How Will the US-China Tech War Evolve with Trump’s Return?

The trade and technology war between the US and China that began during Donald Trump’s term in office has not abated much during Joe Biden’s presidency.

As Coface points out, the technology war between the two countries has intensified considerably since 2017, through a wide range of measures such as tariffs, export controls and market access restrictions.

‘During Trump’s first term, his administration imposed tariffs on many Chinese products and some companies such as Huawei were accused of cyber espionage and sanctioned, restricting their access to US technologies. These measures were answered by China with equivalent actions and restrictions on the import of certain products,’ explains Luis Pedraza, director of the Bachelor’s Degree in Computer Engineering at the International University of La Rioja (UNIR).

And the situation did not improve with the arrival of Joe Biden. ‘He did not undo these measures and took additional ones, such as the Chip Act, which seeks to strengthen national security and reduce foreign dependence on the manufacture of electronic components and generate jobs,’ he stresses.

At the same time, he notes that the Democratic president ‘adopted an approach in which he also sought to strengthen alliances with other international allies, such as the European Union, Japan and South Korea.

On the other hand, it should be remembered that during Biden’s term in office a law has been passed for the Chinese company ByteDance, owner of TikTok, to sell its application in the USA or close it down, as we reported in Silicon.es.

The deadline for a decision is 19 January, just before Trump’s inauguration. However, the president-elect and his team, which includes tycoon Elon Musk, oppose this measure and have called for its implementation to be postponed until after he occupies the Oval Office.

‘Curiously, although he was the first to try to block TikTok in the US and force its sale to American companies, it seems that recently he is not so clear and prefers that this service continues to operate in his country to serve as competition to companies like Meta,’ notes the UNIR professor.

What to expect from Trump’s return?

Now, with the return of Donald Trump to the White House, a panorama full of unknowns is inaugurated. But what seems clear is that the confrontation with the Asian giant will not only not diminish, but will intensify even more.

‘The war between the US and China is here to stay. It is the war between the hegemon and the challenger. Trump’s ways are more aggressive or direct, but it has not diminished one iota; though Trump, at least in words, is threatening everyone but Russia. Tariffs are now in his mouth and he is firing them at everyone. In my opinion, we will see the Trump of the first term, but on steroids,’ ventures Jesús Cristóbal, professor at OBS Business School and director of Sand.

‘The focus will be on decreasing the trade deficit with China and repatriating industry back to the US, such as Taiwanese chips. Restrictions on Chinese companies, such as Huawei, and the search for alternative supply chains are among the measures he will focus on. And more companies could appear on this list,’ he warns.

In addition, he believes that ‘there will be additional efforts to counter China’s influence, both in global artificial intelligence (AI) projects and in partnering with other countries’.

Similarly, Pedraza believes that ‘Trump’s return may mean a further tightening of measures against China, such as increased tariffs, the intensification of sanctions against Chinese companies’. In addition, he stresses that ‘he will seek to continue the disengagement with China at the technological level’.

On the other hand, Cristóbal predicts that the new president ‘will push for national research and development programmes in 6G to ensure that the United States leads the next generation of telecommunications’, once ‘it seems that the 5G race is lost’.

What is the impact on the tech sector?

‘This war, which aims to dominate the technologies of the future, in particular semiconductors and AI, has already cost China nearly $150bn in lost exports to the US, restructuring trade flows with a diversification of US imports from countries such as Mexico, Taiwan and Vietnam,’ Coface details

Furthermore, Cristóbal states that ‘the rest of the world is becoming disengaged as a result of this’, moving from a scenario of globalisation to one of multi-polarisation.

‘The European Union is particularly affected. We are in no man’s land. We can’t move closer to the BRICS (Brazil, Russia, India, China and South Africa) and our most important technology companies are going to the US in search of subsidies, lower taxes and cheap energy. Apart from ASML, what other high-tech companies do we have? The policy we are following, of legislating first and innovating first, does not help us to develop new ones either,’ laments the OBS Business School expert.

Despite these growing tensions, economic cooperation between the US and China has not completely waned. Indeed, Coface insists that it is essential. ‘Almost 30% of the semiconductor manufacturing machinery exported by the US is still destined for China. At the same time, US imports of electronic products from third countries (Vietnam, Taiwan, Mexico) include a significant proportion of Chinese components. This illustrates how central China remains in the global electronics value chain, both as a supplier and as a consumer,’ he says.

Against this backdrop, US companies face a dilemma in Trump’s new term. ‘While they are under pressure to reduce their ties with China, they continue to see China as a crucial trading partner. Indeed, US companies have captured 54% of the profits generated by the global electronics industry over the past decade, a percentage that rises to 88% if we include their Japanese, South Korean and Taiwanese counterparts. At the same time, despite increasing sales and significant technological advances, Chinese companies have only accounted for 7% of the global electronics industry’s profits, and still lag far behind the leaders in the strategic semiconductor segment,’ the insurer says.

Products and technologies most affected

Pedraza says this dispute is affecting sectors such as AI, 5G technology and semiconductor manufacturing and trade globally.

‘Sanctions on Chinese companies, such as Huawei or ZTE, have meant that countries in the European Union or others, such as Costa Rica, have kept these companies away from their 5G networks. This has caused Huawei to defend itself legally in countries such as Spain and Portugal. It is also true that, with the exception of Costa Rica, Huawei is not encountering the same opposition in Latin American countries,’ he says.

‘Huawei has been one of the main suppliers of 5G equipment in the world and its exclusion from this sector in many countries, although it has benefited other companies such as Ericsson or Nokia, has slowed down the deployment of these new networks due to the shortage of supplies. This has a negative impact on the development of other types of services based on AI or the internet of things,’ he warns.

