How Digitalization Is Preparing a Fight for World Market Supremacy
With US hegemony in decline, China and the European Union are each vying to impose their own leadership over the next wave of digitalization. Donald Trump's talk of "America First" expressed this rivalry in especially crude terms — but even after his departure, the contest among the main world powers is only intensifying.
The United States and China are engaging in a trade war that British think tank Chatham House calls rooted in “a race for global technological dominance.” And for German business daily Handelsblatt, “Europe is getting caught in the crossfire of [this] technology war.” Faced with this threat, the European Commission has reserved large parts of its coronavirus recovery fund to boosting or maintaining Europe’s “digital sovereignty.” Technology, it would seem, is a matter of power politics. But what does “technological dominance” mean in the digital age?
In her State of the European Union address in September, European Commission president Ursula von der Leyen announced that we have ahead of us nothing less than a “digital decade,” and demanded clear-cut goals for a digital Europe by 2030. As she put it, “Europe must now lead the way on digital — or it will have to follow the way of others, who are setting these standards for us. This is why we must move fast.”
The three remaining world powers — the EU, China, and the United States — are today struggling for world market supremacy. The battles will be fought in the field of digital technology. And as von der Leyen indicated, one of their most important weapons will be the bid to impose their own standards on the global market. Let’s have a look at their battle plans.
If the digitalization of Europe is to succeed, then, according to von der Leyen, EU-wide standards are needed. A standard is a uniform design, in this case meaning a common language for different machines connected via the Internet of Things (IoT). The USB port is probably the most well-known standard in the digital field; but in other cases, for instance charging plugs for electric cars, there’s still a great variety of alternatives.
From an economic point of view, different standards and norms are a barrier to growth for both private companies and for the states that oversee the growth of their capitals. If an electric car cannot be charged at each and every charging station, then this serves as an argument against using electric cars — and limits the business of charging station providers. So, a common standard is needed to make them more viable.
But this standard is itself the subject of competition. Companies seek to set their language as the norm for others. Asserting its own standard is the company’s means to force competitors out of the market via so-called lock-in effects: when users buy new stuff, they will resort to products that are compatible with those they already own. For instance, an iPhone user will be more likely to buy a MacBook, because these devices communicate well with each other.
While the lack of any common standard can provide an instrument for companies to compete with one another, its effects remain contradictory. While having its own standard shields a company from competition, it also limits its sales opportunities. Licensing is one way to deal with this contradiction: companies try to make their technology the norm by giving access to everyone else — for a fee.
Europe’s Competition With the Outside World
This problem also arises at the level of states. The German government, for example, has been campaigning for a common data protection law for the whole European Single Market for quite a while now. This benefits the biggest European capitals, which can thus provide their goods and services throughout the whole European market without having to make adjustments.
Europe is becoming a unitary sales market, in which the biggest — as it happens, German — capitals prevail. Conversely, EU data laws are designed in a way that makes it difficult for US internet giants to adapt. This is no coincidence. Von der Leyen self-critically asserts that the United States is far ahead when it comes to personalized “business-to-consumer” data (B2C), where businesses address the end consumer directly via new media. Here, in particular, the big five from the United States are global leaders. So, while von der Leyen endorses standards, she makes clear that they should advance European, not US, capital.
This is the contradiction in which the competition for digital dominance moves. On the one hand, different standards set boundaries for both companies and states, so a common standard would be a gain for everyone. But on the other hand, a common standard also opens up the market to foreign capitals. So, the struggle for standards is not about the compatibility of technologies, but about whose capital conquers which national market.
For the EU Commission president, it’s about who leads and who follows. “We want to lead the way, the European way, to the Digital Age: based on our values, our strength, our global ambitions.” It seems the EU is no longer content with its third place behind China and the United States. It is staking its claim for global dominance, at least in some fields.
Europe’s Internal Competition
One such field where Europe is already in the lead is industry data. “We have the technology, and crucially we have the industry,” von der Leyen says, concealing a small but crucial detail: while the EU competes against the United States and China as a single unit, it is also divided by inner-European competition.
By “our industry,” von der Leyen of course means German industry, which in recent years has grown at the expense of other European countries, from the meat industry to those connected to auto manufacturing. Germany being a world export champion does not only hurt the United States and China, but also creates tension within the European Union itself.
The growth of Germany’s industry was facilitated through the German industry standards DIN and ISO. While every German schoolchild knows that her exercise books are standardized to “Deutsche Industrienorm” DIN A4, its effects on the European market have been less benign. While the common market has created huge European champions that can stand up to the United States and China, it is rather questionable whether this is also a success for those European countries whose national economies have been reduced to sales markets for German products. This is no accident. Standards create a common market where all products that meet this standard can be sold, and then on that basis, the biggest capital will win out. And in Europe, that means German capital.
