover of the world’s fast-developing infotech sectors, including not only telecoms but also artificial intelligence, robotics, and internet-of-things.

The US has blocked the sale to Huawei of American technology. This is a serious threat to the Chinese giant as it has great reliance on some critical American components in many of its products. It is the world’s largest supplier of telecom networking equipment and the second biggest of smartphones (after Samsung).

Google, whose Android operating system powers about four-fifths of the world’s smartphones, has announced that it will cut ties to Huawei, which will no longer have access to updates to its smartphone apps. That will discourage buyers of its phones.

Major American suppliers, including chipset manufacturers Qualcomm, Intel, Qorvo and Texas Instruments, and software firms Oracle and Microsoft are reported to have suspended sales to Huawei, whose own chip design arm, Hisilicon has been cut off from critical tools that it needs to function.

America’s allies are falling into line. For example Arm, the UK-based but Japanese-controlled world leader in mobile chip design has stopped licensing its technology to Huawei.

So far China has resisted taking counter-measures to punish American companies, such as banning sales of the rare earth whose supply it dominates or penalizing Apple, which would be particularly vulnerable. Nearly a fifth of its sales are in China, and it relies heavily on Chinese factories for its production.

If Beijing were to organize a consumer boycott such as it imposed so successfully on South Korean products for political reasons, Apple could lose as much as a third of its worldwide profits. If it implemented supply restrictions, that would force Apple to re-engineer its entire global supply chain. That would be devastating.

 

Global dominance in six years is the aim

The FT reports that the US ban on infotech trade with China could be a problem for Google as its Android system is “central to the smartphone market in China, which is bigger than Europe and the US combined, due to its use by Huawei and other [Chinese] phone makers include Oppo and Xiaomi.”

Chinese president Xi Jinping has spoken openly about his plans for China to gain global dominance in future high technologies in just SIX years’ time. Their foundation will be China’s capacity to design and manufacture cutting-edge semiconductor chips. $150 billion is being poured into achieving that. However, so far subsidies and tax breaks have only lifted China’s self-reliance in low-value chips.

The Americans are clearly using the current “trade war” to hinder Xi’s ambitious plans by demanding that the Chinese cease their theft of intellectual property, and of using their negotiating power to force technology transfers as part of the price of allowing joint ventures to operate in their huge domestic market. 20 percent of European companies doing business in China, for example, say they are compelled to hand over technology to Chinese partners.

It’s unlikely the Americans will succeed in getting the Chinese to play fair. Agreeing to trade-balancing deals would be one thing. Agreeing to stop their massive coordinated attack on the heights of leading-edge industries would be

something else. It’s certain they’ll renege on any promises about that they have to give.

Ironically, cutting Chinese access to American components and technology, or merely threatening to do so, is the strongest incentive of all to stimulate Chinese development of high-tech sectors.

It is understood that the ugly contest between Trump and Xi will be resolved in a “deal” that the American president can claim to be a victory, but Xi can present as a fair agreement. That still seems to be the likely outcome.

Silicon is to the weapons of the 21st century what steel was to the 19th century

The Asian development model, pioneered by Japan and copied by China, South Korea and Taiwan, “treats capital-intensive industry as infrastructure,” says American economist and commentator David P Goldman. “It supports chip foundries with public funds the way we Americans subsidize airports or sports arenas.”

The result is that virtually all the high-tech products invented in America are now manufactured in Asia. Liquid crystal displays, light-emitting diodes, semiconductor lasers and solid-state sensors are produced almost exclusively in Asia. America’s share of semiconductor manufacturing fell from 25 per cent in 2011 to less than 10 per cent in 2018.

But, Goldman warns: “Silicon is to the weapons of the 21st century what steel was to the 19th century. A country that cannot produce its own integrated circuits cannot defend itself.”

Thus, as for the arms race… that still has much further to run. It will be a key part of the long-term strategic contest between the hegemon and its fast-growing global challenger.

 

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