Will US-China trade issues take a toll on the technology sector?

The world’s two largest economies, the US and China, have made their feelings towards each other very clear and the bitterness is seeping into all corners. In the midst of all the tariff attacks and protectionist policies that have been going to and fro, sending tremors through various sectors, one industry that seems to be gaining attention in particular is the technology industry.

The US has criticized China for structuring corporate rules in a way that facilitates access to American intellectual properties and technologies through investments and partnerships. White House is monitoring Chinese investments in the US very closely along with attempts taken by Chinese firms to acquire American companies either through stakes or as a whole. President Trump actually seems skeptical of any Asian company trying to pick up an American firm, more so if it belongs to the technology sector.

The US government’s strict approach to Chinese investments in the technology sector is now likely to cast a shadow on another area – startups. Silicon Valley is a haven for startups. According to a report by Reuters, a new law is in the works that will bring several Silicon Valley startups with backing from Chinese entities under scrutiny. Unlike large public tech companies, startups have managed to stay relatively unnoticed thus far but perhaps not much longer.

There are good reasons for this measure as most of these startups are involved in critical technologies such as artificial intelligence, cybersecurity, autonomous driving and even drones. These fields are very important to the US for maintaining dominance in technology and national security. Some of these companies have partnerships with the US government agencies and the military for various projects.

Several of the Silicon Valley startups are backed by venture investments which are connected to Chinese entities. The new legislation will give the Committee on Foreign Investment in the United States more power to examine and control the extent of investment and ownership by foreign firms in American companies that develop sensitive technologies.

So, will this restriction on the exchange of technological expertise affect the US or China? China has for long been projected as an upcoming superpower in technology but the reality seems to be a bit different. Apparently, China is more dependent on other countries for its technological and industrial needs than it would like to admit. One example of this is ZTE Corp. which was crippled after the US restricted American companies from supplying components to the Chinese firm.

Chinese tech experts believe that China should stop relying on other countries, particularly the US, and harness its strengths from within its own corporate sector. This will help China move closer to achieving its ambitions in innovation and development.

Another interesting fact is that due to its friction with the US, China is investing heavily in its infrastructure to enable connections with the rest of the world. This would not only help China slowly move away from the US but it would also bring other nations closer to China.

Although the US seems to have an upper hand for now, China is not sitting idle. It is taking stock of its situation and devising its moves. The major US tech stocks were trading in the negative territory on Wednesday, but recovered in the last two days of this week. It would be best, not only for the US and China, but for the global economy if all trade issues were sorted out at the earliest.

Related: Why semiconductor stocks tumbled