Such contradictions are, truth be told, irrelevant to von der Leyen’s vision of “Europe’s digital sovereignty.” By successfully setting the standards within the EU, Germany has forced most other European countries under its hegemony. Germany’s gain in sovereignty was their loss.
Despite the commissioner’s flowery rhetoric of “shared values, “European digital sovereignty” is nothing less than an imperialist program of global competition: the bid to be on the enforcing and not the receiving end of standards. It not only aims to strengthen Europe’s position in the world, but also Germany’s position within the EU.
Where other nations insist on their own interests and diverge from the German program, they are accused of “proliferation” — the uncontrolled development of different standards. Such “particularism” doesn’t fit Germany’s ambition for greater power.
The United States Under “America First”
The United States has also justified its recent offensive on the world market with reference to the actions of its competitors: Donald Trump never tired of pointing out “unfair” practices by China and Europe in the predatory competition for the automotive and steel markets. Even before Trump — but still, more so under his presidency — it has been the policy of the US government to push back against German exports and to advance US capital.
It is no coincidence that in the United States — otherwise hardly known for progressive climate protection legislation — stricter rules apply than in the EU with regard to diesel limit values. While the EU allows for a maximum of eighty milligrams per kilometer, the comparable standard for the US environmental agency EPA (Tier II Bin 5) sets a limit of seventy milligrams per mile. This keeps German automotive competitors out of the US domestic market.
The Trump administration identified China and the EU — and especially Germany — as its main opponents. Both have made good use of the free world market instituted by the United States and grown into serious competitors in various fields. Trump drew the conclusion that the world order up to now has, therefore, somehow been an anti-American project — and he thus broke with predecessors of his who had treated the world market as the foundation of US supremacy. Instead of free trade, Trump relied on “great deals” that he negotiated with individual states.
On the domestic scene, “America First” didn’t bring much change: the American struggle for technological supremacy has relied on the most liberal legislation with regard to autonomous driving. With the biggest IT capital in this sector, certain US states have become giant test ranges for autonomous vehicles. Whoever can provide the most test miles and the lowest failure rates has the best chances to dominate future markets.
The major changes brought by “America First” concerned US-international relationships: the US government has intensified pressure on Chinese IT capital that threatens the hegemony of the Big Five, a recent example being TikTok, which has several million users in the United States. The ban on the app seems to be off the table for now, but only because Trump reached an agreement with its owner ByteDance to transfer the US business to a company that will likely be headquartered in Texas.
China’s Program of Dual Circulation
It remains to be seen how Chinese-US relations will change under Biden. Yet the tone has already been set — and it is not a warm one. In a recent interview, Biden said that he not would grant Chinese companies permission to build important infrastructure in the United States. And he added some personal experiences with the leader of the Chinese Communist Party: “This is a guy . . . [who] doesn’t have a democratic-with-a-small-‘d’ bone in his body.”
Advances in the technological field have been a huge project for the Chinese Communist Party for around two decades. By forcing foreign investors into joint ventures with Chinese companies, the state leadership has secured benefits for China and acquired the most modern means of production.
The “extended workbench” for US and EU capital has long since become the world’s second-largest economic power. Bejing has sought to make China “a leader in the fourth industrial revolution” with its program “Made in China 2025.” Adopted in 2015, it has been the direct competitor to America’s “industrial internet” and Germany’s “Industrie 4.0.” With it, China has made great advances in setting the standards of international competition. Within just a few years the producer of cheap mass junk has turned into a provider of high-tech quality products.
No efforts were spared in this endeavor: where Germany spent 200 million euros on digital infrastructure and research and development in its “Industrie 4.0” program, China forked out almost 200 billion for its “advanced manufacturing” and “national integrated circuit” funds and for subsidies for its chip industry. It has also merged private and state-owned companies to create national champions big enough for the world market.
Only recently, “Made in China 2025” was thoroughly revamped through the fourteenth five-year plan and its strategy of “dual circulation”: in this vein, China will intensify its cooperation with Europe and other Asian countries (first circulation) and strengthen its internal market by boosting consumption (second circulation). Chip production will be expanded in Asia. And lastly, Chinese high-tech companies shall be traded less on Nasdaq and more on domestic stock exchanges.
China maintains its goal of conquering the world market, but the United States’ role as a market has been revised. Indeed, the new five-year plan is a direct answer to Trump’s “decoupling” strategy and its bid to unbind the US economy from China.
China, like the European Union and the United States, aims to rule the world market as a world power. None of them today is prepared to settle for any lesser ambitions.