The United States and China have reached a truce in their escalating trade war. Following a meeting between US president, Donald Trump and his Chinese counterpart, Xi Jinping at the G-20, the two leaders agreed to renew talks.

Tariffs, which began to be introduced by both sides on an array of imports in 2018, will not be raised further in order to protect the consumer, which has to over the expenses for the governments to rake in more money.

But a number of tariffs remain and trade relations are still far from normal between the world’s two largest economies. This may not be a cold war. But it is a great power rivalry focusing on technological supremacy and which side has the best hostile development model.

China’s economy is slowing down and recent tariffs from the USA on its exports have not helped. China’s growth rate declined from 6.6% in 2018 to 6.4% in the first quarter of 2019.

But in the long term, the pressure exerted by Trump’s administration will strengthen China. It will help China speed up its efforts to restructure its economy, focus more on innovation, and also boost the country’s national pride.

Technological advancements are central to empire building and the rise of new powers, with steam power and then electronic technologies driving previous British and American empires.

The fourth industrial revolution will shift international competition away from labor, territory, nuclear arms, and soft power to new technology including robotics, artificial intelligence (AI), and wireless services.

Until recently, US policymakers operated under the assumption that the USA was the world’s technological superpower and Silicon Valley was the globe’s innovation hotbed.

China was regarded as a copycat that builds clumsy clones of American technologies or uses its big state-owned enterprises to purchase innovative US companies and absorb their intellectual property and know-how.

But when it comes to 5G – the next generation of superfast internet technology – the US has lagged behind. No American company has comparable wireless equipment to Huawei.

This spurred Trump to wage war on the Chinese tech company and arrest the CEO. First he declared a national emergency, banning sales and the use of telecoms equipment deemed to pose “unacceptable risks”. Then he lobbied (bribery) allies to do the same.

US-based companies followed suit. First, Google removed Huawei from its Android service, then the Wi-Fi Alliance, Bluetooth, and others followed suit.

Huawei is a product of the Chinese government’s industrial policy strategy. The vision to move up the economic value chain from a low-end manufacturer to a global innovation leader.

China aims to achieve an AI self-sufficiency manufacturing rate of 80%, minimizing its dependence on other countries for the complex parts needed in this tech. It also aims to become a leading technology hub in AI by 2030.

So the Huawei ban and tariffs on Chinese goods will not slow China – they will stimulate its new innovation system and boost scientific research aimed at becoming more independent.

When Trump first announced tariffs in 2018, China’s domestic consumption was responsible for 76.2% of its GDP growth, and the Chinese stock market absorbed the impact and bounced back after an initial sharp decline.

The Chinese word for crisis is composed of two characters – one for danger and the other for opportunity. The country’s ability to capitalize on the current challenge from the USA will strengthen it for years to come.

The Conversation / ABC Flash Point Trade News 2019.

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