Technology supply-chain issues are at the sharp edge of current geopolitical tensions between the United States and China, and we are not immune to the practical implications.
Jordan Small
Executive Director, NZUS Council
OPINION: The Covid-19 pandemic has accelerated our dependence on technology to work, educate children, connect with friends and family and source sourdough recipes. Simultaneously, it has revealed the vulnerabilities in the global supply chains we rely on to live this modern life.
We are seeing heightened international competition for and protectionism of the critical technology needed to deliver innovations from 5G and electric vehicles to cloud computing and artificial intelligence. But as a small island nation at the bottom of the world, what will this mean for us?
This question is the focus of our latest briefing and scenarios paper: The Great Disconnect? US-China technology decoupling and its implications for New Zealand written by Waikato academic Dr Reuben Steff. Technology supply-chain issues are at the sharp edge of current geopolitical tensions between the United States and China, and we are not immune to the practical implications.
We all benefit from the largely unseen mechanics of complex global supply chains that bring a choice of ever-evolving secure, reliable and cost-effective technologies. New Zealand firms, innovators, researchers and universities are woven into these supply chains, and maintaining access to critical technologies and their supporting digital ecosystems will be vital to our future economic prospects. It also may be one of the biggest challenges we now face.
Only a few years ago we were unlikely to have considered the possibility that global technology supply chains could break down and splinter off into distinctly aligned trading blocs – one centered on the US and the other on China. Such a change might play out through onshoring research and development and critical manufacturing companies, and new ‘techno-nationalist’ rules and regulations that narrow down where companies can source materials or technology from.
These are the kinds of scenarios presented in Dr Steff’s paper. But far from being a theoretical exercise for curious academics, this is happening right now. The US Senate has passed industrial policy legislation aimed at boosting the ability of the United States to compete with Chinese technology. The US and EU agreed to coordinate more closely on technology issues, and China, for its part, made technological self-reliance the key theme of its 14th 5-year plan. The Digital Silk Road – the technological vector of China’s globe-spanning infrastructure Belt and Road Initiative – is another important aspect of the Chinese strategy.
Ongoing strategic competition between the US and China is now driving global fragmentation as both seek to reduce their interdependence through a managed decoupling of their technology sectors. The early and high profile moves to date have involved the 5G telecommunications roll-out, semiconductor (computer) chips and the rare earth minerals needed for a range of new advances like long-life battery storage.
A primary driver behind this great decoupling is the growing need by Washington DC and Beijing to access and control the core componentry in critical technologies as well as data and supporting infrastructure beyond their borders (the controversy around Tiktok’s emergence being one example). Data is considered ‘the new oil’ – the main ‘fuel’ for many advanced technologies, which provides advantages to governments, businesses and militaries that can harness and integrate it in innovative ways.
New Zealand is a player, albeit a small one, in the global technology market. It is one of our fastest growing sectors with the promise of high-value jobs and weightless exports – of which the US is our biggest market by a large margin. If geopolitical tensions continue to alter technology supply chains it will have an increasing impact on our technology sector and the country more broadly.
There are few winners from US-China decoupling. Decoupling will globally reduce innovation and impact economies and businesses as investment and financial flows shift. If tensions were to escalate and entrench, Dr Steff’s scenarios envisage New Zealand needing to make difficult choices, with considerable and costly disruption impacting thousands of our businesses through the materials and technology they can source and rely on, and the markets they can operate in.
These are the sort of scenarios we need to tease out to explore how prepared we are, within both the Government and business worlds, to manage our response to the great decoupling as it is currently playing out and the directions it might take. Because whatever happens next, we need to be ready.