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RED HEAT

Jamie Condliffe put’s it so nicely in his article in the New York Times. “Welcome to tech’s Cold War”[1]

Although President Trump likes to base most of his protectionist economic activity based on national security concerns, the ongoing attacks on the Chinese company Huawei could mark a geo-political shift in the tech world of tomorrow.

A week ago Trump used the same argument by wishing to impose tariffs on European made cars, stating that it is a case of national security.  Whereas German Industry bosses will gulp, smirk and hope that the European negotiators and the very worried American Automotive suppliers and OEMs will help Trump see that the dependency is on both sides of the Atlantic. The cultural policy of China is very much “A tooth for a tooth and an eye for an eye” and in the tech business this could have serious ramifications for the future.

In his article, Jamie writes that “the Commerce Department said this month that American companies would need special permission to sell some products to Huawei and other Chinese companies…Companies including Google, Qualcomm and Broadcom froze some of the supply of products to the Chinese technology giant. (Google, for instance, will no longer offer Huawei the full version of its Android operating system.) The crackdown may expand, with a ban on sales to Chinese surveillance companies possible.”

The fun does not stop here, Jamie goes on to report that if a US company contributes more than 25% of the value of a third country supplier, they may need to hold a licence to sell products to Huawei. The semiconductor giant ARM and Mobile carriers in the UK have also taken drastic action towards Huawei.

Even in Europe, where bosses privately hope that the American public will vote a different president, there are silent applauses the US bullishness towards China’s technological practices. In a visit to the US, Europe’s trade commissioner Cecilia Malmstrom stated the China “has blurred the lines between the state and the private sector” and that “Intellectual properties of companies are stolen, state subsidies, direct and indirect, are common and these impacts are felt at home and abroad.[2]

The biggest danger with Trump policies is as follows. Huawei’s smart phone implements ICs from numerous western semiconductor companies and works intensively with a foundry in Thailand. Trump’s policies however have rallied hopes in China for the development of a home grown supply chain. Although analysts claim that China is still behind in core technologies, this attempt of the White House may have an adverse effect mid-term as the Chinese implement their supply chains in their devices. They have achieved this with cars, turbines, aeroplanes etc. It is only a question of time when any dependency of Chinese corporates on western Chip makers may become redundant.

This would lead to a world with divided technologies.

In other words, the protectionist policies of the Trump government will only push China to where it wants to be – “independent”

chinese cat

In addition to this, the increase of anti-American sentiment, growing under the Trump administration will certainly provide other countries, possible enemies of the US State further opportunities to deliberately invest in Chinese supply chain, costing western business billions in lost deals.

Despite agreeing with the necessity of dealing with China, Trump’s remedy and his treatment of US allies since his inauguration has resulted in an increase in European bullishness and ignorance of his persona, like small children, how far can we push the “I don’t care button” before the teacher goes berserk. Not all countries have stopped their 5G projects with Huawei. Especially in Germany where Huawei has invested in many jobs in Munich, Eschborn near Frankfurt and Berlin, such brash and impulsive behaviour results in a slight immunity to its sting. With the USA becoming an increasingly unpredictable ally in the areas of defence, security and job investment, there may be a push by western governments to take protest actions and invest heavily in Chinese hardware.

Condiffe writes “Poorer countries are likely to be won over by price: Huawei is one of the leading, and cheapest, developers of 5G technology. For some countries wanting to jump-start economies with fast wireless networks, siding with China may be the only option.”

So what does this mean for the consumer market? Perhaps the telephones in the future will be different in east and west, and although Western knowhow has us in front on performance related ICs it is only a question of time until China catches up and that a factor of business success on a foreign market in the smart device market may become a question of geo-political governmental relationships and no longer a choice of corporates or of the markets.

It will certainly cost jobs on both sides of the divide and no party will remain unscathed. History has taught us not to rely on your laurels, this lesson can be clearly seen when looking at Germany and the United Kingdom.  Who would have thought after the war that 50 years – 70 years later, the standard of living in Germany could supersede that of the UK.

Despite the unfair practices by China, in their treatment of western knowhow, being an elephant in a porcelain shop will not create respect or fear. It doesn’t make America great again, it just pushes the US economy furthermore too the off-beaten track. Trump encompasses the America which people don’t like and our prophesy is that people will buy more local, deliberately avoiding American Goods if an alternative is there.

 

[1] The New York Times – The Week in Tech: Geopolitics are shaping your next smartphone – Jamie Condliffe, www. https://www.nytimes.com/2019/05/24/technology/china-tech-huawei.html

 

[2] Reuters, Trumps Huawei ban raises hopes for Chinese Chip companies, Samuel Shen, https://www.reuters.com/article/us-china-huawei-stocks/trumps-huawei-ban-raises-hopes-for-chinese-chip-suppliers-idUSKCN1SR16Y

 

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