Market risks from trade war will fade but the 'cold tech war' will continue, says BNP Paribas

Key Points
  • Markets will calm once the U.S. and China reach a temporary trade deal, but the "cold tech war" will carry on, according to Chi Lo, senior economist at BNP Paribas.
  • American trade negotiators will soon head to China for face-to-face talks as the world's two largest economies try to strike a deal, sources told CNBC.
  • The future of 5G may mean that there are two streams, one led by China and one led by the U.S., according to Lo.
The US-China tech cold war may get 'colder,' says economist
The US-China tech cold war may get 'colder,' says economist

As the trade war between China and the United States continues, the ongoing tariff battle remains an important risk facing markets.

That will eventually fade once the two countries reach a provisional deal, according to a BNP Paribas economist, but they'll leave behind a "cold tech war."

American trade negotiators will soon head to China for face-to-face talks as the world's two largest economies try to strike a deal, sources told CNBC.

"We're likely to get a temporary agreement in the coming months," said Chi Lo, senior economist at BNP Paribas. He told CNBC's "Street Signs" on Friday that if Beijing and Washington can agree to a temporary deal then they can "set the stage for longer-term negotiation on more deep-rooted issues."

U.S. President Donald Trump has been using tariffs as a tool to address issues beyond trade, including national security issues and technology transfer threats.

Lo said, given his expectation of a temporary pact, the continued trade war will no longer have such a big impact on "the macro risk in terms of market volatility," in the coming months.

But the affect of the trade dispute will linger on and hurt tech, Lo said. He predicted that disagreements in the technology sector will probably get even "colder" in the coming months — or even coming years.

"There will be more focused trade war risk on the tech sector going forward. But then the overall market sensitivity to overall trade war risk may fade a bit," said the economist.

On Wednesday, Trump's new defense secretary said the U.S. trade war with China is as much about national security as it is about the economy.

"I've been studying China for quite some time now and I'm big on China as well," Secretary of Defense Mark Esper told a group of reporters at the Pentagon when he was asked about the escalating conflict between Washington and Beijing.

Conceptual image for the news about US blacklisting the Chinese tech giant Huawei. Huawei suffers billion dollars loss in profits.
Oleksandr Siedov | iStock Editorial | Getty Images

At the top of the list of what Washington deems as a national security risk is the dispute over Chinese tech giant Huawei, a telecommunications equipment and consumer electronics company, and its work in developing nations' 5G networks. That technology promises faster internet speeds that can better handle heavy-duty content like ultra-high-definition video and even driverless cars.

In an age of big data and internet connectivity, the implementation of 5G wireless networks is one of the core components of the tech battle between the world's two largest economies.

When asked if there will be a technology duel in 5G — separate systems led by Washington and Beijing — Lo said, "that is a potential direction that this cold war would be fought out."

"So if the cold war on the tech sector continues, I think one possible direction is for the similar development in the tech area ... there will be a system led by China in Asia or the China bloc, if you would, and then another system led by the U.S., or the western developed countries in the world, the western bloc."

– CNBC's Amanda Marcias and Todd Haselton contributed to this report.