How Will Trump, Tech And Trade Impact Investors?

He has called for protectionist measures since at least 1989 when he declared he was not afraid of a trade war, presaging his more recent exhortation that "trade wars are good, and easy to win".

Historically, Americans have been very pro-trade. Today, however, a majority of citizens agree with the US president‘s views, especially when it comes to dealing with its new rival: China.

Since President Xi‘s ascension in 2012, China has changed the terms of engagement. While his predecessors emphasised a "peaceful rise" President Xi has been far more assertive than anything seen since the days of Mao Zedong.

The key reason why tensions have ramped up recently is "Made in China 2025," Beijing‘s aggressive blueprint for dominating the tech industries of the future, including robotics, biomedicine, renewable energy, and artificial intelligence (AI) among others.

Made in China 2025

Made in China 2025 expressly calls for China to achieve 70-80% self-sufficiency in a wide range of critical, tech-heavy industries. Firms associated with the policy are provided with extensive financial assistance through a multitude of state-directed investment funds.

Allianz's Dwane: We're on the edge of a 'tech cold war'

Although it is challenging to find a comprehensive listing of all sources, it is possible that total support could exceed a staggering $1trn.

The US Chamber of Commerce estimated the Chinese government plans to spend $161bn by 2025 to develop the semiconductor sector. That is a vast sum of money, and it only refers to one industry.

However, the truly breathtaking innovations are occurring in fields directly affected by AI. To illustrate, earlier this year both PwC and McKinsey estimated that, by 2030, world GDP could increase by around $15trn (or 14%) purely because of AI, with China being the primary beneficiary (receiving about 45% of the total gain).

This makes AI the biggest commercial opportunity in today‘s dynamic economy and means the stakes are unprecedentedly high.

The US response

Over the past decades, America's approach to China has been founded on political and economic integration and convergence. However, by celebrating and entrenching the state‘s leading role in the industries of the future, President Xi and his "new era" have demonstrated that convergence was never China's goal.

The Trump administration has adopted an aggressive stance to trade negotiations, with forced technology transfer, unfair licensing requirements, corporate acquisitions and government-backed cyber theft as primary sticking points in the ongoing negotiations with President Xi. One does not have to be a trade lawyer to realise how difficult it will be to obtain a verifiable agreement that both can bring home and declare victory.