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Wednesday 28 August 2019

Understading the US and China trade war

Firstly, let me be upfront and admit that my knowledge about history and geopolitics is very rudimentary. However, I am fascinated by models and try to learn about how to view things and events from multiple perspectives. I am fascinated by the drama of the “US-China Trade War” and enjoy the edge-of-the-seat theatrics created by President Trump’s daily tweets!
am trying to understand the US-China Trade War in the context of “The Thucydides Trap”. Thucydides was a Greek historian who explained that when a rising power causes fear in an established power it escalates toward war. Thucydides wrote: "What made war inevitable was the growth of Athenian power and the fear which this caused in Sparta."
Nearly all such contests have ended badly, often for both nations. A team led by Graham Allison at the Harvard Belfer Center for Science and International Affairs has concluded after analyzing the historical record. In 12 of 16 cases over the past 500 years, the result was war. When the parties avoided war, it required huge, painful adjustments in attitudes and actions on the part not just of the challenger but also the challenged.
When I look through the lens of this mental model, then suddenly the US-China trade war begins to make sense.
Earlier, wars were fought for the control of territory and natural resources. Today, mega corporations, technology (both software and hardware) and data are probably more important tools of global domination and conversely also of conflict.
The world of today and of the future will be owned by those who control these new-age “natural resources”. Huawei then becomes a symbol or token of this struggle for control. The US is refusing to allow the company's technology to be used for key future communications networks and is pressuring its allies to impose a similar ban. China also prevents US tech giants like Google and Facebook from operating freely in their land.
As Singapore’s late leader, Lee Kuan Yew, observed, “the size of China’s displacement of the world balance is such that the world must find a new balance. It is not possible to pretend that this is just another big player. This is the biggest player in the history of the world. China wants to be China and accepted as such—not as an honorary member of the West.”
Eventually, all this could lead to others having to take sides in this “war”. We could be heading to a “cold war’ like situation with two completely disparate technology blocks – google, facebook et al on one side and Alibaba, Tencent, Huawei, ZTE on the other. This will play out in every sphere. In electric vehicles, BYD is taking a major leap ahead of US companies. Tesla and BYD may come to a head in defining the standards of interoperability in connected EVs. China already dominates the hardware industry globally and US is not even a credible player in that space. The more software technologies that China can become leaders in, the more dominant their future power becomes. And the closer they get to being the preeminent superpower.
So, the next time you see a “trade war” story, view it from the lens of this model and see if it makes more sense.

Note: If you are interested to read more about The Thucydides Trap, please read https://www.theatlantic.com/international/archive/2015/09/united-states-china-war-thucydides-trap/406756/

Disclaimer: The author is the Chief Equity Advisor at www.intelsense.in and nothing in the article should be construed as financial advice.

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