In recent days, financial markets have experienced a series of turmoil. Ibovespa, the index of the São Paulo State Stock Exchange , fell 2.51% on August 5, following the global trend, but recovering in the following days. The reason, according to analysts, is quite clear: the trade war between the United States and China, which, in the end, could escalate retaliation between both parties and lead to a global recession. Last week, US President Donald Trump announced a 10% surcharge on US$ 300 billion in Chinese imports, to which the eastern response was: devalue their currency against the dollar to further boost exports. In such scenarios, investors tend to take refuge in safer assets than the stocks listed in the financial market, and the result is this kind of volatility.
Beyond one-off analyzes, however, in the long run, trade clashes between the two largest economies on the planet can be expected to intensify. There is a structural reason for this: China’s new role as a powerful international competitor in the technology products market, which is increasingly facing Americans. If, at some point in the past, China’s industry was concentrated in second-hand textiles, plastics, electrical or electronic materials, the scenario today is completely different, bearing equal competition with high-end Western products.
The main concern of the United States is the spread of the ultra-fast band mobile phone internet, the 5G system. Using this system, it is possible to download a length full HD movie in just 1 second. The possibilities of such a connection are fantastic, and it seems that the Chinese have a tremendously competitive system in their hands for this new phase of the network.
With alleged safety concerns, the Trump administration has this week banned all federal agencies from buying equipment by the Chinese companies Huawei , ZTE , Hytera , and Hikvision , as from Tuesday, August 13. Such a restrictive measure could cause billionaire losses to Asian competitors, considering that the US government is the world’s largest buyer of technology.
In any case, surcharges and bans such as those being put in place only postpone a problem that the United States, as well as the West, will have to face if they want to stay at the forefront of the world technological innovation. The richest nation on earth is in a position to play the game at its best, considering its fantastic universities and research centers, its internal market constituted by a great democracy, the appreciation of entrepreneurship and creativity as a tradition. Reinforcing these qualities is, perhaps, a better long-term response to Asian technology than staying defensive through overpricing and prohibition policies.