The hidden game behind the trade war

After talks with Xi Jinping at the G20, Donald Trump relaxed the US ban on American companies doing business with Huawei. Picture: AFP

Behind the US-China trade war is a deadly battle of strategy that will determine economic and defence dominance for the coming decades.

Few in Australia understand the hidden game, much less how we can establish a role. The prosperity and security of our children and grandchildren depends on the current generation not only making us a player in this new game but understanding its implications.

So, I start a two-part series, first taking you to the events behind the trade war and then tomorrow looking at how Australia should formulate its strategies.

The events behind the trade war concentrate on data bases and 5G but also have a twist that last month threatened military action in our region.

Among the top global stocks that have driven market growth seven dominate--- Alibaba, Amazon, Apple, Facebook, Google (Alphabet) , Microsoft and TenCent. All of them are in the same basic industry---- data base assembly and management.

We usually look at data bases as the way that advertisers intelligently market to us. And so, when we travel, we receive a volley of cruise advertisements (or at least I do), or if we let slip on Facebook that we went searching for a new car that sends a volley of car advertisements and so on. That’s today’s data base usage.

The next step is far more important. Artificial intelligence (AI) is going to propel the technology development of nations and those that succeed in the AI game will be the global winners.

But the “skill” of AI machines is related to the amount of data that is assembled. And so modern AI machines can outsmart top lawyers, but only if they have the data. The skill of nations to assemble vast data bases will determine their ability to harness the power of artificial intelligence.

China understands this phenomenon better than any other nation and their population is plugged into so-called “social credit” data bases that monitor their behaviour, rewarding those that behave well and punishing those who behave badly. And what are good and bad behaviour patterns are determined by the government.

Let me be clear, I abhor the system, but it produces the most incredible data to drive artificial intelligence. And, of course, China also has Alibaba and TenCent, which is a major player in Esports.

The US has nothing like that, but it has remarkable data stored in Amazon, Apple, Facebook, Google and Microsoft, plus its banking system. None of these companies will want to share their data but over time the data will be made anonymous and will be used by AI machines to drive not only products and services but developments where we have no current concept.

Of course, just as AI with data can beat lawyers so it can produce a range of decisions and activities that will add a new dimension to the development of nations. Like it or not, it’s a game you have to join.

Huawei is key to China’s strategy. Picture: AP

The second aspect of the trade war is even more deadly. Americans once led telecommunications development. But the vast resources of the Bell group that drove US telecommunications have been lost.

In 1996, AT&T spun off Bell Labs into a telecom equipment company, Lucent Technologies, because there was money to be made.

In the early part of the 20th century Lucent began outsourcing key production to China and China developed its telecommunications industry and embedded its intelligence into the US internet system, which is akin to electricity in driving the nation.

The great driver of this China strategy was Huawei. Today, Huawei, with state backing, dominates the market. The development of the 5G mobile communications systems will transform world communication.

Former Alphabet (Google) chairman Eric Schmidt and LinkedIn founder Reid Hoffman were among those who wrote a report for the US government saying that the global leader of 5G stands to gain hundreds of billions of dollars in revenue over the next decade, with widespread job creation across the wireless technology sector.

“The country that owns 5G will own many of these innovations and set the standards for the rest of the world,” according to the report.

It added in no uncertain terms: “That country is currently not likely to be the United States.”

The US can’t win because 5G needs low-band spectrum, which allows signals to travel farther than high-band spectrum. The further the signal can travel, the less infrastructure has to be deployed. In the US that low-band spectrum has been reserved not for commercial purposes but for the military.

China is set to win the 5G game via Huawei.

But as of 2019 Huawei is not totally independent of the US and still relies on key components from the US. So, when President Trump banned US companies from supplying Huawei, he was set to bring Huawei to its knees.

Then suddenly at the G20, President Trump reversed the ban. The reason has yet to be discovered but was clearly related to his discussions with China’s President Xi Jinping.

Many in the US believed that a once in a lifetime chance to break China’s hold on telecommunications was lost.

Given the stakes, China almost certainly would have invaded Taiwan, which also makes the essential parts.

Stability in our region would have been greatly endangered. Soon after Trump went to North Korea. But in essence he blinked.

But in the process both China and the US learned that defence—and the internet and telecommunications are part of defence--- the future is about developing local supply chains that are not dependent global supply chains. The world changed.