The New Phase of the US-China Trade War

As the US-China trade war lingers, many companies from the two countries are falling victims of the rivalry economic politics they have been caught up in.

Last week, President Trump signed a new trade deal with China that is aimed at easing the tense business relationship between the two economic giants. One notable figure at the event ceremony was Sanjay Mehrotra, the CEO of Micron Technology, maker of microchips, and a person of interest in the trade war.

Chips serve as the tiny sensors, brains and memories of all high-tech devices, and are crucial to next-generation telecom networks, supercomputers, artificial intelligence and driverless cars, as well as military ships, satellites and aircraft, and are one of the United States’ largest exports along with airplanes, oil and cars – NYT

In 2015, Tsinghua Unigroup, a Chinese state owned company prepared a $23 billion takeover bid for Micron. The proposed deal failed to scale scrutiny hurdles of regulators who see semiconductors and microchips industry as strategic economic base. Moreover, there were national security concerns by the US authorities since the Tsinghua Unigroup is state owned.

In 2016, Fujian Jinhua Integrated Circuit, another Chinese company got the help of a Taiwanese company to steal Micron’s designs and develop them as their own. It was a bigger deal than anyone imagined. Mehrotra watched in dismay as Fujian Jinhua established a $5.7 billion microchip factory in China with Micron’s stolen technology.

Two years later, the US Department of Justice charged Jinhua with stealing Micron’s trade secrets, and the Chinese company was blacklisted by the Commerce Department for national security concerns. In retaliation, Fujian Jinhua accused Micron of patent infringement and had Chinese court temporarily restricted the US Company from selling some of its products in China.

The trade altercation between Micron and China has been the basis of president Trump’s fierce stance on the current trade deals with China. In his belief, Trump sees a microchip, memory chips producing companies like Micron as important if the US will stay ahead of China in trade and commerce. So the way China treated Micron became unacceptable and Trump sought to make a deterrent statement with his fierce trade sanctions against China, to create basis for fair treatment of American tech companies in the future.

The trade deal announced last week protected the interest of American companies in China; it gives no room for accusation of patent theft such as it was previously brought on Micron, and it would protect American technology and trade secrets.

But the period of the trade war has created a vacuum in the trade relationship between the US and China that may never be filled. China has been totally dependent on the US for microchip and smart phone memory chip technology. The events of the trade fights have however, turned their attention to other countries like Japan, while they are learning to develop their own chips. It is in line with their effort to produce semiconductors, driverless cars, artificial intelligence among other advanced technologies.

On the other hand, Trump is seeking to halt sales of American technology to China, in fear of intellectual theft and possibility of undermining the American Government.

However, the Trump’s administration’s moves appear to have protected the US companies to some extent, but in a sense, it is bad business for tech companies. Most of the American companies producing microchip and semiconductors rely heavily on China for sales. As the Chinese patronage wanes, the companies get closer to their liquidation.

Robert Atkinson, president of the Information Technology and Innovation Foundation, said the trade has done more bad for the semiconductor industry than good.

“Let’s be clear,” he said. “The war has been very bad for the semiconductor industry in several ways. It’s like China woke up and said, ‘We’ve relied too much on the United States.”

The US appears to be overly concerned about its national security and sees the sales of sensitive technologies to China as a threat. But by restricting the sales and barring Chinese technologies from operating freely in the US, Trump is also restricting US companies from accessing their most lucrative market – China.

While the two biggest economies in the world are pushing through gain and loss in the fight, many more companies are falling victims. Huawei has been at the center stage of the trade controversy from the onset and may suffer more punishment. It is reported that Trump’s administration is considering further restricting sales to Huawei that relies completely on components from Micro and other American companies. Trump is also pushing for American companies to return home through tariffs on made-in china products that is more than $360 billion.

Semiconductors have notably fallen in the US, and it is a course for worry for industries who fear that China may eventually get an advantage over the US on semiconductor and microchip, and that would amount to double loss – commercial and military.

The fear is, although China is still far behind in the chip technology, the second biggest economy in the world has notably been pumping billions of dollars into the industry, and may one day exert total independence.