NEW YORK, Apr 10 (IPS) – While the U.S. argues over tariffs, China, Japan, and South Korea are quietly reshaping their tech markets, shifting towards regional dominance – signaling a potential turning point in global tech leadership.
Since 2012, substantial progress on a trilateral free trade agreement between China, South Korea, and Japan has been at a standstill – but amidst new U.S. tariffs, the situation is beginning to evolve. April 2nd marked “Liberation Day” – a promise from the U.S. to the rest of the world that tariffs were coming, upsetting ASEAN allies and creating an opening for new players in the valley.
South Korean Trade Minister Ahn Duk-geun remarks: “It is necessary to strengthen the implementation of RCEP, in which all three countries have participated, and to create a framework for expanding trade cooperation among the three countries through Korea-China-Japan FTA negotiations.”
Picking a battle with these countries means upsetting trade with the U.S’s 3rd, 6th, and 7th largest partners, accounting for a large part of U.S. global trade. But this really isn’t the problem.
The United States hosts Silicon Valley, the largest capital network of tech companies and startups on the globe. Corporations like the “Magnificent Seven”: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla dominate the tech market, attracting substantial investments. For this reason, this culture of success attracts venture capitalists who are willing to take risks due to the association with positive capital investment, but this could change.
These companies stay in the U.S. because, at least for now, it’s a good deal, and their markets within the U.S. are enormous. However, with tariffs on China, South Korea, and Japan, semiconductors, microchips, automobiles, and parts are exceedingly expensive. These are all components essential in the tech industry, meaning looming rising costs can lead to a shift in balance.
This creates an opening for China, South Korea, and Japan to invest in their markets. The combination of a free trade agreement and proximity to each other could have drastic changes in market trends, as none of these countries has to go a large distance in order to import or export their supplies, potentially transforming global market trends.
Distances between regional trade ports:
- Shanghai → Busan: Approx. 530 km (330 miles)
- Busan → Fukuoka: Approx. 180 km (110 miles)
- Shanghai → Fukuoka: Approx. 870 km (540 miles)
Distance between U.S. trade ports:
- Shanghai → Seattle: Approx. 5,400 km (3,350 miles)
- Busan → Seattle: Approx. 7,960 km (4,950 miles)
- Fukuoka → Seattle: Approx. 8,160 km (5,070 miles)
- Fukuoka → Los Angeles: Approx. 8,640 km (5,370 miles)
- Shanghai → Los Angeles: Approx. 10,900 km (6,770 miles)
- Busan → Los Angeles: Approx. 9,960 km (6,190 miles)
Expanded RCEP capabilities:
Regional expansion results in products becoming cheaper, shipping becoming easier, and job growth accelerating, creating a trickle-down from this regional investment in trade to their other markets.
While trade only accounts for less than 25% of the U.S. GDP, this affects a lot. With less foreign investment into U.S. tech markets, possibly Silicon Valley could relocate to East Asia, as their factories are there, and an even bigger consumer base awaits. While wealthy companies could try to set up factories within the U.S. to compete with East Asian manufacturing, this could be really difficult, and take a long time, as U.S. infrastructure is not prepared for the logistics of refining, processing, and supply chain operations on a large scale. The CHIPS Act, aiming to boost semiconductor production domestically, represents the U.S.’s largest attempt to catch up to East Asia in this sector, but it’s going to take loads of time.
Global Trade War Implications:
The U.S. has slapped tariffs on nearly every country, creating the opportunity for supply and demand shifts in many sectors, not only tech. While called “reciprocal” in nature, these tariffs are not reciprocal, instead actually accounting for a “trade deficit”, as Alan Cole from the Tax Foundation details, “The alleged tariff rate from each trading partner is fully a function of trade aggregates, specifically, the deficit divided by US imports, with a minimum of 10 percent. No factors discussed by the administration in these documents or anywhere else (like tariffs, digital services taxes, value-added taxes, or monetary policy) play any role.” – additionally, the WTO found these measures in violation of trade rules, making them not only non-reciprocal, but also incompatible with international trade law.
Since Friday, April 4th, South Korea’s KOSPI Index has fallen 4.27%, Japan’s Nikkei 225 Index by 4.42%, China’s Shanghai Composite Index has risen by 2.91%, with the S&P 500, Dow, and Nasdaq all down by about 2%. While there have been some minimal rebounds, the overall trend points to a steady decline amid ongoing market sell-offs.
Trade talks with Japan and South Korea have been scheduled with the U.S., while China refuses to back down in the slightest, slapping an additional 50% tariffs totaling 84% starting Thursday, April 10th, after Trump’s 104% levy goes into effect Wednesday, April 9th.
China’s retaliatory tactics have seemed to push back, creating an unstable and unpredictable market space, with Japan and South Korea’s indexes trending downwards. These numbers, scheduled talks, and policy choices by China signal strong shifts in reprisal to U.S. tariffs, further outlining a motive for a strategic shift that could move Silicon Valley from the U.S. to East Asia.
The world now watches to see if countries will continue investing in Silicon Valley following this global trade war, with already 50 countries reaching out to the Trump Administration for negotiations. The U.S. and China are battling it out, trade war style, each vying to see who rises from the ashes, and who sits below the mound. The outcome of this war will determine which nation solidifies its position as the global hyperpower. Determining whether the U.S. can maintain its dominance in the tech industry or if East Asia will seize this opportunity to lead in the next wave of innovation. The real question remains: is the U.S. prepared for that shift?
IPS UN Bureau
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