Persistent geopolitical tensions are likely to lead to greater decoupling, including in key technologies, as the China-US divide continues to deepen. Efforts by the two economic giants to diversify their respective core technologies and supply chains will result in different branches of key technologies such as artificial intelligence (AI) and 5G communications.
As globalization fades, there will be less cost efficiency, less technology transfer and less innovation. Ultimately, this will translate into slower productivity growth, according to Ravi Menon, chief executive of the Monetary Authority of Singapore (MAS). The governor of Singapore’s central bank was during his keynote speech at the SuperReturn Asia Conference on Tuesday, where he discussed the key uncertainties in today’s global economy.
Menon today pointed to two major geopolitical tensions between Europe and Russia and the US and China that are likely to persist in the medium term and lead to economic fragmentation.
In particular, he noted that the “strategic rivalry” between China and the US is deepening on multiple fronts, he said, leading to increasing decoupling in technology, finance and trade.
The trade dispute between China and the US has dampened global trade, where tariffs by both countries on each other have contributed to supply chain tensions and price pressures, he said.
As both countries seek to reduce their interdependence, he warned of an increasing risk of critical technologies becoming fragmented.
Menon said, “As the two countries diversify their respective technology bases and supply chains, the development of key technologies such as semiconductors, AI and 5G telecommunications will become increasingly shared.”
He also highlighted U.S. government restrictions on exports to China of advanced chips often used to power AI, and blocks on both sides of cross-border mergers and acquisitions between tech companies over anti-monopoly and national security issues.
Frictions between the two nations had also impacted both markets’ financial systems, where increased scrutiny of Chinese listings in the US had led some Chinese companies to consider exiting US markets. In addition, China – along with other countries – wanted to reduce its dependence on the US dollar and payment system.
Over time, Menon said, these developments could lead to greater fragmentation of global financial systems.
“The increasing decoupling between the US and China in trade, technology and finance is likely to have far-reaching economic consequences,” he said. “At the broad macro level, this decoupling cannot be good for global economic growth. At the micro level, there will be adjustments in supply chains, trade relationships, technology procurement and financial arrangements that will have different impacts on countries and sectors.”