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The big backfire?

24 September 2020

The world is headed for economic turmoil.

Ongoing lockdowns throughout the Western world are about to inflict a huge cost on the economies of otherwise propsperous nations, forcing millions out of paid work and onto welfare.

The burden of providing that welfare support will fall on those who are still in employment and that means higher taxes; much higher taxes.

These are the harsh realities of a world ravaged by Covid-19 and there's little we can do to avoid them. Best tighten our belts, wash our hands and get ready for some tough times ahead!

Of course desperate times call for desperate measures and I think we're starting to see that right now, at least in the USA.

The US Federal Government, guided by the skilled hands of President Donald Trump (insert relevant emoji here), has clearly decided that trade wars are an effective way to maintain the inertial of the nation's economy.

When Trump rolled out the "Make America Great Again" (MAGA) slogan, little did the rest of the world realise that his strategy was not so much to boost his country's productivity and profitability -- but to instead cripple key competitors.

It started slowly, with tariffs being applied to the importation of a wide range of "Made in China" products, especially tech products. Clearly, one of the designed effects was to protect domestic industries from competition.

When that didn't really do the job, more overt protectionism was rolled out -- albeit under the cover of "safety and security" -- that universal "we have no choice if we are to protect the nation" catch-phrases that represents a license to do "whatever the hell we want".

Huawei was identified as a key threat to the security of the USA so it was effectively banned as a provider of tech.

What? That's not enough?

Okay, let's ban US companies from supplying software such as Android updates and apps to Huawei!

Damn, they developed their own app store?

Right, let's halt the supply of crucial components, that'll fix them!

Well right now Huawei is stockpiling chips to give it breathing space while it makes contingency plans.

I think the USA needs to be rather careful about how hard it tries to knock-out key Chinese companies such as Huawei, DJI and others. All these restrictions, bans and such are already forcing China's hand and I doubt that Trump or anyone else in the Federal Government are fully prepared for what the outcome may be.

China is a huge economy. It is no longer a land of subsistence farming and peasant villages. Nor is it a land where companies simply steal designs and ideas from the West and make knock-offs and give-away prices (although that does still happen).

Thanks to the sort of political management that can really only be done by way of a totalitarian government, China has reinvested huge amounts of money in building up its ability to innovate, design and engineer its own products and technologies.

If you push China hard enough, it will say "stuff you USA" and it will rapidly expand its own chip design and fabrication capabilities, its own software industry and all the other areas where it is still currently reliant on Western suppliers.

Whilst Trump might think he's MAGA by trying to knock out competition from China, the reality is that, from China's perspective at least, what doesn't kill you only makes you stronger. What happens when China develops and starts shipping CPUs and other VLSI silicon that is faster, cheaper and more energy-efficient than that offered by US manufacturers?

The rest of the world won't give a damn about the USA's own bans on Sino-tech. The rest of the world is far more likely to buy on the basis of real value and, when you distort the value equation of your own products by deliberately ankle-tapping your competition, that ultimately leads to inefficiencies and reduced value in those products.

As the rest of the world spirals into financial stress, the cost of something will be far more important than who makes it. If you have no job, will you really be looking for the "best" computer, phone or other gadget when your current one breaks? Of course not... you'll buy whatever you can afford.

If it's a choice between no phone/computer/whatever and one that comes from China and may have "secret squirrel spyware" in it... you know what almost everyone will choose, right?

Of course the other outcome is just to go to war.

Financial hardship is soon forgotten when pride, patriotism and dodging bombs are the order of the day. The US/China cold-war could get quite hot, if China decides that it has nothing to lose and everything to gain.

Oh dear, perhaps there are indeed "interesting times" ahead!

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