DigiTrade Digest # 104


US raises concerns on India’s decision to impose import curbs on technological devices

The National Herald: The issue was flagged during a meeting between Commerce and Industry Minister Piyush Goyal and US Trade Representative Katherine Tai in Washington on August 26.

With the US flagging concerns over India’s decision to impose import restrictions on certain electronic devices, both countries have agreed to find a solution to the issue that addresses the concerns of both nations, according to a statement of USTR.

The issue was flagged during a meeting between Commerce and Industry Minister Piyush Goyal and US Trade Representative Katherine Tai in Washington on August 26.

The two ministers also directed their officials to continue their discussions to mutually resolve the last pending trade dispute with regard to certain poultry products at the World Trade Organisation (WTO).

“Ambassador Tai also raised concerns related to India’s import licensing requirements for technological equipment. She noted that there were stakeholders that needed an opportunity to review and provide input to ensure that the policy, if implemented, does not have an adverse impact on US exports to India,” according to a readout of Ambassador Tai’s meeting with Goyal.

“Ambassador Tai and Minister Goyal agreed to explore this issue further and find a solution that addresses both countries’ concerns,” the statement, posted on the USTR website, said.



India and South Korea Are the New Titans of ‘Digital Trade’


India has been quietly leading the way when it comes to digital trade. It long ago built a large IT outsourcing sector, thanks largely to a software industry that went largely unregulated in its early years. As a result, IT providers were able to expand without much government intervention, according to a study published by the Carnegie Endowment. Now, India’s IT industry and related sectors account for 13% of the nation’s GDP.

According to those Goldman economists, are India and South Korea—key partners to the US in its rivalry with Beijing. Since Washington’s natural interest is to make digital trade a centerpiece of economic engagement in Asia, it would be logical for the US to join them—and gain a step on China in the process.

India in particular has benefited greatly from digital trade, with its surplus running at 4% of GDP last year, an amount sufficient to cover half of the country’s deficit in the trade of goods, according to Goldman.

While cloud services wouldn’t appear to be a labor-intensive business, digital trade does provide the potential for employment gains, too. By making it easier to provide services across borders, digitalization allows small firms and even individuals opportunities that would be harder to come by in goods trade.

Jobs in “digitally-enabled trade” amount to almost 10% of total employment in South Korea, more than half of the figure for manufacturing payrolls, according to Goldman’s analysis. “Job and associated income effects could be broader and potentially larger than in international goods trade,” the team wrote.

South Korea’s high level of digitalization offers it a competitive advantage as well. The country stands out as a non-financial center that nevertheless placed No. 8 in a global digital competitiveness ranking compiled by the International Institute for Management Development.

So will the US follow its allies in Asia when it comes to digital trade, or will it stay on the sidelines with China?

Given the rapid growth of this area in Asian economies—economies that could otherwise align with Beijing—the Biden administration’s Indo-Pacific economic program offers a clear opportunity for US advantage.



US-China tech war: Beijing wants young tech talent to play leading role amid self-reliance push

SCMP: China has pledged to provide more opportunities and funding for young tech talent as part of a plan to improve science and technology self-reliance amid intensifying competition with the United States.

The State Council rolled out a series of measures on Sunday aimed at cultivating and utilising young talent in technological fields, vowing to let them “play the leading role” in major projects.

To make its tech talent pool younger and more vigorous, it ordered that at least a half of the leaders and core members of major projects should be aged below 40, and a basic research fund from the central government should mainly be allocated to those under the age of 35.

Beijing considers talent as central to its technological advancement as China’s five-year plan for 2021-25 focuses on innovation-driven growth and the tech war with the US heightens.

The latest directive promises to remove barriers relating to job titles and education background and loosen age restrictions for applicants for key research and development projects.

It also vowed to provide young professionals with more power in decision-making bodies, highlighting that at least a third of the team specialising in assessing the performance of tech projects should be aged below 45.

Despite a number of recent policies, science professionals in China have long been complaining about the amount of administrative work required for government-backed projects.

The appraisal system has also largely been based on titles, honours and the number of papers published, making it difficult for younger talent.

China’s expenditure on research and development hit a record of 3.09 trillion yuan (US$426 billion) last year, up by 10.4 per cent from 2021.


US Commerce chief seeks trade, tourism boost in China talks

Reuters: U.S. Commerce Secretary Gina Raimondo arrived in Beijing late on Sunday for a four-day visit aimed at boosting business ties between the world’s two largest economies while declaring American national security trade measures off-limits for debate.

Relations are tense as the United States works with allies to block China’s access to advanced semiconductors, while Beijing is restricting shipments from prominent chip company Micron Technology (MU.O) and raided and fined U.S. firm Mintz Group $1.5 million for doing “unapproved statistical work.”

Raimondo spoke to President Joe Biden on Thursday about her visit and his message was enhanced dialogue with China can ease tensions.

“We want to have a stable commercial relationship, and core to that is regular communication,” Raimondo said. “We need to communicate to avoid conflict.”

Republicans in Congress have criticized the possibilityRaimondo will establish a working group with China during the visit to discuss U.S. semiconductor export controls.

Raimondo did not confirm plans for any working group but emphasized she would tell Chinese officials “when it comes to national security we don’t negotiate. We don’t give concessions. We don’t compromise.”

The United States is using government incentives and tax policy to wean American businesses off Chinese supply chains and ramp up U.S. semiconductor production.

Tech investors face ‘new era’ of China restrictions after Biden order limits funding in A.I., chips

CNBC: The Biden administration’s executive order restricting U.S. private equity and venture capital investments in Chinese technology finally landed on Wednesday. For U.S. tech investors who’d already grown wary of the budding cross-Pacific rivalry, the ruling is the clearest signal yet that the world’s second-biggest economy is off limits.

Biden is specifically targeting investments in technologies like semiconductors, quantum computing and artificial intelligence on concern that China’s advancements in those areas run counter to U.S. national security interests. The new measure is expected to go into effect next year.

U.S. investors have been steadily retreating from China due to a combination of a weakening economy and the fraught geopolitical environment. Combined U.S. private equity and venture investments in China fell to an eight-year low in 2022 in terms of capital deployed, a trend that continued into the first half of this year, according to PitchBook data.

At this point, any technology that can be used to enhanced China’s military strength or surveillance capabilities is of notable concern to the White House.

“U.S. money should not be used to finance Beijing’s military development,” said Eric Reiner, managing partner at Vine Ventures, which backs early-stage companies in the U.S., Israel and Latin America. “A lot of these firms that have been investing in China and setting up offices there are really playing with fire.”

While AI, computer processors, and quantum computing are areas of stated concern, many investors and experts say they have to move forward with the expectation that the ban will widen, essentially making any deal in Chinese technology too risky to pursue.

The U.S. government’s ongoing hostility towards China carries its own risks. For one, there’s a ton of investment money in and around China that can fill the vacuum and potentially generate huge returns. There’s also the challenge of dealing with existing investments.