US trade war could help China dominate the Middle East

US trade war could help China dominate the Middle East

Huawei is now the world’s second-largest seller of smartphones, having overtaken the global sales of US company Apple. (REUTERS/Rodrigo Garrido)

On May 17, the US blacklisted the Chinese telecommunications company Huawei and banned all business transactions with it, except for a temporary license that expires in August. Now, as Huawei develops Russia’s first 5G network, a broader technological polarization could reinforce a global geopolitical divide, with China teaming up with Russia against the US.
As technology increasingly coalesces with national security, could the escalation of technology wars revive the old Iron Curtain? And what would this mean for the Middle East, which is significantly dependent on both American and Chinese technology and investment?
Huawei is now the world’s second-largest seller of smartphones, having overtaken the global sales of US company Apple. Over the past few years, American businesses have been discouraged from using Chinese telecoms equipment for fear of espionage. Formally blacklisting Huawei, however, means that it will not be able to procure US hardware and software for its smartphones. Chinese companies import from the US nearly half of the chips they use in their smartphones. It also means that popular Google services such as Gmail, YouTube and the Chrome browser will disappear from future Huawei handsets.
The reaction by China has been aggressive and defiant. It has threatened to cut off US companies from its rare-earth supply chains. “Rare earth” is a group of 17 elements that are critical components in the gamut of US civilian and strategic technology, from iPhones to renewable energy, electric cars, computers, aircraft and advanced precision weaponry.
According to the US Geological Survey, the US imported about 80 percent of its requirements for rare-earth material between 2014 and 2017 from China. In 2017, China accounted for 81 percent of the world’s production of these materials and most of the facilities that process them. Minerals procured from other countries also make their way to China for processing, implying a Chinese near-monopoly over integrated supply chains of these rare-earth metals. People’s Daily, the official newspaper of the Communist Party of China, lashed out with the headline: “Don’t say we didn’t warn you.”
In the Middle East, where Huawei is the leader of the region’s 5G network and its related equipment, the company plays a critical role in upgrading national communications systems. It already has significant penetration in Egypt, Jordan and Lebanon. Dubai’s share in Huawei’s Middle Eastern market is 20 percent.
Some US allies, such as Australia and Japan, have placed an effective ban on Huawei. Other NATO allies, including Germany, France and the Netherlands, are more reluctant to do so, fearing the potential adverse effects on their economies should China retaliate. If Middle Eastern countries can avoid being drawn into the US-China technology war, they can potentially gain from access to more competitive technological and strategic choices.

In the Middle East, Huawei already plays a critical role in upgrading national communications systems.

Dr. Sameena Hameed

China is making some strategic inroads into the Middle East region. It is already the largest exporter of armed drones to Middle Eastern countries. The Middle East accounts for only a modest 6 percent share of China’s total arms exports, but sales have increased by 32 percent over the past five years.
China is seeking a bigger share of the growing arms market in the region. Chinese arms exporters are showcasing high-tech weapons at local defense exhibitions. Breakthroughs in miniaturization have enabled them to produce weaponry likely to gain traction in a region surrounded by narrow water bodies. The China Ship Building Corporation, for instance, has unveiled a 20-ton robotic boat that is a “mini Aegis-class destroyer,” a miniature counterpart to the US Navy’s Arleigh Burke-class destroyers.
Therefore, US military capabilities in the region and its supply of advanced weapons — including missiles, fighter jets, smart bombs and guided ammunitions — could be jeopardized by China through its control of the supply of rare-earth elements.
If this “tech war” persists, the Trump administration risks widespread domestic opposition, given that the US tech economy and its defense capabilities are likely to suffer due to their inability to find substitutes for rare-earth materials from China, viewed as the “bedrock of national security.” The prices of magnet-related rare-earth materials have already reportedly reached record high levels just from the possibility of this sector becoming the next war front.
As the US and China battle for dominance over next-generation technology and control over “big data,” in an intertwined global network it is increasingly difficult for them to disentangle the two ecosystems without mutual damage. In all likelihood, therefore, the technology war will not escalate; some observers believe that, by banning links with Huawei, the Trump administration might merely be seeking to exert tactical pressure on China to clinch a favorable trade deal.
Whether the tech war escalates or not, the move to blacklist the Chinese global telecommunications giant has been a moment of truth in terms of the company’s ambitious rise. It is likely that China will now redouble its efforts to build top-to-bottom supply chains in vital technology sectors. The technology wars could help China emerge as a competitive technology and strategic partner in the Middle East.

 Dr. Sameena Hameed teaches at Jawaharlal Nehru University, New Delhi.

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