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Economy

Sino-US 5G Contest: Re-run of Japan-US Trade War?

Jul 03 , 2019
  • Wang Ziyue

    Research Assistant, Intellisia Institute

The ongoing Sino-US trade war easily reminds people of the trade dispute between the United States and Japan in the later decades of the twentieth century.

The trade dispute between the US and Japan emerged in the late 1960s during the Japanese economic boom. Rivalry between the two countries started with textiles and televisions and then spread to iron, steel, and automobiles, finally extending to semiconductors and currency exchange rates in the 1980s. Trade disputes grew in a gradual process, escalating from light industry and heavy industry to high-tech industry and financial services. The trade war ended in the late 1990s with the bursting of Japan’s economic bubble and its economy sliding into a decades-long doldrums.

There are many similarities between the Sino-US dispute and the Japan-US conflict. First, both disputes arose against the background of the US suffering a trade deficit with the rival country because of the fast growth of the latter’s economy. Second, both disputes kept spreading to more fields and had a massive impact on the global economy.

Reviewing the 1980s Japan-US trade dispute

With strong government support, Japan’s semiconductor producers surpassed their American counterparts in the early 1980s to become the world’s largest supplier of electronic chips. That prompted alarm in the US about its national security and technological competitiveness. The Reagan administration regarded Japan as the largest threat to its economy.

Washington accused Tokyo of subsidizing its industrial manufacturers, stealing intellectual property from American companies, and dumping Japanese products in the US market.

The Americans’ alertness and hostility grew as Japan’s semiconductor products took an increasingly large share of the US market. The two countries began negotiations in 1988, during which the US imposed a 100 percent tariff on Japanese semiconductor products. One year later, a 5-year agreement was signed, with Japan agreeing to monitor the prices of its products, increase imports from the US, and accept inspections from the US Trade Representative’s office. In 1991, a second 5-year agreement was signed, in which Japan agreed to double American products’ share in the Japanese market to 25 percent. In another deal, reached in 1989, Japan was asked to open its patents on semiconductors to the US.

Meanwhile, the US government went to great lengths to help American companies consolidate their influence in producing chips and setting rules to protect domestic US manufacturers of chips. Obviously, in the semiconductor competition, the US successfully kept its dominant position while Japan, despite its rapid advancement in the development of semiconductor technologies, remained inferior because of its smaller economy, and weaker political and military power. Tokyo had no choice but to make enormous concessions.

The Sino-US 5G conflict

Sino-US competition in the field of telecommunications has focused on 5G technology and its applications. In the past, revolutions in this field were mainly initiated by American and European companies. However, they are no longer the only initiators of 5G technology, which will immensely change the way people use the Internet: China’s development of 5G technologies has changed the global balance of power in telecommunications. A competition is underway to decide who will be the dominant producer of this technology. The US, as the traditional leading force in science and technology, will certainly not resign itself to being replaced by a new challenger. The struggle for dominance in 5G technologies is vital to both the US and China.

The US government worries that China will dominate the development of 5G technology and use it to carry out surveillance of the US. In February, when Sino-US trade talks were underway, President Donald Trump urged American companies to sharpen their competitive edge in 5G tech, which thus far had been led by Chinese giants such as Huawei. Such alertness and hostility from the US have considerably obstructed Chinese 5G companies’ global cooperation. Early this month, during his state visit to the United Kingdom, Trump cautioned America’s British ally to “be very careful” in any possible cooperation with Huawei. Shortly after that, US Secretary of State Mike Pompeo visited the Netherlands and pressed his host to follow Washington’s tough line on China as the Dutch government prepared to auction off new 5G internet rights.

Despite all the efforts of the US to obstruct its progress, China has made great strides in 5G development. China currently leads the world in the number of 5G patents. Even the US-produced “5G Global Competition” report, as of April 2, says that China and the US “rank first side by side.” The previous report, submitted one year ago when the Sino-US competition was not as vehement as it is today, acknowledged that “China tops in the 5G competition among the three leading countries — China, Korea and the US.” China’s hard power in leveraging this technology is undeniable. What the US now targets in its dispute with China mainly concerns intellectual property and information security. Washington’s repeated allegation that Huawei is controlled by the Chinese government is aimed at provoking fear in other countries about their information security related to China’s 5G technologies.

Today’s Sino-US 5G war: stuck in the same rut as Japan-US semiconductor rivalry?

The two cases are similar in many aspects. Both are instances of contention for dominance in the field of new technologies — both China and Japan met with strong opposition from the US, including rounds and rounds of policy countermeasures, media blitzes, and public opinion campaigns. In spite of its dominance in semiconductor technologies, Japan suffered one after another setback in negotiating with the US. Now China seems to be in the same situation. One naturally would ask if the same fate would befall China, given that its economic power is still inferior to that of the US. Nevertheless, China is different from the Japan of that era, and relations between China and the US are much more complicated.

First, the relationship between China and the US is more of mutual reliance and mutual repellence on a comparatively equal footing, while that between Japan and the US consisted a lopsided Japanese reliance on the US. This dependence accounts for Tokyo’s relatively easy compliance with Washington’s despotic demands, compared with Beijing’s refusal to succumb. The Treaty of Mutual Cooperation and Security Between the United States and Japan, signed in 1951, actually established a special form of military alliance, in which the US exercises strict control over Japan’s security affairs. This is why Japan, as a quasi-protectorate, opted for reconciliation every time it had trade dispute with the US. Take the negotiations for the 1986 Semiconductor Agreement: Tokyo never had the initiative throughout the process. On the contrary, China is more independent with greater initiative in any dealings with the US — hence fiercer trade disputes and tougher negotiations between the two sides. Obviously, Beijing will not merely succumb to Washington in the 5G dispute.

Second, China’s domestic market is much larger than that of Japan, hence less reliant on the American economy. It is very difficult for Washington to grab larger shares in the Chinese market simply by exerting political and economic pressure. Zhang Monan, a research fellow with the China International Economic Exchange Center, said: “China has huge potential in [its] domestic market to redress the imbalance between economic and technological development. This is greatly appealing to transnationals and will help China integrate itself with global technological innovation and cooperation.”

Therefore the China-US rivalry in 5G development will not end in a simple, definitive victory for the US as was the case in the semiconductor war between the US and Japan. What is more, the 5G technology is still in its initial stage of development. It is predictable that China-US competition in this field will take a long course. For all the uncertainties and challenges, China will, very likely, have the stronger hand in 5G competition so long as it seizes the current opportunity to develop domestic markets and strike more deals for international cooperation in this area.

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