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Trump’s China fight puts US tech in cross hairs

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President Donald Trump says his trade war with China will protect America's dominance and derail Beijing's plan for technological and economic supremacy.

[WASHINGTON] President Donald Trump says his trade war with China will protect America's dominance and derail Beijing's plan for technological and economic supremacy.

But as the fight kicks into high gear this week, US tech and telecom companies are warning that the industry's growing reliance on products made and assembled in China means they are more likely to be casualties, not victors, in the skirmish.

Mr Trump's next round of tariffs on US$200 billion worth of Chinese goods goes into effect Monday, hitting thousands of consumer products from handbags to refrigerators to bicycles. The tariffs will also hit the tech and telecom companies that provide much of the gear that powers the internet, mobile networks, data storage and other technology. US customs will begin collecting a tax on circuit boards, semiconductors, cell tower radios, modems and other products made and assembled in China and exported into America.

Those tariffs, Intel warned in a letter last month, are "a game-changer for the American consumer". The tariffs begin at a rate of 10 per cent and increase to 25 per cent in January.

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Like US carmakers and other manufacturers, the tech sector has increasingly outsourced production to China, where manufacturing and assembly of products is cheaper than in the US. In recent decades, Intel, Dell, and Apple began shifting manufacturing overseas to take advantage of lower labor costs and align operations closer to customers in emerging markets.

Intel, for instance, designs and manufactures most semiconductors in the US but relies on Chinese facilities for assembly of their chips, which will now be taxed. Moving those manufacturing and assembly operations outside China is unrealistic, the company has warned, saying "it is too expensive to relocate established and integrated supply chains".

Google, Dell, IBM and others say the tariffs will increase costs for companies and consumers, hindering America's ability to dominate the next generation of technology, like 5G wireless networks. Rising prices, the industries say, will slow business growth, increase costs for consumers and put other nations, like China, in a more competitive position to dominate tech.

"The tariffs affect the heart of the infrastructure of the Internet," said Rob Atkinson, president of the Information Technology & Innovation Foundation, a think tank financed by tech companies including Microsoft, Google and Intel. "If we are going to impose tariffs on Chinese goods, we should impose them on items that hurt the Chinese, not us."

Mr Trump does not share that view, seeing the tariffs as a weapon to force China to change trade practices that the administration — and many companies, including tech firms — say are unfair.

"China is engaged in numerous unfair policies and practices relating to United States technology and intellectual property — such as forcing United States companies to transfer technology to Chinese counterparts," Mr Trump said in a statement last week.

Tech companies agree that China has long pressured US companies to hand over valuable technology to do business in China or engaged in outright theft of intellectual property. But they argue that using tariffs as a retaliatory measure will hurt US companies while doing little to change China's ways.

Tech and telecommunications products are among the fastest-growing imports from China. In 2014, electronics accounted for 40 per cent of all Chinese imports, according to the US International Trade Commission. While the total value of telecommunications parts affected by the latest round of tariffs is unclear, the Telecommunications Industry Association estimates "hundreds of millions" of dollars in extra costs for companies.

Chad Bown, a senior fellow at the Peterson Institute for International Economics, has estimated that US$24 billion in telecommunications equipment will be subject to the next round of tariffs.

The impact on the industry is amplified by the timing, as the US and China race one another to dominate the next generation of ultrafast wireless networks, known as 5G. The faster networks will fuel the use of artificial intelligence in driverless cars and robotics and other technologies used by military. Companies have warned that the administration's tariffs will undercut Mr Trump's stated plan to lead in those areas.

In March, Mr Trump blocked a bid by Singapore telecom giant Broadcom, which was angling to buy San Diego-based Qualcomm, citing concerns that handing over a US company to an Asian one with links to China would pose a national security threat and make the U.S. less competitive in 5G.

Officials at Nokia, a Finnish telecommunications equipment giant with large US operations, met regulators at the Federal Communications Commission in August to warn that the tariffs target components critical to 5G. The Trump administration has declared 5G mobile networks a key security and economic goal.

"These latest duties threaten to raise the cost of 5G infrastructure in the US by hundreds of millions of dollars," Nokia officials told the FCC, according to public filings.

The inclusion of tech products only increased tension between the tech industry and the Trump administration. Silicon Valley has sparred with Mr Trump on immigration. Mr Trump accused tech giants Facebook, Twitter and Google of political bias against conservatives and Amazon of avoiding tax payments. The companies have refuted the president's claims.

Some companies have been partially spared. After intense lobbying by Apple and Fitbit, the Trump administration removed several consumer electronics products from the latest round of tariffs. Left off the list are technologies that affect Apple's Watch and other fitness trackers, AirPod earbuds and wireless speakers. The administration spared a total of 300 products from an earlier proposal drafted in July.

NYTIMES

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