Does economic nationalism mean a ‘Splinternet’ is inevitable?

A digital divide is slowly being erected between East and West. As mistrust over security and trade define the relationship between Washington and Beijing, is this the end of the World Wide Web?

This content is more than 6 months old now, please visit the news area of this site for more recent content

  1. Garry White

British computer scientist Sir Tim Berners-Lee is best known as the inventor of the World Wide Web, the first web browser and the fundamental protocols and algorithms need to scale the system globally. His vision of “net neutrality”, where all people are allowed connectivity with no strings attached, will never come to pass.

The World Wide Web is no longer a free and open and a digital iron curtain has already been erected between East and West. China’s Great Firewall already controls the Internet usage of anyone in their country. It filters out any popular foreign services along with all traffic that comes into the country, greatly limiting what people can see.

One major driver of this technological divide is good old-fashioned competition. Donald Trump’s trade war between America and China was really a conflict about technology. The former administration claimed – arguably correctly – that Chinese high-tech companies have only managed to grow and succeed because of the “systematic theft” of US inventions and ideas. This has led to a new technology race, in many was analogous to the 1960s space race between Washington and Moscow. Political rivalry is boosting innovation in increasing the rate of technological change.

The infrastructure of tomorrow’s economy

These alleged violations of US intellectual property have resulted in the rapid development of Chinese technology companies, with Huawei at the centre of the storm because of the importance of 5G to the economy of tomorrow. This meant the initial focus of the sanctions was 5G equipment maker Huawei – but the list of companies and industries grew. This led to Huawei producing a phone with no US components for the first time.

The Holding Foreign Companies Accountable Act was voted into law on December 18, the dying days of Trump’s occupation of the Oval Office. It banned federal pension funds from investing in Chinese companies – and declared other businesses un-investable by US citizens because of their Chinese military ties. This aim was to limit the funding available to these strategic technology rivals.  

The controversy over the initial stages of the Covid-19 infection in China allowed a raft of measures to be put on the table to ensure the superpower advantage remains with the US. President Trump said he was taking action to “protect the integrity of America’s financial system”, as he announced an investigation by White House officials into the differing practices of Chinese companies listed in the US because American investors needed “protecting”. Many in the administration wanted to halt Chinese IPOs in the US completely.

The final days of the Trump presidency saw a multi-pronged attack on Beijing, ratcheting up tensions in several controversial and complex geopolitical clashes in an apparent attempt to make Joe Biden’s dealings with China more difficult. One of Donald Trump’s legacies as president will be his shaping of global technology. The changes he made will have a massive impact on our digital future.

At the start of 2021, China offered a hand a peace. Beijing offers the world the "path of peaceful co-existence, mutual benefit and win-win co-operation". President Xi Jinping said the country wished to step up "world macroeconomic policy co-ordination to achieve strong, sustainable balanced and inclusive growth".

Biden no China dove

However, tensions have increased significantly with China as the Biden administration elevated human rights up the list of issues with Beijing. There is surprising continuity of policy between Trump and Biden over national self-sufficiency and technology independence, allied now to  an issue which upsets the Chinese far more, the conduct of their government, Hong Kong and human rights. Trade and national security are likely to be forever intertwined.

Following worries surrounding a recent shortage of microchips in the auto and other industries, the US Senate passed the Innovation and Competition Bill which passed a Senate vote has as its aim a wish to confront China’s influence and to reassert US supremacy and self-sufficiency in crucial technologies.

This Bill involved the provision of $52bn in new subsidies to American semiconductor manufacturers to spur domestic production. This is a form economic nationalism that wants to being strategically important industries home, relying less on Asia. Taiwan is the most globally important fabricator of microchips – and this has led to increasing tension between Washington and Beijing over the strategically-important South China Sea. China is concerned about the constitutional status of Taiwan and its “One China” mantra

The US sees a serious challenge to its global pre-eminence – and forcing the hand of its allies. The grouping to watch is the Five Eyes intelligence alliance between the US, UK, Canada, New Zealand and Australia. The European Union has found itself caught in the middle of this rivalry, as its exporters do substantial business with China which they seek to preserve and grow. This presents a significant geopolitical balancing act for the bloc, as they face the prospect of being “piggy in the middle” of this era-defining geopolitical clash.

The conventional Chinese attitude is to see democracy as a weak and foolish system. Central planning helped Huawei become the world leader in providing 5G equipment. This achievement is a direct result of the Chinese central planning system that has significant influence over the research and strategy of the major corporations. Western businesses operate independently of government. They do not toe any party line; they exist to make a profit.

Ultimately, this could lead to a two-tier global system using different and incompatible systems and technology. This digital divide is likely to increase the political divide. It will also create additional pressure to secure scarce resources. China has a strong position in rare earths and its central planners have formed a close collaborator of the Democratic Republic of Congo, which is the dominant producer of cobalt and other minerals needed to manufacture cutting edge technologies.

Economic nationalism is moving higher up the agenda of Western nations and is becoming a driver of deglobalisation. China’s involvement in malicious cyberattacks ensures that Western distrust of its technology will continue. This means it is likely that this fracturing of a free and fair Internet will continue. The fracturing is clear to see. The Splinternet is already here.

Further reading

The technology shaping the way you’ll live tomorrow.

China goes its own way.

China’s new Long Technology March is gathering pace.

Related podcasts:

Globalisation: The end of the party? Listen here.

The Technological Revolution: What is it and why does it matter? Listen here.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

More from author

  1. Garry White

    Last Week in the City: Equities ease after European high

    Date: 16th Jul 2021 12:14pm

    Garry White, Chief Investment Commentator, provides a round-up of the market movement...

  2. Garry White

    Last Week in the City: Recovery fears grow as Delta variant spreads

    Date: 9th Jul 2021 11:32am

    Garry White, Chief Investment Commentator, provides a round-up of the market movement...

  3. Garry White

    Last Week in the City: Tech tax deal comes closer

    Date: 2nd Jul 2021 11:34am

    Garry White, Chief Investment Commentator, provides a round-up of the market movement...

Most read articles

  1. Does economic nationalism mean a ‘Splinternet’ is inevitable?

    Uncertainties persist, but the Fed should keep control

    Date: 29th Jul 2021 16:13pm

    As we head through mid-year, most equity investors should be reasonably satisfied.

  2. Does economic nationalism mean a ‘Splinternet’ is inevitable?

    Five tips on dealing with inherited investments

    Date: 27th Jul 2021 10:15am

    If inheriting investments has come as something of a surprise, here are five tips on ...

  3. Does economic nationalism mean a ‘Splinternet’ is inevitable?

    Don’t get burned by a drought fund

    Date: 22nd Jul 2021 13:50pm

    Droughts, wildfires and flooding are occurring at an increasing rate. As the number o...

Investment involves risk. You may get back less than invested.