But who’s winning this war? Spoiler Alert – It’s not the US nor China.
WHY NOT CHINA OR US?
When the US put up a 25% tariff rate on $250 Billion of Chinese goods, with a subsequent threat from Trump to apply the elevated rate on all other imports from China, Xi Jing Ping responded with similarly raised tariff rates on American Products. With ambitious power-plays from both Huawei and Qualcomm/Intel – this is all a part of a larger scheme to define the 5G narrative through immobilizing economies.
Economists from Japanese investment bank Nomura suggest that the US and China have decreased their import reliance on each other to avoid elevated tariff rates. While some exporters might be willing to absorb tariff costs, most American corporations would prefer to reshore their production. However, reshoring comes at the stake of higher labor costs and compromised profit margins.
This ultimately meant one thing, trade diversions.
WHY DO THESE TRADE DIVERSIONS MATTER?
The ultimate beneficiaries of any kind of hostility are always the third-parties that profit off it. With trade from both the US and China being diverted elsewhere – other countries win. With the US and China losing subsequently 0.3% and 0.5% of their GDP – Vietnam has gained a 7.9% increment, Taiwan has gained 2.1% along with countries like Chile, Malaysia, Argentina, Hongkong and Mexico following close by. The graph below is an estimation from Nomura regarding the discrepancies in light of the 5G inspired trade diversions.
As a result of the trade war, we have Vietnam being a substitute for phone parts, furniture, and automatic data processing machines. Taiwan has seen a surge in export demand for typewriter parts, office machines, and phone parts. On the other hand, China imports greater amounts of copper ores, soybeans from Chile and Electronic Integrated Circuits and Semi-Conductor Devices from Malaysia.
However, the recent surge in GDP for these countries is not entirely positive as this may result in companies holding back investment plans and other economic factors that may taint the seemingly skyrocketing economies of the 3rd world.
BUT, WHO’S WINNING MORE 5G CONTRACTS?
While most media will tell you that the 5G race is confined to US retailers like AT&T and Verizon versus Huawei, that isn’t the full picture. Revolutionary technology like 5G means millions in jobs, billions in revenue and trillions in technological hegemony and countries would have to be blind to ignore such opportunities.
With the US and China – throat to throat, European market competitors like Nokia and Ericcson are picking up 5G contracts in the dark. Even recently, Despite Huawei boasting their 40+ 5G contracts, they lost Softbank, a key network customer based in Japan to European 5G competitors – Nokia and Ericcson. As of June 3, 2019 – Nokia has 42 contracts, in comparison to Huawei’s 40. The economic hurdles thrown towards them may significantly harm Huawei in terms of growth. Yet, Huawei will sustain because of how they’re backed by the Chinese Government, who not only provide fiber optics at bargain prices but are also willing to finance it – causing countries to disobey US sanctions and opt into Huawei.
On the other hand, experts claim that the US lacks an explicitly articulated centralized government policy on 5G in comparison to China. Trump has urged the private sector to take the lead, yet this has been incremental and not as politically driven as Huawei and China. As of now, Verizon and AT&T have rolled out the technology in select cities, with limited success.
THE TAKEAWAY
Despite the toxicity, this ultimately gives producers a greater incentive to rollout 5G faster. We’re getting faster internet soon, and that, calls for a celebration.
