Jan 15, 2020

Cohen, Bernstein Comment on Impact to Emerging Technologies with U.S.-China Trade Deal

On Jan. 15, 2020, the U.S. and China signed phase 1 of a long-awaited trade deal. McGuireWoods Consulting vice president, Dr. Nicole Cohen, and senior vice president, Ryan Bernstein, analyzed the impact the agreement will have on emerging technologies in an opinion article for MarketWatch.  

In December, the United States Trade Representative announced that the trade deal would address concerns relating to intellectual property, unfair technology transfer practices and barriers to trade in goods, among other items. Phase 1 of the agreement does not address China’s subsidies and leaves China’s digital and data discrimination untouched.

“The Chinese government discriminates against foreign cloud-computing providers, requires companies to store data locally, and limits the amount of transfer of data that can be transferred overseas,” Cohen and Bernstein said. “Such practices curb U.S. companies’ ability to operate independently overseas.”

The newly signed trade deal also does not adequately address forced technology transfers, giving China a leg-up in the innovation race as they access technologies from foreign competitors.

“A lot is at stake as this innovation race will define the U.S.-China relationship in the foreseeable future,” the authors noted. “Without addressing the broader conflict with respect to emerging technologies, the trade deal kicks the can a little further down the road.”

They added, “competition between the U.S. and China in areas such as artificial intelligence, fifth-generation telecommunications networking (5G), nanotechnology and biotechnology, robotics, the Internet of Things, and quantum computing will determine the future balance of economic and military power between the two superpowers and those that align themselves with either side.”

Phase 1 of the agreement does postpone the 4B tariffs, and reduces the 4A tariffs. However, Trump’s tariffs will continue to cover nearly two-thirds of all U.S. imports from China. China agreed to increase its purchases of U.S. goods and services by at least $200 billion over the next two years, remove foreign ownership limits in the financial sector, refrain from competitive currency devaluation and strengthen protections for intellectual property.

“China has repeatedly made promises to strengthen its economic and trade laws around intellectual property rights and to further open and liberalize its economy in the past, including when joining the World Trade Organization in 2001, but little has been seen in terms of tangible results,” Cohen and Bernstein said. “The trade war may have gone from burning hot to smoldering and be the status quo for the foreseeable future.”