An investor is paying attention to the changes in the Shanghai Composite Index displayed on a computer screen at the Hua'an Securities Trading Office in Fuyang City

An investor is paying attention to the changes in the Shanghai Composite Index displayed on a computer screen at the Hua'an Securities Trading Office in Fuyang City Photo by Sheldon Cooper/SOPA Images/LightRocket via Getty Images)

Geopolitical tension with China would hit U.S. critical technology sectors hard, new study shows

The next major financial crisis is likely to stem from further deterioration between the U.S.-China relationship

Many of the largest tech companies in the United States are so intertwined with China that they likely would not survive a massive geopolitical crisis between the two countries, research from data services company J.H. Whitney shows. 

Such a crisis would also likely bump leading tech-associated companies like Meta (parent company of Facebook) and Tesla off the list of 10 largest companies by market cap

Whitney looked across 1,559 public companies with a market capitalization over $5 million dollars, of which, 576 were associated with one or more of 14 different critical technology areas. These include things like biotechnology, quantum science, and artificial intelligence—the same technology areas the Defense Department defines as critical to future U.S. military innovation, according to John O’Connor, the chairman and CEO of J.H. Whitney. O’Connor presented the research at an NDIA emerging technology conference this week.

Were the United States and China to suddenly cut off all trade and other economic relations with one another, because of some geopolitical crisis like conflict in the Pacific, the decoupling would result in a 10% drop in GDP, according to numbers from Rand. 

“That could be quite substantial. So think in terms of something on the order of a great financial crisis,” O’Connor told Defense One. 

Little is known about how such a decoupling would affect specific companies and sectors of the economy, he said, though biological sciences and pharmaceuticals would likely be hit the hardest due to their reliance on materials from China. That’s a big reason his company is using big data and large cloud analytics to understand how different companies are exposed to China. “Our modeling capacity is improving by virtue of all these tools,” he said. 

The Defense Department is not as “entangled” with China as other portions of the government, O'Connor said. The large, traditional defense contracting firms would do well according to Whitney's analysis, because they do not rely on China for parts or for customers—though some had business in non-adversarial countries with average political risk. (All scored a 2 or higher according to a scale that places the highest risk of exposure to China at 1.)

But the Defense Department is looking to decrease its reliance on traditional defense contractors and rely more on so-called dual-use companies—particularly in information technology—that can sell to the military and the public. Many of those companies are involved in China, adding risk to that strategy, said O’Connor. 

“There's a different profile between Microsoft and Google. Microsoft is more entangled in the PRC than Google is, and Oracle is the least entangled,” he said of three cloud providers to the Defense Department. 

O’Connor says  the government should conduct stress tests on companies to better understand how a U.S. decoupling with China might affect them, tests similar to the ones the government ran on banks following the 2008 economic crash. 

Such tests would provide a clearer picture of which companies would face the biggest challenges if the U.S. and China relationship continues to worsen. But he said that while some companies understand continuing to do business with China presents dangers to their bottom line, other companies are not receptive to that message. More and more, he said, companies are resorting to sneaky but legal tricks to hide their involvement in China by referring to revenues that come from the PRC as simply from “Asia.” It’s the sort of thing that deep analysis can reveal.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.