The technology industry in the United States is roiling over Trump’s orders to Broadcom to cease any attempt to buy US-based Qualcomm, a significant mobile telecom chip company. With the Trump Administration blocking such a significantly sized and strategic acquisition over national security ramifications with China, the US is deliberately intensifying a technology arms race with China. Bear in mind though that Broadcom is a Singapore-based company, but the US panel that vets foreign deals had broader concerns about the deal.
Arms Race: US versus China
According to a story in The Wall Street Journal, the panel known as the Committee on Foreign Investment in the US (CFIUS) was concerned that Broadcom would stall investment in US-based Qualcomm and thereby hurt the development of next-generation wireless technology known as 5G. Broadcom launched a hostile bid for Qualcomm in November.
For a tiny refresher, Qualcomm, founded in 1985 in San Diego, is the company that pioneered CDMA, a telecom communications technology originally used by the US military for secure communications.
Tariffs on Your iPhones
For Trump and his protectionist thinking, the block of the Broadcom and Qualcomm deal is the first tech industry salvo in his administration’s goals to reset global trade for the US. With new tariffs on steel behind us, analysts are now anticipating such tariffs on imports from China—especially technology and apparel.
This means your next smartphone made in China may be significantly more expensive. As if it wasn’t already expensive enough.
A report on Reuters notes that Trump is looking at imposing tariffs on up to $60 billion on Chinese goods. The move isn’t entirely some random act, but rather a set of responses to complaints from within the US that doing business in China is coming at costs that industry groups say is unfair. One such issue with China is related to conditions that force US companies to expose their intellectual property (IP) or host their customer data in China if they want to do business in China.
The Cost of Doing Business in China—Trump Says Unfair
Recently Apple had to place their Chinese customers’ data in data centers on mainland China in order to meet new Chinese legal requirements around customer data. (see: The Verge, “Apple officially moves its Chinese iCloud operations and encryption keys to China,” 28 Feb 2018). It wasn’t just the iCloud account data but also the iCloud encryption keys that unlock that customer data. Apple offered its Chinese users who didn’t want their data handed over to new mainland China data centers had the option to wipe (delete) their data instead.
While Apple takes steps to protect the true security of its customers, the company is also acquiescing to Beijing demands, as in last July when it deleted VPN apps that allowed Chinese Internet users to evade censorship.
These are just a few examples around Apple, but the talk of tariffs on China is a direct response by Trump to what he says is unfair business practices and trade agreements.
Still, this is a big gamble for the US President as China has said it will take some steps at retaliation if Trump pushes ahead on such tariffs. The question and concern would then be if the US retaliates against China based on their retaliation to the new tariffs. This could spark a trade war between the two countries with the largest economies in the world. Still, China runs a $375 billion trade surplus with the US and President Trump has campaigned on promises to addresses these imbalances. The question is, are new tariffs the right way to go about this?