USA-China economic war 

Lessons for the world from the increasing strategic competition between the two super powers

THE LAST WORD | ANDREW M. MWENDA | Today, I take leave from Ugandan politics with all its unending quarrels and recriminations to address an important global issue – the strategic competition between the United States and China. I have written before in this column that as China rises, it will not avoid competition with the USA in all areas – technology, military, economic, etc. This is inevitable given that historically, no two big powers have lived peacefully in the international system: Athens and Sparta, Napoleonic France and UK, Germany and the UK, the USSR and the USA, etc.

For today, I want to deal with the technology competition between the USA and China. In 2018, Washington put restrictions on Huawei’s and ZTE’s access to high-end technology products from the USA. China was blind-sided, and their businesses were shut down. This was a big threat to China-tech and made Beijing realize the risk of dependence on American technology. Over the years the USA stepped up its technological restrictions on China, especially with advanced semiconductors, as economic competition between the two countries intensified.

China told all its banks to stop lending to real estate and invest in high-end technologies. They got all the big tech CEOs in one room and told them to shift from producing video games to developing their own software, semiconductors and advanced microchips. This is what caused Jack Ma to go public and say the government is trying to dictate to him on how to run his business, over which the government has no clue. And he learnt a hard lesson from this. And why did China succeed in this? Because the state controls the banking system by directly owning the major banks.

So there was a massive mobilization of national resources towards investment in high-technology industries. The response to developing these technologies on her own has been very successful. In 2020, the leading US company producing advanced microchips, Nvidia, had 85% market share on these advanced technologies. Now in 2026, it’s down to 50% and going down. But this also means the USA is killing its own firms.  China was the biggest customer for Nvidia. By restricting her access to Nvidia’s technology, even through mere threats (Trump has recently reversed himself on this policy), Washington forced Beijing to build her own technology industries and thereby stop being dependent on the USA.

This shift in credit led to a major real estate burst in China, as there was no more money going into the sector. This burst consumed the attention of the western media and governments; all stories in the Financial Times, the Wall Street Journal, The Economist, etc were talking about the real estate burst in China. No one was talking about the massive investment in high-end technologies, how China was moving up the value chain on this wave of capital, and not just financial capital but also human capital.

Remember, China also told the tech firms to stop hiring the best engineers from the best universities to build video games but rather to build high-end technologies in software and semiconductors. Today China produces more STEM graduates per year than the rest of the world combined if you exclude India. Since 2000, China has gone from 350,000 university graduates per year to 12 million per year. This is the human capital China has relied on to de-westernize her supply chains and her technology industries.

Now seven years later, we are waking up to a world in which China has made a huge leap in high-end technologies. It is now producing not just the most technologically advanced cars but also the best-priced cars. Take the example of Audi; it represents German engineering in cars and luxury. But today it has dropped its four circle branding and taken on a Chinese brand. Why? Because European cars are now seen as inferior in China. Soon this perception is going to spread across the world with debilitating consequences for German manufacturing and European competitiveness in the automobile sector, but also in many other industries.

China has leapfrogged the West in all high-end technologies such as wind turbines, telecommunications switches, electric cars, etc. It is only in very high-end semiconductors that it is lagging behind, but again, it is catching up rapidly. This transformation was missed because for three years no one was going to China due to the Covid shutdown, and then there was the distraction of Russia’s invasion of Ukraine, which consumed Western attention. And then the fear of China’s invasion of Taiwan.

Today China is bidding to build nuclear power plants in Saudi Arabia at half the price the French companies are bidding. Yet this is the area where only a few years ago France led the world. It’s now lost, gone to China. It’s amazing how fast China has moved up the value chain. In 2025, Xi banned Nvidia chips from China. Why the hubris? First, China realized it can use more microchips to produce the computing power of a few advanced chips. This reflects an old principle that scale has a quality of its own. Second, they think their new chips are getting closer to being the best. But third, it could be aimed at tripping Nvidia. This is a company whose market cap has gone from $300 billion to 4.1 trillion in less than 2.5 years.

There are 100 EV makers in China today; 12 of them are the best in the world. They lead in GPUs. So the West now finds itself in a serious dilemma: should it sell China the best of its technologies which Beijing may use in its defense industry? Isn’t that like feeding your own enemy? But what of China selling the West rare earth minerals, which they use in their weapons systems as well?  Now the West, especially the USA, is facing a serious dilemma. Should it see China as a military rival or a commercial partner? This will have powerful implications on how the two engage. Since 2018, the USA has defined this relationship in adversarial terms. Problem is the two are so heavily interconnected, not like it was with the USSR.

For instance, what are Apple, Tesla, Walmart etc without China. They manufacture and/or source most of their products from China. Why? As Apple’s Tim Cook said, it is no longer because China has cheap labour. Rather, because China has very highly skilled human capital. But more critically for any plan at decoupling from China, it is the leading trade partner with most countries in the world. Can the USA afford an adversarial relationship with China? Would it carry its allies along, given that most of them, most especially in Asia, but now increasingly also in Europe and Latin America have China as their major trading partner? China today produces the best quality products at the best prices. For most countries there are strong incentives to remain with China even if they go against the USA. What will the USA do now? What is it already doing? I will address this next week.

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amwenda@ugindependent.co.ug