Trump’s China deal has created collateral damage for tech firms
Among the corporate titans recognized last week by President Donald Trump during a White House signing ceremony for his China trade deal was Sanjay Mehrotra, the chief executive of Micron Technology, whose Idaho semiconductor company is at the heart of Trump’s trade war.
Micron, which makes memory chips for computers and smartphones, is precisely the kind of advanced technology company that the Trump administration views as crucial to maintaining a competitive edge over China. After Micron rebuffed a 2015 takeover attempt by a Chinese state-owned company, it watched with disbelief as its innovations were stolen and copied by a Chinese competitor and its business was blocked from China.
China’s treatment of American companies like Micron fed Trump’s decision to unleash a punishing trade war with the world’s second-largest economy, a fight he said would halt Beijing’s use of unfair practices to undermine the
United States. But that two-year conflagration may wind up being more damaging to American technology companies.
The initial trade deal announced last week should make operating in China easier for companies like Micron. The deal contains provisions meant to protect American technology and trade secrets and allow companies to challenge China on accusations of theft, including older cases like Micron’s that precede the agreement.
But Trump’s aggressive trade approach has also accelerated a technology arms race between the two countries, putting American companies like Micron at risk as the two nations try to decouple their economies. In an effort to reduce its reliance on American components, China has expedited efforts to produce its own semiconductors, driverless cars, artificial intelligence and other technologies. Those efforts, along with the Trump administration’s desire to restrict the sales of American tech products to China, could hurt the very companies
Trump set out to protect.
“Let’s be clear, the trade war has been very bad for the semiconductor industry in several ways,” said Robert D. Atkinson, president of the Information Technology and Innovation Foundation, a think tank funded by the tech industry. “It’s like China woke up and said, ‘We’ve relied too much on the United States.’ ”
The trade deal does nothing to curtail China’s use of subsidies, industrial plans and state-owned companies, which have helped it build formidable industries in steel, wind turbines and solar panels. Those statedirected efforts, which put many American manufacturers out of business, are now being harnessed for high-tech industries.
The Trump administration is constructing its own walls around American technology, reducing access to the lucrative Chinese market out of security concerns. It is restricting exports of sensitive technologies, barring sales to certain Chinese companies and blocking Chinese entities from investing in the United States.
The administration is considering further restricting sales to Huawei, the Chinese telecom company that relies on components from Micron and other American suppliers. And the China trade deal leaves tariffs on more than $360 billion in Chinese goods in place as Trump tries to push American companies to bring manufacturing back home.
Semiconductor sales to China, which represent more than half the global chip demand, have fallen, and semiconductor stocks have been whipsawed by the trade war.
Trump and his supporters say that conflict is no longer avoidable, and that the president’s unconventional approach is necessary to take on a growing threat from China. Officials across the administration look with suspicion on Chinese industrial plans, including Made in China 2025, which called for $300 billion in financing and other support for 10 advanced industries, including semiconductors.
U.S. officials worry that gaining an advantage in semiconductors would give China both a commercial and military edge.
Chipmakers initially supported the Trump administration’s willingness to take on China. Companies had long grumbled about intellectual property theft and unfair treatment in the Chinese market, but they had little recourse: Going public about their troubles could spook investors and invite Chinese retaliation.
Then, in April 2018, the administration announced $50 billion in tariffs that would directly hit semiconductor companies by raising prices for imported equipment and materials. A chip finished in China would be subject to a 25% tariff, even if its components had been made in America.
The tariffs caught the industry by surprise. The Semiconductor Industry Association, a trade group, pushed back, telling the U.S. trade representative in July 2018 that the tariffs would “undermine U.S. technological leadership, cost jobs, and adversely impact U.S. consumers of semiconductor products and the U.S. semiconductor producers.”
Some industry executives grew more nervous as Trump escalated his trade fight and the prospect of an economic rupture between the United States and China became more real. Chinese customers shifted their purchases to suppliers in South Korea, Taiwan and elsewhere.
American companies say they are sympathetic to the administration’s complaints about China. But they must compete globally, and they are not willing to forgo access to China, the hub of the global electronics supply chain and probably one of the world’s fastest growing markets for decades to come.
Jim McGregor, the chairman of Greater China for APCO Worldwide, said the trade war and other restrictions were already shaping investment decisions by American technology companies. When deciding where to put their money next, many companies have quietly been looking to invest outside the United States to secure access to China. “You’ve got to be there, no matter what the president says,” he said.