Do you like your smartphone? Your television? Your social network? Whether or not they proudly boast of being “Designed in California,” all rely to some extent on China’s technology and manufacturing industries. And all could potentially be affected by a new campaign of economic sanctions on China announced Thursday by President Trump.
Speaking at the White House, the president said that his administration will slap tariffs on “about $60 billion” worth of goods imported from China each year. He argued the levies are necessary to compensate for how China has slurped up the fruits of American invention by nefarious means. “We have a tremendous intellectual property theft situation going on,” Trump said.
Where exactly the 25 percent levies will fall is still to be worked out, but they will focus on technologies in areas including computing and communications, industrial machinery such as factory robots, and aerospace.
The action illustrates the centrality of the technology industry and new developments such as artificial intelligence to the economic and national security strategies of the world’s superpowers. The sanctions plan also creates a headache for US companies reliant on Chinese circuit boards, servers, chips, or manufacturing plants—and potentially their customers, too.
The effects could be felt beyond hardware companies. For example, Chinese suppliers are important to the Open Compute Project that internet companies such as Facebook, Google, and Microsoft support to make servers and other data center equipment cheaper.
Silicon Valley lobbying group The Internet Association, whose members include Google, Amazon, and Facebook, said Thursday that it fears knock-on effects such as higher prices for consumers, and industry job losses. Adam Segal, who tracks Chinese technology policy at the Council on Foreign Relations, says the announcement fired the starting gun on a backroom battle over the products that will be subject to the tariffs. “There’s going to be a huge amount of lobbying now as specific sectors try to make sure they’re not caught up in the thing,” he says.
Trump’s new sanctions are informed by a 215-page report into China’s technology strategy by the Office of the United States Trade Representative. It concludes that the country’s government uses cyber espionage, investments and acquisitions in the US, and pressure on American companies operating in China to collect valuable US intellectual property. The report says that since 2010 China has made, and then broken, eight separate commitments to reform its policies on technology transfer.
Speaking alongside Trump at the White House Thursday, US Trade Representative Robert Lighthizer summed up the findings as portraying an assault on America. “Technology is really the backbone of the future of the US economy,” Lighthizer said. “China [has] a policy of forced technology transfer.”’ Lighthizer said his agency will also ask the World Trade Organization to take action against China’s technology licensing policies.
In order to operate in China, overseas companies must often transfer intellectual property, or even technology assets, to a locally owned partner. The trade representative’s report cites a recent raft of tough new rules for overseas cloud computing providers operating in China, which effectively force them to transfer their hardware and operations to local companies. Amazon made that move last November.
As well as tariffs on certain imports, the Trump administration will introduce tighter restrictions on Chinese investments in high technology projects in the US. They would go beyond the powers the Trump administration used to block a Singapore company taking over chipmaker Qualcomm earlier this month, for example by imposing oversight of Chinese firms taking even minority stakes in US companies.
Despite grumbles from industry groups, Trump’s new broadside against Chinese trade practices is likely to be better received by US allies than his last.
Starting Friday, new tariffs will apply to steel and aluminum imports, a policy primarily aimed at China that also angered the European Union and Canada. But Peter Harrell, an adjunct senior fellow at the Center for a New American Security, says many US allies share the Trump administration’s concerns about China’s aggressive moves to acquire new technology in areas such as semiconductors, computing, and manufacturing. “Japanese and Korean and German companies are feeling the same thing,” Harrell says. He previously worked on economic sanctions at the Obama administration State Department.
Despite accusing China of theft in front of TV cameras in the White House, Trump said he hopes to negotiate with the country’s leader Xi Jinping. Harrell says that strategy is reminiscent of how President Reagan used threats of trade penalties to lubricate deals on areas such as Japan’s semiconductor and telecommunications industries in the 1980s. Whether the Trump administration can pull off something similar is unclear. “That requires some diplomacy,” Harrell says. “We haven’t always seen a lot of diplomacy out of these guys.”
However well Trump handles things from here, taking on China without some adverse effects at home may be impossible.
New tariffs on imports inevitably impose higher costs on companies, which may pass them on to consumers. China preempted Thursday’s announcement by floating the possibility of retaliatory tariffs on US agricultural and aerospace exports. The country is under pressure to boost its technology industry amid rising labor costs and competition from countries such as India and Vietnam undercutting its manufacturing industry.
“It’s not clear what the off ramps are right now,” says Segal. “Given how intertwined the economies and tech sectors are it’s very hard to imagine that you can inflict pain on the other side without doing it to yourself as well.”
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