Trump's China fight puts U.S. tech in the cross hairs

But as the fight kicks into high gear this week, U.S. tech and telecom companies are warning that the industry’s growing reliance on products made and assembled in China means they are more likely to be casualties, not victors, in the skirmish.

Trump’s next round of tariffs on $200 billion worth of Chinese goods goes into effect Monday, hitting thousands of consumer products from handbags to refrigerators to bicycles. The tariffs will also hit the tech and telecom companies that provide much of the gear that powers the internet, mobile networks, data storage and other technology. U.S. customs will begin collecting a tax on circuit boards, semiconductors, cell tower radios, modems and other products made and assembled in China and exported into America.

Those tariffs, Intel warned in a letter last month, are “a game-changer for the American consumer.” The tariffs begin at a rate of 10 percent and increase to 25 percent in January.

Like U.S. automakers and other manufacturers, the tech sector has increasingly outsourced production to China, where manufacturing and assembly of products is cheaper than in the U.S. In recent decades, Intel, Dell, and Apple began shifting manufacturing overseas to take advantage of lower labor costs and align operations closer to customers in emerging markets.

Intel, for instance, designs and manufactures most semiconductors in the U.S. but relies on Chinese facilities for assembly of their chips, which will now be taxed. Moving those manufacturing and assembly operations outside China is unrealistic, the company has warned, saying “it is too expensive to relocate established and integrated supply chains.”

Google, Dell, IBM and others say the tariffs will increase costs for companies and consumers, hindering America’s ability to dominate the next generation of technology, like 5G wireless networks. Rising prices, the industries say, will slow business growth, increase costs for consumers and put other nations, like China, in a more competitive position to dominate tech.

“The tariffs affect the heart of the infrastructure of the internet,” said Rob Atkinson, president of the Information Technology & Innovation Foundation, a think tank financed by tech companies including Microsoft, Google and Intel. “If we are going to impose tariffs on Chinese goods, we should impose them on items that hurt the Chinese, not us.”

Trump does not share that view, seeing the tariffs as a weapon to force China to change trade practices that the administration — and many companies, including tech firms — say are unfair.

“China is engaged in numerous unfair policies and practices relating to United States technology and intellectual property — such as forcing United States companies to transfer technology to Chinese counterparts,” Trump said in a statement last week.

Tech companies agree that China has long pressured U.S. companies to hand over valuable technology to do business in China or engaged in outright theft of intellectual property. But they argue that using tariffs as a retaliatory measure will hurt U.S. companies while doing little to change China’s ways.

Tech and telecommunications products are among the fastest-growing imports from China. In 2014, electronics accounted for 40 percent of all Chinese imports, according to the U.S. International Trade Commission. While the total value of telecommunications parts affected by the latest round of tariffs is unclear, the Telecommunications Industry Association estimates “hundreds of millions” of dollars in extra costs for companies.

Chad Bown, a senior fellow at the Peterson Institute for International Economics, has estimated that $24 billion in telecommunications equipment will be subject to the next round of tariffs.

The impact on the industry is amplified by the timing, as the U.S. and China race one another to dominate the next generation of ultrafast wireless networks, known as 5G. The faster networks will fuel the use of artificial intelligence in driverless cars and robotics and other technologies used by military. Companies have warned that the administration’s tariffs will undercut Trump’s stated plan to lead in those areas.

In March, Trump blocked a bid by Singapore telecom giant Broadcom, which was angling to buy San Diego-based Qualcomm, citing concerns that handing over a U.S. company to an Asian one with links to China would pose a national security threat and make the U.S. less competitive in 5G.

Officials at Nokia, a Finnish telecommunications equipment giant with large U.S. operations, met with regulators at the Federal Communications Commission in August to warn that the tariffs target components critical to 5G. The Trump administration has declared 5G mobile networks a key security and economic goal.

“These latest duties threaten to raise the cost of 5G infrastructure in the U.S. by hundreds of millions of dollars,” Nokia officials told the FCC, according to public filings.

Semiconductor maker Micron warned last week that its profits would take a hit from the tariffs. The Boise, Idaho-based company said it would try to reduce further losses by shifting its purchases of supplies to countries other than China.

“Of course, this is related to some of the product that we import into the U.S. that is manufactured in China, and we are very much focused on mitigating that manufacturing,” Micron’s chief executive, Sanjay Mehrotra, said in an interview on CNBC.

Other companies are weighing legal options. A leading trade group, the Consumer Technology Association, which represents 2,000 tech companies, said the administration is overstepping its authority on trade policy and is considering legal action against the administration.

“We are exploring all options,” said Gary Shapiro, the association’s president, said when asked if his group would sue the administration. “The tariffs will stifle our global leadership in 5G, create an internet tax on business and cause uncertainty for companies.”

The inclusion of tech products only increased tension between the tech industry and the Trump administration. Silicon Valley has sparred with Trump on immigration. Trump accused tech giants Facebook, Twitter and Google of political bias against conservatives and Amazon of avoiding tax payments. The companies have refuted the president’s claims.

Some companies have been partially spared. After intense lobbying by Apple and Fitbit, the Trump administration removed several consumer electronics products from the latest round of tariffs. Left off the list are technologies that affect Apple’s Watch and other fitness trackers, AirPod earbuds and wireless speakers. The administration spared a total of 300 products from an earlier proposal drafted in July.

On Friday, a senior administration official who has been engaged in trade negotiations defended the decision to offer relief to Apple’s products. In a briefing with reporters at the White House, the official rejected the notion that winners and losers were being determined based on lobbying power.

“This has been talked about a lot as an Apple issue, Apple has been very vocal about it, but the tariff lines that have been exempted, they applied to a whole range of companies in addition to Apple,” the official said, speaking to reporters on the condition of anonymity.

Tim Cook, Apple’s chief executive, said on “Good Morning America” last week that he was “optimistic” that the trade battle with China would be resolved.

When asked about the exemptions of Apple’s products, Cook said that while the iPhone is assembled in China, many parts are made and developed in the U.S. The tariffs would cost a company like Apple when it imports devices assembled in China.

“I think they looked at this and said that it’s not really great for the United States to put a tariff on those type of products,” Cook said.

This article originally appeared in The New York Times.

Trump's China fight puts U.S. tech in the cross hairs

WASHINGTON — President Donald Trump says his trade war with China will protect America’s dominance and derail Beijing’s plan for technological and economic supremacy.

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