Cyber-Sovereignty: The Economic Impact of a U.S.-China Tech Dissolution

As the tech race continues, a dissolution of interdependence between the United States and China could mean a drastic shift in market power, leading to a kind of economic cold war where each country will have to choose between the two most powerful tech sovereigns for services, resulting in a global duopoly.

For years, the United States and China have engaged in a symbiotic relationship whereby each nation supplies the other with technological essentials.[1] Escalating tensions between the two nations have, however, led to distrust, affecting international cooperation.[2] In 2010, China’s censorship of Google search results led Google to remove itself almost completely from the Chinese market.[3] Similarly, China’s Facebook restrictions created gaps in the Chinese market left to be filled by Chinese corporations, rather than American ones.[4] Decreased reliance on U.S. technological services reduces American corporations’ market values. With alternative suppliers, China can force American companies to share technology with Chinese ones by restricting access to the Chinese market.[5]

Citing national security interests, President Trump restricted American suppliers from selling parts to Huawei, furthering the bilateral divide.[6] Many tech giants fear the backlash of such a divorce. The semiconductor industry has long been reliant upon U.S.-China cooperation.[7] China not only manufactures components in these chips for American corporations, but also serves as a major consumer of chip-dependent electronics. In 2018 alone, the U.S. exported about $7 billion worth of semiconductor chips to China.[8] Just as China influences American industries, the U.S. also impacts China’s economy. In a show of interconnectedness, the Trump administration’s mere threat of blacklisting China’s top chipmaker caused its shares to plummet twenty-three percent in one day.[9]

China’s inability to rely on U.S. suppliers is leading China to develop its own industry, hurting U.S. revenues potentially for decades.[10] Investors are already wary of decoupling the two nations, as demonstrated in the $100 billion loss in a U.S. semiconductor index following reports of China’s plan to “overhaul its domestic computer chip industry.”[11] Huawei already circumvented using U.S. products in production of a new smartphone.[12]

The tech world generally agrees that technology is advancing toward AI-assisted living. Data gives coders the ability to develop artificial intelligence (“AI”), thereby driving innovation.[13] Data-gathering, however, is largely controversial since the most common form of data-accumulation is via consumer usage.[14] The U.S. regards data as a form of privacy; one which many Americans are hesitant to give up.[15] In China, citizens have no expectation of privacy. The government is then free to use citizens’ data to develop AI or contract with corporations who will.[16]

While China’s ability to obtain additional data can help it forge ahead in tech-development, China’s “licit and illicit” data-gathering tactics may sever its relations with more nations than just the U.S.[17] Nations have cited China as using “coerc[ive] technological transfers by restricting foreign ownership, requiring joint ventures, stealing foreign technology, and threatening foreign companies with ‘dire consequences’ if they adhere to the Trump administration’s ban on sales of key technologies.”[18] These scandals are rapidly causing further disintegration of international cooperation. Already, the U.K., Australia, and Japan have joined the U.S. in banning Huawei from their networks.[19] Likewise, India prohibited “more than 100 Chinese apps including . . . TikTok” and “joined an initiative with Japan and Australia to cooperate on supply chains – a move seen as reducing economic reliance on Beijing.”[20]

In response to U.S. accusations against popular Chinese communications platforms TikTok and WeChat, Chinese Foreign Minister Wang Yi proposed global rules “prohibit[ing] governments from accessing data acquired by companies’ overseas operations.”[21] If this proposal passes, international fears over immoral unilateral practices may dissipate. Furthermore, countries seeking cheap alternatives to digital infrastructure may opt to work with Chinese companies like Huawei that can provide foreign governments faster speeds at lower prices.[22] However, partnering with either the U.S. or with China bears risk. In addition to weighing the risk that Minister Yi’s proposal may fall through, partners may also have valid concerns regarding fear of governmental espionage.[23]

The world is on the brink of a tech cold war where each country will have to choose between the two most powerful tech sovereigns for services, leading to a global duopoly. China can now compete with the U.S. in the international sector through developing its own technology and selling it to nations who had previously relied solely upon the U.S. for such products.[24] On the other hand, the U.S. might encourage allied nations to exclude Chinese technology, thereby putting a moratorium on China’s international technological sales market.[25] In either case, one nation will come out with a stronger economy and greater global cooperation feeding its ability to continue advancing its nation’s technology.[26]

Sydney Wolofsky and Frank Tamberino are a staff members of Fordham International Law Journal Volume XLIV.

This is a student blog post and in no way represents the views of the Fordham International Law Journal.

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[1] See generally Stu Woo & Asa Fitch, Editorial, The Great U.S.-China Tech Divide; The Two Countries Are Headed Toward a World Where They Will Have Mutually Exclusive Systems for All Important Forms of Technology, Wall St. J. (Jan. 20, 2020), https://www.wsj.com/articles/the-great-u-s-china-tech-divide-11579542441.

[2] See id.

[3] See id.

[4] See id (discussing China’s Facebook restriction that led to the emergence of WeChat).

[5] See Woo & Fitch, supra note 1.

[6] See id.

[7] See id.

[8] See id.

[9] See U.S.-China Showdown Over Big Data to Leave Decades-Long Impact, Bloomberg News (Sept. 9, 2020, 6:09 AM), https://www.bloomberg.com/news/articles/2020-09-08/u-s-china-showdown-over-big-data-to-leave-decades-long-impact.

[10] See id.

[11] See id.

[12] See Woo & Fitch, supra note 1.

[13] See Bloomberg News, supra note 9 (citing Chinese tech billionaire Jack Ma recognizing control over data and AI as some of the biggest elements in driving the 21st century).

[14] See generally, Sabina Leonelli, Scientific Research and Big Data, Stan. Encyclopedia Phil. (May 29, 2020), https://plato.stanford.edu/archives/sum2020/entries/science-big-data/.

[15] See Lee Rainie & Maeve Duggan, Privacy and Information Sharing, Pew Rsch. Center (Jan. 14, 2016), https://www.pewresearch.org/internet/2016/01/14/privacy-and-information-sharing/.

[16] See Ross Andersen, The Panopticon Is Already Here, Atlantic (Sept. 2020), https://www.theatlantic.com/magazine/archive/2020/09/china-ai-surveillance/614197/.

[17] See Asheesh Agarwal, Why Breaking Up ‘Big Tech’ Would Only Make Communist China Stronger, Business Insider (Aug. 19, 2020), https://thefederalist.com/2020/08/19/why-breaking-up-big-tech-would-only-make-communist-china-stronger/.

[18] Id.

[19] See Bloomberg News, supra note 9.

[20] Id.

[21] See id.

[22] See id.

[23] See id. Years ago, former National Security Agency contractor Edward Snowden revealed similar acts of U.S. mass surveillance programs at home and abroad.

[24] See Bloomberg News, supra note 9.

[25] See Woo & Fitch, supra note 1.

[26] See id.