AS US-China trade tensions ratchet up, the technology sector is fretting over the potential for collateral damage to one of America’s most important export industries.
The tech industry is not directly affected by the new tariffs unveiled by the Trump administration, which aim to target Beijing for unfair trade practices and failure to protect intellectual property.
But some industry leaders fear tech will be dragged into the dispute, with the potential to hit the estimated US$3 trillion industry in which the US and China are key players.
“As trade wars escalate, they are not controllable, they are not predictable,” said Ed Black, president and chief executive of the Computer & Communications Industry Association, which represents major tech firms such as Amazon, Facebook, Google and Netflix. “There is always collateral damage.”
Mr Black said the US administration “correctly identified some of the problems” with trade involving China but “missed all the problems of Internet companies doing business in China”.
He said Washington’s efforts to go alone could “weaken the international trading system”. The relationship of US tech firms with China has long been complicated by concerns about censorship, labour and human rights and theft of trade secrets.
Google shut down its search engine for China in 2010 after it found accounts of Chinese human rights activists hacked and some US-based online platforms are banned by Beijing.
But Apple recently agreed to base its cloud storage for Chinese users in the country, saying it had to comply despite concerns over Beijing’s surveillance of citizens. And Airbnb said it would share customer data with the Chinese government as well.
Susan Aaronson, a George Washington University professor of international affairs who specialises in digital trade, said that as American firms battle for supremacy in artificial intelligence, they are hungry for sources of data, including from China.
“In almost everything the US produces, the key source of value is data,” she said.
She wrote in a recent research paper that Beijing “uses the lure of its large population, relatively low and poorly enforced privacy regulations, and subsidies to encourage foreign companies to carry out AI research in China”.
Some analysts say the Trump administration has correctly identified some of Beijing’s unfair trade policies but that tariffs may be counterproductive.
“China uses mercantile practices and the Trump administration is right to contest those actions, but there are many reasons the tariff approach is not the right one,” said Stephen Ezell, vice-president for global innovation policy at the Information Technology and Innovation Foundation, a technology-focused think-tank.
With tariffs, he said, “US consumers and businesses will pay more in the long term. We need to take on China but we shouldn’t be penalising ourselves in the process”.
Tech industry analyst Patrick Moorhead of Moor Insights & Strategy said that some in Silicon Valley “are secretly applauding” the move to shake up trade relations with China after years of frustrations.
“Americans can’t own businesses in China, they have to set up a joint venture, which sometimes means you have to share intellectual property,” Mr Moorhead said.
“If you sell software, the Chinese government has to bless the source code. For hardware, you have to give very detailed schematic drawings.”
He noted that some Chinese firms such as computer giant Lenovo are expanding in the US, but that American firms are having a harder time in China.
Still, he said, he sees trade frictions increasing with some negative effects in the short run.
“I see (tariff actions) moving to electronics and I see it tit-for-tat until it starts to get painful.
“I could see tariffs on (US imports of) iPhones, and China could put tariffs on components going into the iPhone. I think it’s going to get worse before it gets better.”
Original article on businesstimes