Tech

US-China phase one deal softens trade risks, but tech dispute remains

Key Points
  • Markets may have "priced in" the de-escalation of the U.S.-China trade war as the phase one deal looks set to soften risks related to global growth, but one unpredictable factor remains: technological restrictions the U.S. may impose on China going forward.
  • Non-tariff measures on technology are much more complicated and pose a greater risk of escalation, says S&P Global Ratings' APAC chief economist Shaun Roache.
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The 'real war' between the US and China is in technology, says S&P Global economist

Markets may have "priced in" the de-escalation of the U.S.-China trade war as the phase one deal looks set to soften risks related to global growth, but one unpredictable factor remains: technological restrictions the U.S. may impose on China going forward.

That's according to S&P Global Ratings' APAC chief economist Shaun Roache, who suggested that whichever wins in technology will also dominate the world.

"I think we may see some moves by the U.S. towards non-tariff measures next year, particularly in the technology sector and that's going to create more uncertainty, more concern again as we go through 2020," he said.

The economist said constraints could be specific export controls on certain sectors and restricting Chinese firms' ability to invest overseas and gain access to technology they need. These measures would make it harder for China to develop its own technology supply chains, Roache said.

VIDEO2:3002:30
Tech tensions between the US and China continue: Expert

Beijing and Washington agreed to a temporary truce that is supposedly a game changer for the global economy judging by the stock market's rise to a record, but Roache said trade is only one part of the battle.

"It looks like on the tariff side, the phase one deal has taken some risk of escalation off the table for 2020. Markets have priced that in clearly," said Roache.

"It's this other aspect of the relationship, that's more to do with technology, non-tariff measures where it's much more complicated. The risks of escalation is much higher and actually it's where we think the long term impact is much greater," he added.

Chinese tech has been caught in the crosshairs of the U.S. government as tech behemoth Huawei becomes a bargaining chip in the trade war. Huawei's CFO is still detained in Canada at Washington's request for violating U.S. sanctions on Iran.

The Chinese telecommunications equipment maker was put on a U.S. blacklist earlier this year, which has restricted the company's access to U.S. technology. On top of the arrest of its CFO, Washington is claiming that Huawei presents a national security risk because its networking gear could be used by Beijing for espionage. Huawei denied those allegations.

Meanwhile, a U.S. regulatory committee contacted TikTok-parent ByteDance over concerns that its 2017 acquisition of another app, Musical.ly, could be a national security risk, a person familiar with the situation told CNBC.

The popular Chinese social media app that has become a global sensation is now under scrutiny for censoring an American activist's criticism of the Chinese government as well as investigations into its handling of user data.

— CNBC's Arjun Kharpal contributed to this report.