Illustration: Aïda Amer/Axios

Longstanding threats from both the U.S. and China to claw apart the two countries' interdependent tech economies are finally giving way to reality.

Why it matters: A divorce is going to be messy, with lots of near-term pain on both sides. And the end result may be a diminished, more fractured world compared to the one that existed just a couple of years ago.

Where it stands:

  • China has long manufactured a great deal of the parts and hardware used in U.S. tech products. It has also become a major consumer market for certain American tech giants, including Apple.
  • The U.S. provides the software and semiconductors that much Chinese tech runs on. Chinese firms benefiting from this arrangement include conglomerates like Tencent and Baidu as well as device makers like Xiaomi, Lenovo and Oppo.

Now, through action from both countries, the arrangement is breaking down.

  • A sometimes muddled push to attack Chinese telecom giant Huawei is starting to have global impact. Several U.S. allies have set limits on Huawei's role in supplying 5G networking gear and Huawei now says it's running out of the chips it needs to make phones because it's cut off from doing business with U.S. suppliers.
  • U.S. companies including Apple, Disney and Walmart are warning the White House that its planned ban on Tencent-owned WeChat could hobble their entire Chinese businesses. WeChat is a multi-purpose platform with total ubiquity in China, used not just for messaging, but also payments, social media and a raft of other functions.
  • The Trump Administration's Clean Network proposal seeks to sever the reach of Chinese technology so it ends at China's borders, calling for a range of initiatives including blocking Chinese devices from running American apps and pressuring other countries against using China's undersea internet cables.

What's next: Both countries are already looking inward to make plans for greater tech independence. Much of that has centered around the semiconductors that power high technology, with each country trying to onshore the entire chipmaking process, from research to manufacture.

  • China has long been working to develop its own chips, pouring money into the sector, including with fresh tax breaks earlier this year.
  • U.S. lawmakers put provisions to unleash some $23 billion in funding and tax incentives to support R&D and build domestic chip factories into must-pass defense legislation that cleared both the House and Senate last month.

Flashback: It's not the first time barriers have gone up between the two countries' tech economies.

The big picture: Even if the U.S. and China both ease off the decoupling push, the split may already be a fait accompli.

  • Companies that chiefly do business in one of the two countries may become unwilling to be strategically dependent on technology from the other country after seeing that dependence imperiled.
  • Already, companies like Foxconn that manufacture for Apple and other U.S. firms are aggressively trying to diversify their manufacturing operations beyond China.

Yes, but: A split could create opportunities — on either side.

  • There is a school of thought that companies like Huawei will emerge stronger from the U.S. bans, expanding their global presence without the encumbrance of fending off American threats.
  • Don't expect to see iPhones being made in the U.S. (If anything, production will shift to another low-cost, labor-rich market like Vietnam or India.) But decoupling might mean more U.S. manufacturing, especially of semiconductors.

The other side: Not everyone is betting on a total decoupling. Consider, for example, the continued trend of Chinese companies going public on U.S. exchanges.

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