How The “New Cold War” With China Will Change America’s Future (FXI, PPA, ITA, FXP, EDC)

Money Morning Staff: Few things push the frontiers of the future more than an army’s desire to defeat its enemies. Just look at what happened to America after World War II. Our need to counter Soviet power delivered a tidal wave of innovation.

Defense spending led to the Internet, microwave ovens and GPS devices – not to mention millions of jobs from one of the great tech booms in history.

Now comes the “New Cold War” – one that will also prove a boon to a wide range of tech industries.

This time the United States is racing against China (NYSEARCA:FXI).

You see, the Pentagon recently announced plans to check Chinese ambition with a wide range of responses. They fall under a new program called “Air Sea Battle.”

It has U.S. President Barack Obama’s backing. The president told our Pacific Rim allies the U.S. will provide a safety net in the region. It’s a clear signal to the Pentagon to get cracking on key research and development (R&D).

This certainly comes at an awkward time. The U.S. faces a daunting debt crisis. With Washington’s failure to reach a budget compromise, big defense cuts loom.

That will hurt in the short run, no doubt. But over the long haul, as it has done several times in post-war history, the Pentagon will find ways to push new technology in an era of tight-money.

Forced to do more with less while challenging the Chinese, the Department of Defense (DoD) will invest in high-value technology.

Here are a few examples of what I’m talking about.

Virtual Battleground

Consider the impact this will have on cybersecurity and warfare. China tries to hack our defense computers and steal our most sensitive secrets almost daily.

Needless to say, we want to put an end to that. But we also want to learn how to shut down China’s computer networks so we can defeat them without firing a single shot.

Consider what happened to Iran’s nuclear program in late 2010.

Used as a cyber weapon, the Stuxnet virus crippled Iran’s computers, putting the country’s plan for atomic weapons at least two years behind schedule.

Of course, there’s a civilian spinoff, which along with countless other viruses, poses a threat to average Americans, as well as U.S. corporations.

Making networks more secure would help banks, hospitals, and other firms protect sensitive data from hackers. It also will aid the fast-growing world of mobile commerce, which will soon become a major target for crafty cyber thieves.

That’s not all.

The Not-So-Friendly Skies

Unmanned aerial vehicles clearly will get a lift from the New Cold War. Already, the U.S. makes great use of drones to fight terrorists.

And training pilots to operate drones remotely just got a big boost. Working at a Massachusetts Institute of Technology (MIT) lab, a former Navy pilot wrote an iPhone app that allows anyone with a smart phone to learn the basics in a matter of minutes.

But the Navy has a much bigger goal — to develop jet aircraft that can take off from and land on an aircraft carrier without a pilot.

It’s one of the more daring feats in all of aviation.

Commercial flight would clearly benefit from these innovations. It would help the Federal Aviation Administration’s (FAA) efforts to figure out how to fit unmanned aircraft into the nation’s skies.

I predict they’ll start with cargo planes and develop a bulletproof safety record before asking passengers to climb on board.

Communication is Key

The New Cold War also will push advances in how well machines “talk” to each other.

Where Air-Sea Battle is concerned, DoD leaders want stealth aircraft and submarines to work closely together. Inevitably, that will mean equipping both with advanced devices that can talk through deeply encrypted channels.

Of course, better machine communications also could boost the next generation of Internet technology known as the “Semantic Web.” Currently, the web doesn’t share data in a robust way. Instead, the information remains disconnected as though it were all stacked in lots of silos you can’t easily see.

Think of the Semantic Web as a series of bridges linking millions of silos. Machines will develop the ability to understand the “semantics” of human language and give you the exact answer you need.

Of course, all this means artificial intelligence (AI) will get even better. That will have ramifications that impact the economy of the future.

Remember, China provides the U.S. with powerful reasons to push defense technology.

First of all, China’s navy has harassed U.S. Navy ships and those of our allies in the South China Sea several times since 2009.

And second, its fast economic growth has fueled a large-scale weapons buildup.

Still, that plays to a major U.S. strength – using advanced technology to make each of our soldiers as lethal as several from an opposing army.

Indeed, if the United States wants to maintain its edge over China, it will have to invest in advanced weaponry. And that will improve America’s future technology.

Related: PowerShares Aerospace & Defense ETF (NYSEARCA:PPA), iShares Dow Jones US Aerospace & Defense ETF (NYSEARCA:ITA).

Written By The Money Morning Staff

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