US President Donald Trump (L) and China's President Xi Jinping shake hands at a press conference following their meeting outside the Great Hall of the People in Beijing. Artyom Ivanov | TASS | Getty Images

Trade tensions between the U.S. and China escalated Friday after months of threats over billions of dollars of tariffs. While products from soybeans to cars will likely get wrapped up in the spat, a key technology could actually be one of the main drivers behind why the world's largest economies have started a trade war. That technology is 5G — the next generation of mobile internet. Yes, it could allow people to download movies in seconds, And yes, it could lead to a great mobile internet experience. But, 5G is about much more than high-speed mobile internet. It is being touted as a technology that could support the next generation of infrastructure, from the billions of internet-connected devices expected to come online in the next few years, to smart cities and driverless cars. 5G could be key to President Donald Trump's pledge to "make America great again" and China's ambition to be the world leader in artificial intelligence (AI) by 2030.

What's at stake?

Mobile internet requires "standards" that can be agreed upon globally so that companies that make telecoms equipment, as well as mobile carriers, can roll out the technology around the world. The specifications for 5G were agreed upon in December. But now the real race is on as equipment firms like ZTE and Huawei and European companies such as Nokia and Ericsson move to take a lead in 5G. U.S. chipmakers like Qualcomm and Intel are also involved as well as the carriers. And that's a part of what the trade war is about, according to Declan Ganley, CEO of communications company Rivada Networks. "It’s about who is going to define and control the model, the architecture, and the agenda of 5G, and why that matters is because 5G is the deep blue ocean of the cyber domain," Ganley told CNBC in a phone interview earlier this week. "So there is a big strategic play here, it’s more important than shipping lanes and being able to control your own airspace, it’s one of the most important domains that exists and that his ultimately what this is about."

At stake is trillions of dollars of economic value. In 2035, 5G is expected to enable $12.3 trillion of global economic output, according to IHS Markit.

US needs to 'flip the table'

For Ganley, the current model of how airwaves are allocated to mobile carriers is broken. At the moment, telecoms firms in the U.S. will bid for so-called spectrum through an auction process held by the Federal Communications Commission (FCC). In other countries, the appropriate regulator will control spectrum auctions. This often leads to dominance from the larger players who have more money to spend. The CEO said that this has killed innovation, particularly among European firms that led the previous generations of mobile technology. "Because of the way spectrum was allocated, we adopted the top-down model in a way we haven't done since feudalism. We recreated a top-down structure now that has become an absolutely critical part of our economy," Ganley said. He added that this model suits the Chinese because of the top-down nature of the world's second-largest economy. In the auction model, U.S. firms are competing heavily against each other to win customers. This hits their profits and therefore their ability to invest in innovation. In China, however, where there are only two or three major state-run networks dominating the market, this model is very fitting. They can continue to operate and invest because of backing by the Chinese government. This could allow them to get ahead of the U.S. telecoms companies which may struggle to compete when it comes to rolling out 5G. Ganley said that while many European and U.S. telecoms companies could die, China could prop their domestic players up for several years. That's why he, and his company Rivada Networks, advocate a wholesale model for allocating spectrum, similar to how the electricity market works. The model would theoretically allow more players to bid for spectrum as and when it is needed to meet demand and this would lead to more dynamic pricing. "What we need to do is completely flip the table," Ganley said, adding that this would allow the U.S. to get ahead of China in 5G. Interestingly, the Trump administration has hinted toward such a policy. Kelsey Guyselman, policy advisor at the White House Office of Science and Technology Policy, said at a recent event that the government recognizes that "sharing" spectrum could be a way to roll-out the next generation of mobile network, hinting toward a wholesale model. And it's clear that the upper echelons of the Trump administration are thinking about a wholesale market model for 5G. Brad Parscale, Trump's 2020 campaign manager, tweeted last month that he thinks this is the way forward. TWEET Ganley said that the race for 5G is moving quickly and the U.S. needs to introduce a wholesale model or risk losing to the Chinese. "We are 13 months away from really failing," Ganley told CNBC. Not all experts are convinced however that a wholesale spectrum model could live up to the hype. "I think while it’s a good idea the jury is still out on whether it will achieve the goals that have been articulated and some of that is routed in the idea that many of the major players involved in 5G are still seeking out those really lucrative 5G business cases," Shaun Collins, CEO of technology, media and telecoms analyst firm CCS Insight, told CNBC by phone earlier this week.

What is China doing?

Even America's closest allies have realized the threat China poses in the technology space. Britain's Foreign Minister Boris Johnson said at a recent event that Chinese technology firms could overtake the U.S. "The Chinese are about to win. They’ve got 5G. They’ve found out a way. Everybody’s going to be getting stuff on their gizmos through the Chinese system and not the American system," Johnson said, according to The Guardian newspaper While the U.S. has been pushing back against China, the world's second-largest economy has been looking to leave its mark on other countries in terms of 5G. Huawei has been lobbying Australian politicians. The FT revealed that the Chinese giant was the biggest corporate sponsor of overseas trips for Australian lawmakers. On Thursday, the Portuguese arm of telecoms firm Altice teamed up with Huawei to roll out 5G networks. Elsewhere, Joe Madden, CEO of market research firm Mobile Experts LLC, noted that China is getting ready to ramp up its 5G roll out. Writing in industry publication Fierce Wireless, Madden said that Chinese network firms are beginning to increase production of key components with their suppliers. "In particular, we have heard from at least 10 different suppliers that the China 5G ramp-up is now expected to start in early 2019, not in July 2019 as previously scheduled. In addition, the numbers could become huge by the end of 2019, with deployment of enough 5G base stations to cover Germany during the month of December," Madden said. It's no surprise then that patent applications from Chinese firms increased 13.4 percent year-on-year versus a 0.1 percent rise for U.S. companies, according to the United Nations' World Intellectual Property Organization (WIPO). Huawei and ZTE were the world's two largest filers of patents, highlighting how China's technology giants are looking to build an arsenal of intellectual property.

Who wins?