US, China face off over technology

TECHNOLOGY is quickly becoming the most significant area of competition in the US-China rivalry. How the tech war interacts with the ongoing trade dispute is the key question. Will a trade deal settle the issue in the near term? Or does the recent escalation portend a permanent global rivalry? Chances are it could be a bit of both.

Until April, the question for markets was whether there would be a near-term deal between the US and China. Today, market participants are wondering whether the recent escalation in tensions is a sign that the US-China relationship is changing irrevocably into a permanent rivalry. Are the diplomatic fireworks a harbinger of the end or do they, in fact, herald a never-ending conflict between two superpowers?

No matter what happens next, 2019 is likely to be the end of the beginning, not the end, of US-China competition. After 40 years of convergence, the US and China are now competing actively in many areas. Trade is just one part of a broader realignment in the US-China relationship - the most consequential bilateral relationship of the 21st century. That competition is likely to take place in four major areas: economy, defence, technology, and ideology. Of these four areas, it is technology that is likely to be the most contentious over a secular horizon of around 5-10 years.