National security thinking around technology has entered new territory, as illustrated by recent US policy statements on the (potential) banning of Chinese connected vehicles, Chinese-owned social media platform TikTok, Chinese battery manufacturer CATL, and Chinese crane manufacturer ZPMC. As we have discussed previously, such policy decisions have a greater impact on equity markets than conflicts. Moreover, it will be difficult to predict where these policies will end.

Studying the language coming out of Washington, it appears that national security concerns about Chinese technology really refer to four different concerns:

1. the concern about censorship – which is relevant in the case of TikTok, as Matt Stoller carefully explains here;
2. the concern about surveillance – for instance about the sensitive data Chinese connected cars or even our smart coffee machines could collect;
3. the concern about Chinese companies outcompeting American companies – as mentioned in the White House statement about Chinese vehicles, which refers to protecting the US auto industry;
4. the concern about dependence – relevant in any industry dominated by Chinese companies, such as batteries.

In the future, the fourth issue, dependence, particularly in critical areas like battery production, could become a potential turning point. In these areas, where other countries have become ‘dependent’ on China, Chinese producers are simply the most efficient, which means they can offer the lowest prices. This is where the public interest, driven by the demand for affordable energy and mobility, will continue to clash with national security objectives (bans on specific products – like batteries – coming from China).

Drawing parallels from history, there are similarities to the beginning of the 20th century. Then, the global hegemon Great Britain was alarmed by the growing power of Germany and came close to significantly raising tariffs. Today, the US, much like the UK at that time, finds itself at a crossroads, considering the level of protection needed to safeguard domestic industries. What happened in the UK, however, is that despite enormous domestic pressure to raise British tariffs, a coalition of business interests and public sentiment against protectionism ultimately prevailed. In fact, the UK barely raised tariffs before World War I began in 1914.

Whatever the future of US policy on Chinese batteries and Chinese vehicles (more restrictions are likely), it may not matter much in the long run. The reason is that Chinese business models may prove more effective at reinventing themselves than US policy can keep up with sanctions. For instance, while CATL cannot sell directly in the US, it is trying to circumvent sanctions by licensing battery manufacturing technology to partners (such as Tesla and Ford) and charging a royalty fee. In the end, the public interest could still win, much like it did in the early 20^th century.