Image by Solen Feyissa

US policy approach to 

Chinese technology companies

September 2020

Introduction 

Chinese tech giant, Huawei, the largest telecommunication equipment provider in the world, has been under attack from the Trump administration in the US since May 2019, resulting in what is informally known as the “Huawei ban.” Huawei has been accused of acting on behalf of the Chinese government to undermine US national security and of violations of sanctions against Iran (charges which are refuted by Huawei). Nothing concrete has emerged supporting the blacklisting of one of China’s largest companies. However, the Trump Administration has perpetuated the allegations that Huawei’s equipment has been built to assist Chinese espionage and to enslave its customers to Chinese technology. Regardless, 169 countries have decided the risks were manageable.

 

Huawei Ban

In 2018, as Huawei’s international popularity began to take off, geopolitical issues with regard to China began to emerge. Trump’s Huawei ban was his first tentative move to combat China’s growing influence and what he called its “unfair trade practices”, launching the still-ongoing US/China trade war.

Although domestic politics, tariffs and international law have all become embroiled in this trade war, intellectual property theft has been one of the clarion calls from U.S. against China’s international ambitions. Undoubtedly, Huawei has the reputation of being a repeat offender when it comes to intellectual property theft and this undoubtedly put it in Trump’s crosshairs.

Critics of the Huawei ban have repeatedly pointed out – somewhat redundantly – that a long-term US/China trade war would hurt both countries significantly. It was expected, therefore, that Trump would somehow coerce China into a favourable deal for US and then be done with it. However, these expectations were not met.

A Well Supported Move inside US

While the trade war with China has been closely linked to Donald Trump and may be seen as one of his signature international policies, it is a move which has attracted surprising bipartisan support. Indeed, Democratic presidential candidate, Joe Biden, who had previously declared support for active monitoring of trade with China and tried to indicate that he would consider removing tariffs imposed by Trump on Chinese products if elected president, had to retract his statement through staffers. This is notable because it indicates that, even were Trump not re-elected, the trade war could continue.

 

Implication of Ban on Huawei Smartphones

Huawei, while speaking to Android Authority after the ban, stated, “Restricting Huawei from doing business in the US will not make the US more secure or stronger; instead, this will only serve to limit the US to inferior yet more expensive alternatives, leaving the US lagging behind in 5G deployment.” While it originally seemed likely that Trump’s executive order would only apply to Huawei’s networking equipment rather than its smartphones or other products, all this changed a few days later resulting in a universal Huawei ban that would prevent the company from collaborating with companies such as Google, Intel, Qualcomm and many others. In the case of Google, Huawei cell phones can no longer have access to Google applications such as YouTube, Gmail, Google Drive or even Google Play Store. 

 

Huawei’s Retaliation

Yet Huawei was not going down without a fight: a few days after the ban was imposed, Huawei declared its intention to retaliate and, in May 2019, they filed legal a motion to get the ban declared unconstitutional and, in June, filed a lawsuit against the US Department of Commerce. However, it is no easy feat to fight an executive order from POTUS and China was forced to reverse its position. China next threatened to create its own blacklist, combined with unsubstantiated accusations of cyber-attacks and employee harassment.”

 

Harmony OS: The alternative to Android

Huawei can no longer use applications owned by Google, but it can still use android. Android is an open source platform, which means that any individual or organization can use it for whatever they like, free of cost. However, a considerable number of the essential features of Android belong to Google.”

In China, the trade war has contributed to a slowdown in the rate of economic and industrial output growth, which had already been in decline. Many American companies have shifted supply chains to elsewhere in Asia, bringing fears that the trade war will ultimately lead to a US-China economic ‘decoupling’, the effects of which could be extremely far-reaching for both countries and for their satellites. 

US TikTok Ban

On 29 June 2020, it emerged that India had banned as many as 59 Chinese mobile apps, including the ubiquitous short-form video app, TikTok. The move was praised by US Secretary of State, Mike Pompeo, who also indicated that US would do the same. In early August, President Donald Trump signed an executive order giving TikTok’s Chinese owners, ByteDance, 45 days to sell the app to a U.S.-based company. ByteDance had merged TikTok with American company Music.ly in 2017, after it purchased Music.ly for $1 billion, and the app soared in popularity.

 

According to a Chinese law introduced in 2017, Chinese companies have a responsibility to cooperate and support the country’s intelligence work. Trump cited national security as a reason for a ban on TikTok, because of its Beijing-based owner. TikTok has repeatedly maintained that it does not share user data with Chinese government. However, this is the first time a government has invoked international emergency powers in order to ban a giant consumer application such as TikTok. ByteDance, TikTok’s Chinese parent company, and free speech groups are already warning about the dangerous precedent this move could set.

What will Happen When Trump’s TikTok Order comes into Effect

What will exactly happen once the ban goes into effect is still unclear. Trump’s TikTok order says it will prohibit “any transaction by any person, or with respect to any property, subject to the jurisdiction of the United States, with ByteDance Ltd. (a.k.a. Zìjié Tiàodòng), Beijing, China, or its subsidiaries.” This means no person or business in the US could legally “transact” with TikTok. 

According to experts, sanctions will probably include removing TikTok from Google Play Store and Apple App Store, restricting US companies from signing contracts with TikTok and even stopping employees from working for it in the US. 

Conclusion

The US/China trade war is an ongoing economic conflict between two of the world largest economies. In 2018 Trump imposed tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. says are its "unfair trade practices” including the alleged theft of intellectual property and the forced transfer of US technology to China. In response to US trade measures, the Chinese government has accused the Trump administration of protectionism through the shielding of its domestic industries from foreign competition and its taxation of import.

The trade war has negatively impacted the economies of both the countries US and China. In the US, it has led to higher prices for consumers and financial difficulties for farmers.

In China, the trade war has contributed to a slowdown in the rate of economic and industrial output growth, which had already been in decline. Many American companies have shifted supply chains to elsewhere in Asia, bringing fears that the trade war will ultimately lead to a US-China economic ‘decoupling’, the effects of which could be extremely far-reaching for both countries and for their satellites. 

About the author(s)

 

Harold Alby is a managing director and chief operating officer at Inova Capital. Justin Inniss is a managing director at Inova Capital.For more details on our insights please get in touch with us at Inova Capital AG on +41 415616905. Inquire about our ideas and nowcasting capabilities.