This Trade War May Have Little to Do with Trade

This trade war isn’t about fairness. It’s a cover for something far more important as we head into the future.

Why do you think Trump always talks about technology theft?

A trade surplus is way down on the list. Far more important is the control of revolutionary technologies.

It’s why China has been rapidly increasing their patent applications. It’s also why China has created 17 technological innovation zones. To become the world’s future super power, China knows the most important ammunition will be technology.

So it’s no wonder why Trump is upset about the rise of Chinese tech. The US doesn’t want to feed what could soon cause them to sink to second place.

But even as the US taxes Chinese imports, it might be too late to hold down this tech dragon of the East.

China goes quantum

For years, they worked tirelessly. And finally last year, they saw the fruits of their labour.

Chinese scientists built an early form of quantum computing.

Such a feat is incredible. It’s difficult just to explain quantum computing, let alone build it.

Lead scientist, Pan Jianwei, said it was already 10- to 11-times faster than the first electronic digital computer (ENIAC). In a few years, it could become far more powerful than every supercomputer in the world.

And we might not know the full potential of such a system until we see it in action.

With quantum computing we could deconstruct molecules, to create drugs, to cure anything. We could finally make sense of vast amounts of data. We could even create an un-hackable system and also decipher any type of code or cryptography.

No wonder why China and the US want this kind of technology first…

However, the potential of such technology might not mean all that much without some background. Let’s take a look what quantum computing actually is.

What is quantum computing?

A quantum computer isn’t a replacement for your desktop. You won’t be using such power to model excel sheets or check emails.

In fact, quantum computing can’t do a lot of things your desktop can. That’s because they have a very specific purpose. They solve optimisation problems and deconstruct complex theory and equations.

Towards Data Science explains:

‘…the difference between a classical computer and a quantum computer is not like the difference between an old car and a new one. Rather, it’s like the difference between a horse and a hawk: while one can run, the other can fly.

There are two principles that enable quantum computers to fly. The first is superposition and the second is entanglement.

Superposition means a system can be in two states at the same time. For example, those states could be on and off. Alternatively, it could be binary information like 0 and 1.

Entanglement allows you to know precise information about different variables with the information of just one.

Put the two together, introduce the qubit (unit of information) and you’re on your way to quantum computing.

The problem, for the US at least, is that China is rapidly developing this technology.

China is a space worth watching

China is no longer a copycat of the West. They’re quickly becoming an innovation nation just like they’ve been saying. The government just spent US$10 billion to build a quantum lab.

According to the OECD, China is now the second largest scientific powerhouse, behind the US. And as you can see, China is pumping out patents like crazy.

Quantifying Quantum Computing: US and China Arms Race 11-04-2018

Source: Bloomberg
[Click to enlarge]

Bloomberg wrote yesterday:

It’s too early to say which company or country will be the leader in quantum computers, though at this stage it looks like U.S. companies will excel in hardware while Chinese and Japanese ones are focused on the software and applications.

‘…Quantum physics is one area in which the Chinese government, through its Ministry of Science and Technology, is beefing up its technological prowess, according to a report by the U.S. Trade Representative that laid the groundwork for Trump’s tariff plans. The China Academy of Sciences and Beijing University are among the Chinese research firms seeking more patents on quantum information technology, according to Patinformatics.

The Chinese government invested by giving a lot of money to companies and researchers to “replicate what we did in the U.S. and elsewhere,” said Carl J. Williams, deputy director of the Physical Measurement Laboratory at the U.S. National Institute of Standards and Technology. “They’ve come a long way.”

For now, Chinese researchers are focusing on encryption. But such studies will expand to solve some of the greatest mysteries we have.

Such technology could be years away. But it’s an investment space to watch, as the US and China tussle it out.

Your friend,

Härje Ronngard,
Contributing Editor, Markets & Money

Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.

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