Relationships among countries are obviously complicated, but the geopolitical landscape created under the Trump administration between the United States and China has greatly impacted the global technology sector. The often-hidden landmines that make navigating an already tense relationship challenging, have now been laid bare as President Trump continues to antagonize Chinese tech giants and distract from his failing domestic policy.
There are multiple apps, hardware, and software, on both sides, in the mix being pummelled by the on-again, off again friendly relationship while wreaking havoc on the tech sector of the economy for both countries. And while the United States portrays itself as taking the aggressive offense in this digital battle, the unintentional consequences and repercussions for America have been great (not making America great again).
Huawei Gets Hammered
The dysfunctional relationship between the two countries, in terms of innovation, slowly progressed before President Trump taking office in 2017 and then took off at an accelerated pace. As explained by Lahiri & Hui (2019), in 2008, a deal with 3Com collapsed over concerns about Huawei’s ties in China. Then, in 2014, T-Mobile sued Huawei for stealing proprietary technology and in 2013, networking firm Cisco accused Huawei of intellectual property theft.
But things escalated quickly when Trump took office. In 2019, he signed an executive order that bans Huawei from accessing U.S. supply chains. Thus, Google pulled Huawei’s Android license and Washington ramped up the pressure on Huawei by issuing additional sanctions in May and August of this year.
Meanwhile, the fallout for Americans has been just as vast as the repercussions for the Chinese market. U.S. chipmakers including Intel Corp., Qualcomm Inc., Xilinx Inc., and Broadcom Inc. have faced significant financial loss not to mention being forced to cut back on research and development. Xilinx has said it plans to cut about 7% of its staff and the Semiconductor Industry Association has maintained the trade war will do lasting harm on U.S. innovation and be detrimental to the technological edge the U.S. previously held. According to the Wall Street Journal, if proposed regulations are implemented, they could cost U.S. chipmakers about $36 billion in revenue. In addition, if shipments of U.S. chips are completely stopped, and China bans imports of U.S. electronics and software, it could cost U.S. companies $83 billion in annual sales. Chinese tech giant ZTE has also been banned and Alibaba, Tencent, Baidu, and Hikvision also face American sanctions. President Trump is playing a game of chicken, but China will probably fly the coop and find hardware elsewhere.
TikTok, The Clock is Running
TikTok, the U.S. subsidiary of Beijing-based ByteDance, became the next target in the tech war between the U.S. and China. In July, President Donald Trump threatened to ban the app on national-security grounds. Fearing the worst, ByteDance moved to sell TikTok to Microsoft. But, the $50 billion deal has been put on hold after President Trump claimed the U.S. Treasury should receive a portion of the sale. Before long, the U.S. Commerce Department under Trump’s direction ordered TikTok to be removed from American app stores. Just before this was to take place, ByteDance turned down an offer to sell to Microsoft. Soon after, the company announced a new agreement with Oracle and Walmart to continue operating in the U.S. easing the White House’s “cybersecurity fears” despite no change in oversight of the app’s data practices being announced. There is speculation that Oracle was helped by video meeting software company, Zoom’s, move to use Oracle’s cloud infrastructure going forward.
The sale is a big win for Walmart, who can leverage TikTok’s user base. But, if cybersecurity concerns were the true impetus for the sale, giving even partial ownership to an American company is a red herring. First, the Chinese Communist Party can demand access to user data through its National Intelligence Law (the Clarifying Lawful Overseas Use of Data (CLOUD) Act gives the U.S. government similar authority). In addition, The Economist likens the bait and switch and how it is being received by both countries to Schrödinger’s cat because neither side can agree on who would own the majority percentage of stock in the company. As explained by The Economist, calculating the math, both the Chinese the Americans own more than 50% of TikTok Global.
Then There’s WeChat
WeChat, whose parent company is Tencent, is bringing up the rear of the ongoing saga as the next tech victim of Chinese and U.S. relations. Again, under President Trump’s direction, the U.S. Commerce Department banned the messaging app in American stores as well as access to updates. But with WeChat, effective September 20, 2020, the federal government went a step further prohibiting money transfers as well. Some American companies such as Starbucks, Walmart, and Nike rely on WeChat to reach Chinese consumers. For example, Walmart reported that 30% of transactions in China came from WeChat last year. Apple could also be hit with significant losses if the ban influences Chinese operations.
On the Flip Side
The U.S. is not alone in alienating a country by banning certain technologies. In fact, Western apps like Facebook, Twitter, Google, and many other U.S.-based companies are banned in China. The difference, China is a communist-led country utilizing internet censorship often termed, the “Great Firewall” of China. For their part, American allies are attempting to stay above the fray, but admit to being distrusting of China while disapproving of the aggressive stance of President Trump.
There appears to be no end in sight as both sides of the tech war try to raise the stakes. The question is, who will be next to face potential fallout? In addition to owning WeChat, China’s Tencent is a major investor in Reddit, the Wanda Group owns AMC Cinemas and Hollywood studio, Legendary Entertainment. A Deutsche Bank report estimates the costs of the “tech cold war” will be more than $3.5 trillion over the next five years. Recent tensions and decades-old rivalry between the two countries have left tech companies trying to navigate the perilous landscape. But, there may be many more losers than winners in the end.
By Dana Hackley PHD in Communications Media and Instructional Technology. She is a Public Relations Specialist for Jackson Kelley PLLC where she creates, manages, and executes the firm’s communications strategy across multiple office locations. In addition, she works as an online Academic Coach through Instructional Connections LLC assisting with Communications undergraduate and graduate courses.
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