It also specifies that ‘the reduction of technological relations between the United States and China has also meant that both countries have strengthened their own technological sectors to avoid dependence’, as in the case of semiconductors.

‘The Chip Act in the US or China’s strengthening of its semiconductor industry with multi-billion dollar funds to support manufacturers such as SMIC means that both countries are building their own ecosystems, both in terms of hardware, operating systems and software. This will require all international players to reposition themselves and re-evaluate their supply chains. In the face of uncertainty, many companies are looking to diversify their sourcing in other Southeast Asian countries, such as India or Vietnam,’ he adds.

In fact, he sees the semiconductor market as the one most affected by this confrontation. ‘The manufacture of all kinds of devices depends on them, not only computers and mobile phones, but also vehicles and video game consoles. The shortage of Chinese components seriously affects manufacturers such as Apple, Microsoft and Google,’ he says.

He also believes that ‘one of the battlegrounds is in the development of AI, especially generative models’. ‘Both blocks are strongly pushing their corresponding solutions. And one has to take into account the different approaches that can be taken in terms of the treatment of data privacy and security. The clash goes beyond competition between the two nations or national security concerns. Developments in the coming years will define the future of societies and greater collaboration and prioritisation of ethical issues over rivalry would be desirable to ensure win-win uses and applications of AI,’ he stresses.

The battle for the future of batteries

Another battle that will be fought during Trump’s second term in office is the production of batteries, which depends on the control of certain strategic minerals. Mainly lithium, as we explained in this report, but also gallium, tungsten and graphite, ‘essential in the development and expansion of new renewable energies’, says Pedraza.

‘China extracts most of the rare earths and controls the vast majority of their processing. In response to the sanctions it has received, it has limited the export of minerals such as gallium, and it is feared that it will extend the limitations to others such as nickel, tungsten and lithium,’ he says.

‘Graphite is a key material and competitors to China, such as South Korea, are looking for alternatives to obtain graphite in Mozambique. The US is developing technology to obtain it from materials such as rice husks, from which a form of hard carbon can apparently be obtained that is an excellent alternative. And China is also developing new methods of extracting lithium using solar energy,’ he explains.

‘Control of the minerals needed to start the supply chain related to the manufacture of semiconductors and electric batteries will also mean that conflicts will spread to other geographic areas of the planet where these elements can be found,’ he predicts.

Towards total fragmentation?

Coface fears that the intensification of this technological war with the arrival of Trump will lead to even greater fragmentation. ‘The future of the global electronics industry could be divided into different scenarios, ranging from ‘technological stagnation’ to ‘technological fracture’. In the most extreme scenario, the growing rivalry between the US and China, combined with the emergence of disruptive technologies, could lead to a complete breakdown of global supply chains,’ he says.

‘Two distinct ecosystems could then emerge: one dominated by the US and its allies; the other by China, forcing companies and countries to choose sides. This fragmentation would increase the complexity of trade, limiting access to markets and making competition more unpredictable,’ he says.

The UNIR professor also fears that it will end up seriously affecting supply chains. In fact, he believes it is already doing so significantly. In addition, he stresses the many implications it has, moving in a transversal way to multiple sectors.

‘If you think about the development of electric vehicles, you have to bear in mind that China is a key supplier of essential components, including lithium batteries. The two major global battery producers are CATL and BYD, both Chinese. Friction may drive up EV production costs and delay expansion, or alternative solutions may have to be sought. And on the software side, Huawei is pushing ahead with the development of its operating system, HarmoyOS, to completely decouple its devices from Android,’ he says.

‘The emergence of two distinct technology blocks in terms of hardware and application ecosystem will mean that other players will have to make their own decisions. In this respect, the decisions taken by the European Union will be crucial, so that it does not have to play a double game vis-à-vis both blocs. While it seems that Western countries will remain aligned with the US and its ecosystems, others, especially in Africa, Latin America and Southeast Asia, may prefer the Chinese offer, due to its lower costs, with two large consumer markets emerging globally,’ he says.

A possible technological stalemate

Alongside this polarisation, Coface speaks of the risk of ‘technological stagnation’. The UNIR professor agrees. ‘This limitation of trade and collaboration between blocs may lead to stagnation in certain sectors,’ he says.

‘If alliances and collaboration mechanisms between universities, research centres and technology companies are reduced, it can limit progress in certain sectors such as quantum computing, 5G networks or renewable energy. And while Chinese companies like Huawei see limited access to advanced semiconductors made by American companies like Nvidia, American manufacturers also see limited access to other types of cheaper components,’ he stresses.

In addition, it notes that ‘barriers between blocs can also limit the mobility of researchers and scientists and the transfer of data and technology’. At the same time, he notes that ‘import tariffs also lead to cost increases and can pose difficulties for many technology start-ups’.

Similarly, he stresses that ‘the lack of common regulatory frameworks and appropriate standards can lead to a proliferation of different and incompatible protocols in technologies such as the internet of things’.

Despite all these barriers to development, he sees a glimmer of hope. ‘On the positive side, we notice that the big players are fully aware of the importance of the development of all these new technologies and are investing heavily in their respective environments. In a way, the need to compete in a global market can also be a driver for technological development, taking into account the limitations mentioned earlier,’ he says.

Cristóbal, for his part, believes that rather than stagnation, it could lead to a slowdown. ‘On the one hand, China is the big supplier and it is not going to be easy to find alternative logistical routes. It is certainly going to be slow. On the other hand, restrictions on advanced technologies from the US to China, such as AI or quantum computing, are going to slow down the development of these technologies in China a lot. This will affect other countries, including the EU, in different ways. Even some countries are benefiting at the moment, such as Russia, as a supplier of raw materials,’ he says.