Trade and tariff talks between the U.S. and other countries—especially China—have provoked plenty of angst in recent months for just about every technology company in the U.S. That includes the marketing and strategy planners for chip and components manufacturers.
“It’s chaos for us,” one technology strategist said in an interview recently, asking not be quoted by name. “We have scheduled meetings to finalize sales and then had to cancel last minute. This involves a large number of our staff.”
The repercussions for U.S. companies wishing to sell electronics parts to Huawei have been especially troubling, going back to May when the U.S. Commerce Department put Huawei on the entities list, which essentially banned U.S. companies from selling to Huawei. Then, in late June, U.S. President Donald Trump said U.S. companies could get permission to sell to Huawei as long as their products didn’t pose national security worries.
Last week, the situation got even more complex when it appeared that U.S. Treasury Security Steven Mnuchen was quietly urging U.S. companies to obtain licenses to resume sales to Huawei to get around the blacklisting status. A Treasury spokeswoman contradicted that report, however.
Set the worries about Huawei against the bigger picture going on for three years, where companies such as Foxconn have moved some production facilities out of China, mainly to nearby countries, to avoid higher tariffs on Chinese goods exported to the U.S. Many U.S. companies are considering similar moves, analysts believe.
In interviews conducted by FierceElectronics with more than a dozen marketing and strategy executives at U.S. tech companies, all of them said they were eager to see some clarity in how China and the U.S. will conduct trade in coming years.
However, all of them nonetheless credited President Trump with pushing the issues of trade and tariffs with China. “I disagree with Trump on nearly everything but not on trade with China,” one tech executive said, asking not to be named.
The executives all said that Chinese companies for many years have been copying or outright stealing intellectual property (IP) from U.S. companies. In some cases, U.S. companies have filed lawsuits over the alleged theft. In other cases, U.S. companies must agree to explain or offer documentation on IP to a Chinese company in order to have the ability to sell in China with that company or conduct further business, several executives and analysts said.
“This kind of IP problem has gone on for years,” said Roger Entner, an analyst at ReCon Analytics, in an interview. “What Trump is doing is a big sweeping change and a long overdue change. If you want to criticize him, you have to criticize Obama, Bush, and Clinton even going back 20 years for not taking China IP theft seriously. The Europeans are not taking it seriously.”
Some executives in interviews faulted the Trump Administration for conflating IP theft from U.S. companies with national cybersecurity threats that the administration says the Chinese government is undertaking while monitoring data on the servers of Chinese-based companies. National security and IP theft are both important concerns, but separate, they said.
In some cases, however, national security and IP are interrelated. Such is the case of AMD’s deal in 2016 with Chinese military contractor Sugon Information Industry Co., Entner noted. The Wall Street Journal recently described the deal which resulted in an infusion of cash for troubled AMD in exchange for X86 chip-related IP. Former national security official Brig. Gen. Robert Spalding referred to the deal as giving China “the keys to the kingdom.”
Much of the trade problem with China that the Trump Administration hopes to address was self-inflicted by U.S. companies, one analyst said. “U.S. companies have long wailed about how China has been stealing their IP, but on the other hand, these companies have pushed for lax U.S. response due to the specter of having their quite large business dealings with China impacted,” said Jack Gold, an analyst at J. Gold Associates. “Basically, U.S. companies didn’t want to negatively impact their bottom line sales and reduce their revenues. You can see that now with all the chip companies trying to make sure they can still sell to Huawei.”
What all these news accounts and missed sales deals for U.S. tech companies overlook is that China-U.S. relations are undergoing a massive upheaval unlike anything that chip executives have seen.
As China moves to become self-reliant on its own technology by 2025 under its “Made in China 2025” initiative, it is growing more evident that the U.S. and China will increasingly operate in separate spheres which will conceivably upend all kinds of long-accepted business deals for many thousands of U.S. electronics products and hundreds of U.S. companies.
“The trade wars could ultimately produce a much more competitive China, as it could force them to more quickly develop their own indigenous hardware and software businesses,” said Jack Gold, an analyst at J. Gold Associates. “If you incentivize them with trade barriers, they have the capital to invest much more aggressively.”
Gold said he agrees that it’s important for the US to preserve its IP and security but added, “there’s a balance in play here with the U.S. doing just enough to get a message across, but not so much to accelerate China’s own internal development and significantly hurt U.S. companies on the bottom line. Will this work? I’m not sure.”