I posted a longish article that indicates a tech cold war between the US and China is going to be very disruptive to high tech. High tech is currently critical for growth. The numbers thrown around indicate another huge hit to global growth. The reason this is a hit is the world does not have that kind of cash with all the other disruptions. Remember, this is not an investment that will yield more growth these costs are retrenchment costs. Some sectors and regions will see construction growth but overall this is a recessionary force. This means renewables, AI, and automation will be cut back. The money has to come from somewhere. This is just yet another headwind and weight on global growth that is critical to maintain affluence everyone has become habituated to.
There is a disconnect because of the Ponzi financialization of the global system that the money will be found. This is mainly because financial wealth is created and in the past this has maintained liquidity. Physical of factories and the abstract of knowledge and skills of the global tech supply chains cannot be created in the same instant way. This article is talking huge numbers and a relatively longish timeframe in the modern sense to adapt a new global supply network for tech to a cold war divided economic world. This will involve redundancies which will further hamper new efficient growth. It may be the case a restructuring creates more security and less systematic risk but the key point is less affluence at a time when the pandemic has already crippled healthy growth. It is the summation of these negative global economic conditions that will converge and weigh heavily on future growth. Techno optimist wishing upon new technologies to save mankind might be a bit misplaced until these issues correct. IOW this won’t end well for development but instead points to an economic degrowth period.
“The Tech Cold War Between The US And China Will Cost $3.5 Trillion In Just The Next Five Years”
https://www.zerohedge.com/markets/tech- ... five-years“How much would a Tech Cold War Cost? That's the question DB's new tech strategist Apjit Walia asks in a new research report, in which he looks at the interplay between the Post Covid Tech Rally and the Tech Cold War, which have emerged as two of the most salient aspects of the current market dynamic. And with tensions between US and China continuing to rise and spread to other parts of the world, the strategist conducts a top-down analysis of the impact on the Global Information & Communications Technology sector from a full-blown cold war. The report finds that the ensuing demand disruption, supply chain upheaval and resultant “Tech Wall” that would delineate the world into rivaling tech standards could cost the sector more than $3.5 Trillion over the next five years…US and China have been engaging in an increasing capacity since the 1970s and the level of integration between the two global tech regimes is unprecedented. The integration is a complex demand and labyrinthine supply chain network that has taken 40 years to develop. DB uses a top down approach to ascertain the level of revenues and supply chain links across the global ICT industries to China. To analyze and quantify this complex co-dependent Tech relationship between the two countries is a challenging task…Globally, China has about 13% of revenues of the ICT sector amounting to around $730 Billion per annum. However, a significant part of this is demand from the Chinese tech sector that is re-exported after some value-add, assembly and packaging (“re-export demand”) - this constitutes supply chain risk…Supply Chain Risk A transition out of Mainland China could take 5-8 years to achieve successfully. Lack of infrastructure, clustered networks and skilled labor in other countries versus China are major obstacles. Vietnam, India, Malaysia, Indonesia and Philippines are the primary targets for this transition but most of them would need significant infrastructure upgrades to catch up with the Chinese supply chain cluster strength. In most categories, exports outstrip imports, except for electronic components, where imports are 3x of exports. Electronic components, such as semiconductors are imported and used as inputs in consumer goods and communication equipment and exported out of China…The average cost of rebuilding the supply chain will be approximately 1.5 to 2x of the book value based on feedback from Tech managements and supply chain experts. Using a sustainable capex rate, it would take 5-8 years to relocate the supply chains. The cost of a transition over a five year period would come to around $1 Trillion. Tech Wall Risk On top of the demand disruption and supply chain upheaval, it would be unavoidable for Tech companies to operate efficiently in a large part of the "Non Aligned" world without complying with the two rivaling global standards that would come up as the cold war heats up. The Tech Wall would entail rival internet platforms, satellite communication networks, telecom infrastructure regimes, CPU architectures, operating systems, IOT networks and payment systems with very little inter-operability or interaction. It would mean having to deploy two different communication and networking standards across several geographies to ensure inter-operability. In this new world order, these non-aligned countries would require companies to have dual standard compliance to operate there. A divergence in standards could increase costs in multiple ways. Increased R&D, design, product development and related costs for manufacturers. Increased costs of compliance to different IP, networking, data privacy/localization regimes for corporates. Loss of interoperability of devices across geographies for consumer…The hardware industries which predominantly have both revenue and supply chain dependence on China respond sharply to escalations. Industries with lower revenue exposure to China display defensive characteristics during rising tensions, and fall in the top left quadrant. Software and service display defensive characteristics as they have very limited revenue exposure to China. Telecom service providers have limited revenue exposure and their returns appear to be uncorrelated to escalation events…Anticipated policy support from governments given the centrality of the sector to nation states in geopolitical tech relevance is also touted as a driving factor in multiples. Clearly, Semis are key to retaining tech supremacy and form the backbone of any AI or Software enhancements to institutions and countries. However, there remains one tail case scenario and that is in the event of disengagement and escalation of the cold war, Semiconductors will see significant market share and supply chain disruption that will be too big to be offset by government policy support and central bank liquidity. This scenario does not seem to have been factored in the current market.”
