Peering Through the Silicon Curtain Between the U.S. and China

(Bloomberg) --

The battle for tech supremacy between the U.S. and China isn’t just about futuristic abstractions like artificial intelligence. It’s also a reality in everyday traded goods like your smart TV or home appliances.

If you listened to business people recently at China’s largest trade fair, it became evident that companies are both worried about how this fight will disrupt their businesses — and fairly confident that China can withstand being cut off from American technology.

In the latest Stephanomics podcast we hear from folks like Mr. Zhang, a manager at a company that makes large LED screens and LED TVs in Guangdong province, China’s manufacturing heartland.

His systems feature software made by Google, and that makes him vulnerable if the U.S. ban on selling tech to China’s giant Huawei spreads to other parts of the industry.

We hear also from Huawei’s founder and CEO, Ren Zhengfei, who explains that while the company doesn’t want to exist behind a “silicon curtain,” cut off from global suppliers, it is readying its own operating system to replace the one it used to buy from Google.

Business people at the Canton fair say that they expect China to double down and develop products for its own technology it needs. In other words, if President Donald Trump’s pressure on China’s tech firms is motivated by the desire to stunt the nation's technological development, it may just have the opposite effect.

Charting the Trade War

Read Shawn Donnan and Jenny Leonard’s just-published story in Bloomberg Businessweek about how Trump’s trade war with China morphed from a carefully calibrated strategy into a market-rattling roller coaster as unpredictable as the U.S. president himself.

Today’s Must Reads

• Sticking points | A U.S. demand that China spell out how it plans to buy $50 billion in agricultural imports annually has become a sticking point in the first phase of a trade deal.
• Capital clash | The board that oversees retirement savings for U.S. government workers will allow a fund to invest in an index that includes Chinese companies, setting up a fight with Congress.
• Stall speed | Germany narrowly dodged its first recession in six years, putting a damper on speculation that the government will add fiscal stimulus any time soon.
• Car expansion | Hyundai will invest $410 million at its factory in Alabama, adding 200 jobs to start making pickups. The announcement came the same day as Volkswagen broke ground on a previously announced $800 million expansion of its production complex in Tennessee. 
• Developing story | Trump has repeatedly complained about the preferential trade benefits some nations receive at the World Trade Organizations. Here’s why. 

Economic Analysis

• Tweet assessment | Bloomberg Economics reviewed seven months of Trump tweets on trade policy and the Fed to see what we could learn. 
• Tariff risks for Fed | Bloomberg Economics expects the Fed to remain on hold for the foreseeable future, but the trajectory of Fed policy is beholden to the end result of trade talks.

Coming Up

• Nov. 15: Euro-area, India trade balance
• Nov. 20: Japan trade balance
• Nov. 21: South Korea exports and imports

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

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