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Economy

China's 5G a bigger threat than trade war, says ex-Dallas Fed chief

Former CEO Fisher claims US fears Chinese tech hegemony

Richard Fisher: "The real concern of the U.S. is the cyberspace issue."

TOKYO -- As the U.S. and China trade punches in their escalating trade war, the more important worry between the two countries is who will dominate cyberspace, particularly in fifth-generation, 5G, mobile networks and related technologies, according to Richard Fisher, former president and CEO of the Federal Reserve Bank of Dallas.

"I don't believe ultimately the issue has to do with trade and physical goods," said Fisher in an interview with the Nikkei Asian Review. "The real concern of the U.S. is the cyberspace issue: That is, who leads and wins the race for fifth-generation mobile networks, internet speed and latency?"

New 5G technology transmits data 100 times faster than current 4G networks and is expected to be used in autonomous cars, the internet of things and other emerging technologies that require ultra-high-speed communication. Commercialization of 5G is expected to be implemented in 2019.

"If China were to win the race, they would establish the protocols for the internet, just as English replaced German as the language of science and became the language of all crucial activity on a global scale," added Fisher.

The U.S. accuses China of violating intellectual property rights through such means as forced technology transfers from American companies and hacking, and demands that Beijing scrap the "Made in China 2025" high-tech manufacturing initiative. Meanwhile, citing security concerns, Australia banned Chinese companies, including Huawei Technologies and ZTE, from supplying 5G equipment to the country.

Both moves reflect fears of Chinese hegemony over the tech domain.

Fisher, on the other hand, is optimistic about U.S. outcomes in the current trade conflict, saying that "mathematics work in our favor in a short time [because] we buy $500 billion of products from China and we also have the power to redistribute the supply chain."

As president of the Dallas Fed from 2005 to 2015, Fisher commented on the failure of monetary and fiscal policy in emerging markets. "Turkey, Indonesia, Argentina and other emerging countries made bad decisions, as they borrowed more in dollars and loaded up on dollars," he said.

Turkey's lira lost 40% of its value against the dollar this year, hit by Erdogan's intervention on monetary policy and diplomatic spat with the U.S. Turkey's annual consumer price inflation hit 17.9% in August, its highest level since late 2003. Although the country's central bank raised the benchmark rate by 6.25% on Sept. 13, this has not fundamentally ended the country's inflation.

At the beginning of September, Indonesia's rupiah was trading at near its weakest levels in 20 years, losing around 9% of its value this year.

"They should be taking advantage of cheap rates to restructure their economy and making themselves more responsible, but that is not what happened," said Fisher.

Meanwhile, the U.S. Federal Reserve voted in June to raise the target for its benchmark interest rates by 0.25%, citing solid economic expansion and job gains. A majority of Fed officials also forecast two more rate hikes this year while emerging markets struggle with higher U.S. interest rates.

The former CEO pronounced that emerging markets "will have no impact on determining the direction of monetary policy of the U.S., unless they are perceived as presenting a systemic risk to us and the rest of the world."

Fisher, who is currently a senior adviser for Barclays, repeatedly mentioned the robust U.S. economy under the administration of President Donald Trump. Cutting tax rates and de-emphasizing regulation "have given small- to medium-size companies confidence for the future, boosting their investment."

His outlook for the U.S. economy remains bullish, as "we no longer talk about being stuck at 2% growth, now closer to 3 or maybe higher." He expects that the Fed will likely to "continue to raise interest rates even beyond the market expects, because  that allows latitude to cut rates sufficiently when the business cycle begins to downturn."

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