On Feb. 24, President Biden signed an executive order directing federal agencies to report back within 100 days on actions to secure and strengthen America’s supply chains, including semiconductors.
With that deadline soon approaching, Huawei on Monday assembled a roundtable of experts, including an economic advisor from Huawei to discuss the implications of trade actions on Chinese companies, including Huawei, that continue to affect companies in the U.S. and other countries that sell to electronics makers in China. The chip shortage came up, but the bigger issue was international competition and cooperation on technology matters.
The panelists largely agreed the trade war with China during the Trump administration has had an adverse impact on non-Chinese semiconductor revenues including companies like Intel, but the panelists mostly worried more about the implications for long-term trade, and the impact on the global economy and geopolitics. Huawei has said Trump policies, including placing Chinese firms on the U.S. Entity List which bans sales to those Chinese companies, have led to the loss of $100 billion in revenues to U.S. companies in recent years.
Andrew Williamson, vice president of global affairs and economic advisor at Huawei, told the roundtable that the government of China has moved to making some responses to U.S. trade restrictions, including by restricting the use of Tesla cars among state and military personnel over concerns the vehicle’s sensors could record images of their surroundings. (Tesla denies spying is happening.)
Further, if Chinese smartphone makers were to resort to using the Harmony OS, it would be a “disastrous” outcome for the Android OS and Google, Williamson warned. “It’s a real concern. A cascade of other impacts might come down the pike that are politically driven,” he said.
In the bigger picture, the trade restriction have hurt the global supply chain just when a chip shortage is crippling some factories from assembling parts, he argued. ASML, a Dutch multinational that specializes in making photolithography systems used in the chip production process has been barred from sales into China through the U.S. actions, he noted.
“They [ASML] are incredibly good at what they are doing,” Williamson said. “There’s no guarantee that decoupling [from China] will work either.” Tech companies “have to send the message out more strongly to resolve [the trade dispute] soon or it will have huge financial, economic and political impacts over the next few years.”
He added later, “Politicians shouldn’t be messing with global value chains, and if they keep targeting specific parts, it will have massive repercussions."
Asked whether the U.S. can weather more trade decoupling from China or other countries, another panelist, Glenn O’Donnell, vice president and research director at Forrester Research, was less than sanguine. “Speaking as an engineer, the politicians are using semiconductors as a weapon in their own competition, jabbing back and forth,” he said.
“They don’t understand the second order and third order effects," Williamson added. "Politicians have to resolve this. We [in the industry] can apply pressure. It is impacting [the supply] of processors, which is a severe impact that hurts Intel” and others."
“Leaders in the private sector are applying a lot of pressure,” O’Donnell said. “I’m not optimistic, but I’m hopeful we’ll see some progress.”
While O’Donnell said some local production of some chips is a good idea, he would not support cutting off interactions between scientists in various countries, including the U.S. and China. “Let engineers do their thing,” he said. “We love to share ideas and collaborate,”
A major concern of the Trump administration, prior administrations, and many U.S.-based tech companies with China has been theft of U.S. intellectual property over recent decades. The concern over losing tech IP has been a sufficiently large concern that Jason Pontin, the roundtable moderator, said his firm does not invest in China because of IP issues. Pontin is a partner at DCVC, a venture capital fund.
Kerry Brown, direct of the Lau China Institute and professor of Chinese studies at King’s College London, said he senses that China and the U.S. have come into “closer alignment” on protecting IP rights of companies in both countries. “This might not be the issue it was in the past,” he said. “I’m suspecting China will have more to protect and that will be the game changer.”
Generally, Brown said the trade differences between the U.S. and China over technology and the entire movement toward decoupling trade with China and other nations are “hugely complicated.” Leaders are relying on “simple politics about complex economics” that could mean result in bad outcomes.
The issue of decoupling “is bigger than Huawei,” O’Donnell said. “It can’t be CEO-solved and politicians are subject to their own political issues.”
A global digital governing body?
Huawei’s Williamson urged governments and tech firms globally to create a “global digital stability board” that could be modeled along the lines of a recent International Monetary Fund report. The issues would be discussed “properly, intelligently” where security and privacy issues raised by new technologies could be subject to independent verification.
Two IMF authors recommended recently in the report a new Bretton Woods moment for the digital age. “International cooperation on digital matters could similarly seek consensus on broad principles and common institutions to resolve problems,” the authors wrote.
A digital stability board would mimic the Financial Stability Board to develop common standards, regulations and policies and to share best practices and monitor risks. “This could help protect financial stability from cyberattacks and bring about progress in areas such as a charter of technology rights, uniform statistics for the digital economy, and international data trusts to collect and guard individuals’ data for designated purposes, such as health research,” the IMF authors wrote.
Despite the ambitious vision of a 21st Century superboard, Brown said it was “mostly unlikely to happen” given the focus of individual countries such as China and the U.S. on promoting and protecting their own technologies. “Economics will dictate geopolitics,” he said. “As we move away from the pandemic, economic consequences are such that China is more robust than Europe or America. The whole story will change. The costs of spats are going to be significant. This is kind of a war of words, but this is going to be a war of economic growth. China is a well-practiced champion of that, bear in mind.”
Gary Wang, a former project lead at Boston Consulting Group, said as China moves up the economic value chain, “others will see the benefits of technology innovation coming from China” in areas such as autonomous vehicles, semiconductors, software and hardware. “When software and hardware become integrated, it will become apparent that using a hammer to decouple is impractical. It won’t be a massive global digital government board. It will be solutions from coalitions of industry, working with government to establish standards.”