Donald Trump and Xi Jinping are reported to have called a truce in their trade war © Tass/PA Images
Donald Trump and Xi Jinping are reported to have called a truce in their trade war © Tass/PA Images

US China supply chain integration creates risks

3 December 2018

China’s growing strength in IT and network equipment manufacturing and internet of things (IoT) applications are posing a growing threat to the US’s technology supply chain, according to a report by a bipartisan congressional panel.

The US-China Economic and Security Review Commission’s report comes as the countries’ respective presidents, Donald Trump and Xi Jinping, discuss trade at the G20 meeting in Argentina, where it has been reported a truce has been called in their tariff war.

“The close supply chain integration between the United States and China, and China’s role as an economic and military competitor to the United States, create enormous economic, security, supply chain and data privacy risks for the United States,” the panel said in its annual report.

This combines with Chinese state support for critical developing technologies to threaten the US’s “freedom of movement” in Asia, the report found.

“Chinese firms have already leveraged strong state support to become global leaders in information technology and network equipment manufacturing, and have strengthened their roles in international standards-setting and deployment of 5G [fifth-generation wireless technology],” the commission said.

The commission said the scale of Chinese state support undermined the ability of US firms to fairly compete either within China or in third country markets.

It also enabled Chinese firms to dominate global network equipment, information technology, and IoT devices, which are embedded with sensors that can collect data and connect to each other and the internet.

“Rapid advances in the number and capabilities of IoT devices and 5G networks are strengthening China’s strategic deterrent, warfare, and intelligence capabilities, and eroding the ability of the United States to operate freely in the region,” the report said.

“US telecommunications providers’ reliance on imports from China raises serious supply chain concerns about the secure deployment of US critical next generation telecommunications infrastructure.”

Commission members fear that the rapid proliferation of insecure IoT devices is giving China increasing opportunities to deny service, collect intelligence, or launch a cyber attack.

The report said that the large amount of data collected by the ever-growing number of IoT devices could increase privacy, safety, and security risks for US citizens, businesses, and democracy.

While the commission believed US companies remained market leaders in these industries, and their continued innovation would extend the US’s technological edge, the Chinese government has strengthened its strategic support for IoT and 5G networks.

China aims to reduce its dependence on foreign technology through significant state funding for domestic firms and 5G deployment, the report said.

Limited market access for foreign competitors, China-specific technical standards, increased participation in global standards bodies, localisation targets, and alleged cyber espionage and intellectual property theft made it harder to enter Chinese markets.

“This state-directed approach limits market opportunities for foreign firms in China and raises concerns about the ability of US and other foreign firms to compete fairly both in China’s domestic market and abroad,” said the report.

With 5G networks expected to quicken data speeds by 100 times, support up to 100 times more IoT devices, and provide near-instant universal coverage and availability, US and Chinese companies are in a race to secure first mover advantage.

At stake is the ability to benefit from the trillions in economic benefits 5G and subsequent technologies are expected to create.

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