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Charles Benavidez

Charles Benavidez

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U.S.-China Trade Talks In A Stalemate

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U.S.-China trade talks wrapped up their first day of meetings in Beijing, with no indication that anything has been resolved, and the prevailing sentiment being that China won’t give in on the key issue behind all of this: Technological dominance.

Right now, Chinese companies are lagging behind U.S. industry leaders in advanced technologies, and any move on Beijing’s part to bow to American demands in this sector would risk leaving China further behind.

On Thursday, talks concluded for the day with no public statement by either side. Talks are set to resume Friday between Beijing and a U.S. delegation led by Treasury Secretary Steven Mnuchin.

On Monday, Reuters reported that U.S. Treasury officials met with some 10 industry groups to discuss legislation to increase scrutiny over foreign direct investment (FDI) in the technology sector. Specifically, the legislation targets Chinese effort to acquire advanced technology from the U.S.

And the industry meeting was all about getting everyone on the same page in terms of national security—a big ask in a free-market country, where independent business and the ‘greater state good’ don’t always go hand-in-hand.

The legislation is in draft form, for now, and no one’s sure how it will eventually emerge as a weapon against the perceived Chinese threat to the U.S. tech industry and national security. Related: Telegram Cancels Its Public ICO After Raising $1.7 Billion

The industry certainly has its ears perked up over thing because much is at stake. The bill, ultimately, would empower authorities to place additional restrictions on Chinese investment in U.S. companies. So foreign funds are one concern, but another is potential Chinese retaliation and the backlash that might have on U.S. tech companies. The Chinese would be sure to give as good as they got and restrict access by U.S. companies to the massive Chinese market.

It would also potentially mean a lot more red tape for U.S. company sales of technology.

But Beijing’s “Made in China 2025” program foresees the country becoming a tech superpower of global dominance proportions in every field from semiconductors and artificial intelligence to electric vehicles and pharmaceuticals.

And they have the advantage of a closed society to make it work—they also have the advantage of government subsidies. And a key element is that Chinese tech partners get technological secrets and knowhow from foreign companies.

It may be that China is already far enough advanced in terms of its gathering of know-how from other countries to start focusing on homegrown tech now.

While China supplies only around 16 percent of the world’s semiconductor chips, it consumes around 60 percent. And “Made in China 2025” calls for it to supply 70 percent of demand from home.

But Washington is dead serious about this. That’s why it blocked the massive bid by Singapore-based Broadcom for U.S. semiconductor darling Qualcomm earlier this year. It’s also why it is trying to pressure Chinese mobile phone maker Huawei out of the U.S. market, and why it’s banned Chinese telecom gear-maker ZTE from importing U.S. components.

For U.S. tech companies, the fear is palpable right now. Not having access to the Chinese market is a killer, especially for semiconductor chips, which is the top import for China (even bigger than crude oil).

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Some believe that the U.S. still has the upper hand in this tech supremacy battle, though. Speaking to CNN, James Lewis, senior VP at the Center for Strategic and International Studies in Washington, said that Chinese companies still need access to Western markets and technology.

“The relationship between China and the US on tech is so deep and so interwoven, it’d be hard to pull it apart,” he said. “But [China] is still the junior partner.”

In an effort to lessen the blow, China is moving fast, with reports that it has managed to take control of a British chipmaker, with one industry insider telling Asia Nikkei that “China is absorbing technology so that it can avoid pressure to restrict government support for local companies from the U.S. and others.”

By Charles Benavidez for Safehaven.com

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