Asia and digital neo-mercantilism | East Asia Forum
Author: Milton Mueller, Georgia Institute of Technology
Is there an Asian digital diet? Yes, although it is closer to a global regime based on neoliberal principles of free trade and globally distributed supply chains in which Asia played a special role. But that order is disintegrating, as nations inside and outside Asia revert to a new form of neo-mercantilism focused on digital technologies. In this new model, national security seeks to move trade and growth onto the agenda.
In the 1980s and 1990s, a new ideological, political and economic movement began to transform Western political economy. Policymakers brought inflation under control, cut taxes, curbed the expansion of the welfare state, privatized state industries, introduced competition in regulated industries, reduced trade barriers, and deregulated capital flows. The impact of this policy shift was amplified when China rejected Maoism and moved towards a domestic market economy in 1979. It was further accelerated when the Soviet Union collapsed in 1990 and that the newly independent Eastern European countries moved from central planning to a market economy.
Two of the most important industries that were liberalized in this phase of modern business development were telecommunications and information technology. From the 1980s, many state postal, telephone and telegraph monopolies became private enterprises in more competitive markets. Standardization has moved away from states and intergovernmental organizations to private, not-for-profit organizations such as the Internet Engineering Task Force, the 3rd Generation Partnership Project, and other industry-led forums.
At the same time, plurilateral trade agreements—particularly the 1996 WTO Information Technology Agreement (ITA)—have paved the way for a globally distributed supply chain of IT equipment. information and communication (ICT). East Asian producers have been the main beneficiaries. Largely due to the performance of Asian economies, developing economies’ share of global exports of ATI products increased from 26% in 1996 to 63% in 2015, and seven of the top ten exporters of ATI products were Asian economies.
The Internet and the World Wide Web have bound this emerging digital economy to open, non-proprietary standards. A transnational platform economy based on search, social media, e-commerce, video sharing and apps has begun to emerge. It was led by American companies, but Chinese start-ups were quickly following. Fueled by creative entrepreneurs and aided by capital and partnerships from the United States, China developed its own platform economy that dominated its sizeable domestic market and then developed regional and global aspirations.
Neoliberal globalization is being reversed all over the world. Critics from left and right are pushing for a more bounded economy. There are tariff wars reminiscent of the 1930s, attacks on immigration and calls for greater national autonomy. This change is largely due to the sometimes misleading link between national security and trade in ICT goods and services.
For the past five years, the United States has branded all Chinese ICT companies as Trojan horses for the Chinese Communist Party (CCP). He has actively sought to cripple Huawei, cutting it off from advanced semiconductors on the grounds that the CCP will exploit any Huawei equipment in a home network. The United States withdrew their licenses from four Chinese telecommunications companies for similar reasons and disconnected several international cables due to some Chinese ownership.
A new law governing foreign investment passed in 2018 has prevented China from investing in high-tech companies, whether or not they produce military capabilities. The US Council on Foreign Relations has released a pamphlet with an open call for the weaponization of digital trade.
This lack of trust is reciprocal and contagious. China has always been aggressive in leveraging market access for technology transfer efforts. But his most recent efforts to achieve self-sufficiency in US-dominated high-tech industries have spooked Washington.
China has stepped up its blocking of foreign news services, doubled down on domestic censorship and gutted Hong Kong’s autonomy to target free speech. Since 2020, Beijing has instituted sweeping regulations that restrict the outgoing and incoming flow of business data. It excludes foreign cloud service providers from its home market and imposes heavy cybersecurity overhauls on its own digital businesses. China has discouraged its private companies from listing on US exchanges because the audit process could reveal sensitive national data. China’s crackdown on Alibaba’s financial innovations seemed designed more to subordinate the company and protect the CCP’s control over finance than to avoid market failures.
India, with its nationalist Bharatiya Janata Party regime, aligns itself with this model. Its military feud with China has led to the banning of dozens of Chinese apps. Although he benefits from the outsourcing of IT services by American companies, he envisions creating national champions in digital payments and other areas that can substitute for the services of American multinationals. India is also imposing more censorship and surveillance on internet users.
Japan and some ASEAN countries may still wish to continue the trend of liberalization and globalization in the digital domain. Members of the Regional Comprehensive Economic Partnership (RCEP) are trying to facilitate aspects of digital trade, and attempts are being made to expand the ITA and advance WTO efforts in the area of digital services. But the mistrust and securitization sparked by the split between the United States and China could overwhelm those efforts.
Neo-mercantilism draws attention to how trade and investment in technology and national industrial policies are linked to national security and the relative power of the state. In contemporary policy dialogues, trade policy, technology policy, foreign policy, military strategy, cybersecurity and industrial policy are distinct areas of expertise. But watching the US-China conflict as the two nations vie for a dominant role in the world order analytically stitches these pieces together. It’s a digital neo-mercantilism because technologies such as 5G telecommunications, semiconductors, social media platforms and artificial intelligence capabilities are at the center of competition.
The globalized regime from which the countries of East Asia have benefited so much is fragmenting into several large geopolitical blocs – the United States, Europe, China and India – creating a more delimited space governed by tensions and power games.
Milton Mueller is a professor in the School of Public Policy and the School of Cybersecurity and Privacy at the Georgia Institute of Technology.
This article appeared in the latest edition of East Asia Quarterly Forum‘Asia’s digital future‘, Volume 14, No. 2.