The new trade war will be waged through tech: Technology is the new frontier in the race between the US and China for global influence, as the trade liberalization and global supply chains that characterized the past few decades are giving way to a new era of sanctions and restrictions fueled by mutual distrust over the other side’s (mis)use of new technologies, write Daniel Garcia-Macia and Rish Goyal in an International Monetary Fund report.

Where is this war being fought? The battle between the US and China over 5G is a prime example, with the US blocking the use of American components in Huawei products last year, then conceding that they may be used only in the company’s smartphone, not its 5G business. The US has also threatened to block social media platforms run by Chinese companies, such as TikTok and WeChat, citing national security concerns. The judicial action against the companies was ultimately halted, though the episode pointed to how far the US is willing to go in order to get a leg up on China in the tech race.

Security concerns have been allowed to trump freemarket economics: “From a classical economic perspective, this escalation makes little sense. In traditional sectors, barriers to trade generally lower economic well-being in all countries involved,” write Garcia-Macia and Goyal. In the digital era, distinctions between economic and security issues are less clear, they write, and tech is at the forefront of this spillover from one arena to another, with governments citing security concerns in order to enact economic sanctions through imposing controls on the tech sphere.

Goodbye, analog sovereignty: This tech race does not conform to traditional borders or intellectual property rights, and takes tech out of the sphere of the economy and brings it into politics. Traditional sovereignty over land, property and resources is no longer sufficient, Luciano Floridi, a professor at the Oxford Internet Institute told the Financial Times, referring instead to the concept of digital sovereignty — the control of data, software, hardware, and infrastructure — that has become of key importance to states and corporations alike. Digital sovereignty will not become so important as to replace traditional analogue sovereignty, says Floridi, but should be about “complementing it with a supranational, contemporary-digital one” which should “provide to all actors and stake-holders wider benefits of harmonisation […] and a level playing field.”

Experts are raising concerns over a “splinternet,” where the US and China exist in and preside over entirely separate digital realms. Businesses would be among the first to suffer, as a greater digital divide would create additional red tape for businesses operating in both the US and China. The decoupling of trade into separate economic spheres based on which side of the rift a nation happens to fall risks undoing decades of globalization and cooperation.

Other countries (including Egypt) are being dragged into the rift: US officials urged Egypt last year to avoid working with “malign actors” on developing its 5G network, and to work with American firms instead. The State Department Under Secretary for Economic Growth, Energy, and the Environment invited Egypt to join the “Clean Network” — a group of 40 “like-minded” countries and 60 telecoms companies “committed to securing their most sensitive information,” aka, keeping it away from China. The US has earmarked mns to take developing countries out of China’s sphere of influence, and has said it will help finance and equip 5G infrastructure for Egypt and other countries through the US’ International Development Finance Corporation.

What’s to be done? “Leading countries should be urged to set up cooperative frameworks in several areas,” write Garcia-Macia and Goyal. Securing intellectual property rights, as well as enforcing coordinated regulation and initiatives for digital taxation across borders could be done through the creation of a sort of “digital stability board” that could take the lead on regulatory policy, the authors write. “Collaboration would weaken the incentives for conflict and lead to potentially better outcomes. But it will require sustained effort and rebuilding trust.”