The US And China Are Breaking Up

The US And China Are Breaking Up

over 3 years ago3 mins

Mentioned in story

After decades of close economic cooperation, the world’s two biggest economies – America and China – have slowly been pulling away from each other, which most economists agree will eventually leave both nations worse off.

🕰 Recap

  • On Thursday, China was reported to be planning ways to reduce its reliance on imported computer chips
  • The push for independence isn’t necessarily surprising, seeing as the US government has increasingly been trying to stop its residents from using Chinese tech
  • Data on Tuesday, meanwhile, suggested China’s economy is racing out of the blocks now that lots of its lockdown restrictions have been lifted

✍️ Connecting The Dots

Since China started opening up to the outside world in the late ‘70s, its economy has grown at breakneck speed. It went from an agricultural nation of hundreds of millions of peasant farmers to the workshop of the world. And now, after overtaking Japan to claim the title of world’s second-biggest economy in 2010, the country’s attempting to make the switch to modern consumer society – one where the services sector, not manufacturing, makes up the majority of economic output.

To that end, China has been pushing hard into consumer-facing tech with apps like WeChat – owned by $650 billion giant Tencent – and Alipay – owned by soon-to-be-public Ant Financial. And to keep foreign apps from getting a foothold in its markets, it’s simply banned access to Western staples like Google and Facebook. Turns out arriving in mainland China can be a disorientating experience for westerners when they find half the apps on their phone no longer work…

Now the US is introducing its own bans, restricting the use of Huawei telecoms equipment and locking the WeChat and TikTok apps from Americans later this month. In response – and in another reversal of decades of close trade relations – China announced plans this week to wean its tech sector off imported silicon microchips, safeguarding the industry from disrupted supply chains. It even warned foreigners not to undermine the Communist Party’s relationship with the Chinese people – a statement interpreted as a push back against perceived American interference.

🥡 Takeaways

According to the law of comparative advantage, a world where China assembles computers based on US designs from Taiwan-manufactured chips is richer than one where those three nations carry out the process from start to finish themselves. Then again, if two nations can’t trust each other enough as reliable future trade partners, they might feel they have to sacrifice wealth for independence.

With less than two months until a US election that could see a new administration move into the White House, you might be forgiven for thinking America’s policy toward China is about to change. But while Democrats and incumbent Republicans disagree on a lot, a tough stance on Chinese trade is one thing they can find common ground on.

🎯 Also On Our Radar

Following the 2018 boom – and subsequent bust – of cannabis stocks, a planned initial public offering from a British firm looking to use magic mushrooms to treat depression caught our eye. Compass Pathways is looking to raise $100 million selling its stock on the US markets, in an effort to fund further tests on its experimental psilocybin-based therapy. Could psychedelic stocks enjoy the same hype around cannabis companies two years ago, or will investors end up tripping?

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