For days there has been a lot of talk about Google's decision to suspend the Android license for Huawei, made inevitable after the executive order wanted by the President of the United States, Donald Trump, to prevent US technology companies from doing business with Chinese ones, except for us. is an explicit permission from the government. An editorial in Bloomberg defined recent developments – which risk compromising Huawei's smartphone business – the start of a “technological cold war” that could have global consequences and for us all. Other experts, such as analyst Ben Thompson, believe instead that this trade conflict started at least 10 years ago, and that the latest developments are the natural consequence of the choices made in the sector, especially by China.
This latest breakthrough had long been feared by Huawei, as evidenced by the fact that the Chinese company had already started stocking up on numerous components produced by US companies, used in its smartphones, servers and other telecommunications devices. Huawei should have been stocking up for at least three months, which will allow it not to stop production lines, waiting for the situation to clear up; and claims to have been working for some time on its own operating system that can replace Android on its devices.
There is still the possibility that the crisis will recede, in the event that Trump decides to come to milder advice and enter into new trade agreements with China, as he seemed close to doing a few weeks ago, renouncing the imposition of new limitations and duties. However, Trump has shown that he does not have a very coherent strategy on the issue, and this leaves many doubts on the evolution of the situation; moreover, the Huawei affair is only partially superimposable to that of the trade war between the United States and China.
Before Huawei
The Huawei story is the latest in a long series that is pushing China to invest heavily in reducing its dependence on foreign companies for the components and for the software. If it succeeds, explains the editorial published in Bloomberg, we will find ourselves with a world essentially divided into two areas of technological influence: one under the control of China, the other under the influence of the United States and its main economic partners. in the field.
In his analysis, Thompson writes that Huawei probably began to look around in alarm last year when the United States banned the sale of U.S. technologies to ZTE, China's largest telecommunications equipment manufacturer. The US government accused ZTE of violating US laws that prohibit companies that also want US companies from doing business with Iran. The decision at the time caused much discussion, suggesting that there were other reasons behind the ban, linked precisely to the incipient trade war against China.
The forces in the field
To better understand this “technological cold war” it is necessary to observe the forces in the field, their strengths and their vulnerabilities. The United States certainly has a considerable advantage in terms of patents and, more generally, the technical ability to build sophisticated components. It is true that iPhones are “produced in China”, but it is also true that very little of their technology originates in that country: most of the components – then assembled in Chinese factories – derive from activities carried out in Japan, South Korea, Taiwan and in the United States.
China is far behind in the production of the most advanced components, such as microchips which then end up in the smartphones and computers we use every day. The production of processors requires extremely high-precision machinery, which is rarely available in Chinese factories. One of the exceptions is perhaps Huawei, which over the years has developed the ability to produce microchips by itself, but without achieving results comparable to those produced abroad, and in any case maintaining a strong dependence on the United States for software, as it has demonstrated the case of Android.
It will still take years for China to overcome this gap with the United States, but this does not mean that it is at an absolute disadvantage. In fact, China has a wide influence on raw materials: over the years it has greatly strengthened its position in the sector of the extraction of minerals essential for the construction of electronic devices. Chinese companies are estimated to control around 90 percent of the industry, and this dominant position has already been exploited in the past. In 2010, for example, China regulated the production of rare raw materials by imposing export quotas, which greatly affected prices.
Ten Years
Thompson reports that that decision, along with others of the same year, were the first signs of the start of the technological cold war. In January 2010, Google announced that it had suffered heavy cyber attacks from China, resulting in patent theft. The story, together with the age-old problem of the strict censorship exercised by the Chinese government on the Internet, led Google to leave the Chinese market.
Google's exit took place a few months after the progressive blocking of most of the largest and most successful sites in the United States, made inaccessible to Chinese users: Facebook, Twitter and YouTube. In the following years, Wikipedia, Instagram, Reddit, Dropbox and numerous media outlets, including the Wall Street Journal and the New York Yimes, would follow the same fate.
In fact, for about a decade, China has blocked the commercial activities of some of the largest and richest US companies in its territory. The Chinese government's priority was certainly to prevent the free circulation of information contrary to its propaganda, or about the actual conditions of oppressed minorities, but it also brought commercial benefits for Internet companies operating in China. Without the competition from Google, Facebook and the others, in recent years Chinese social networks and search engines have thrived, with the paradox of being online thanks to the US components present in their servers.
In this last detail, writes Thompson, another important aspect is captured: for many US tech companies, censorship was only a problem up to a certain point. The expansion of Chinese online services meant that US component suppliers continued to seamlessly sell to China, doing great business. In addition, the Chinese market offered (and continues to offer) low-cost labor for foreign companies such as Apple, which assembles a large part of its products in China.
Thompson writes:
The truth is that relations between the United States and China have long been one-sided: China buys the components it needs, keeps all the software opportunities for itself, and – of course – looks for new opportunities overseas. At the same time, US acceptance of the way things stand meant that China was not motivated to make the necessary investments to completely replace US components, leading us to the current situation.
Advantages and disadvantages
The impression is that for now the United States still has a huge advantage over China, especially in terms of knowledge in the production of processors , which can be further strengthened if they manage to forge greater partnerships with technology companies in South Korea, Japan and Taiwan. Even if it will invest enormous resources, China will take years to reach the United States.
After the Huawei case, in recent days there has been talk of the possibility that China may decide to respond to Trump's decision by damaging Apple, one of the richest technology companies in the United States, and one of the most exposed to the decisions of the Chinese government. But Apple employs – directly or indirectly – millions of people in Chinese manufacturing plants that make its iPhones, iPads and other devices. The Chinese government would hardly be putting millions of jobs at risk by hindering Apple that much (it already does so with many of its online services not available to Chinese users).
However, the restrictions and tariffs imposed by Trump also have consequences for the US industry. The case of Huawei in this is emblematic: manufacturers can no longer sell their components to the company, just as Google has had to renounce the license and its commercial agreements with the second largest smartphone manufacturer in the world. In the short term, this will translate into less business for US tech companies, not to mention higher labor costs if it becomes increasingly difficult to assemble devices in China.
Censorship, freedom and technology
There is a final evaluation that is likely to escape being behind the purely economic aspects, explains Thompson, and it is that on human rights and on the free expression of thought. China has exploited Western technologies enormously, buying them or infringing patents as the case may be, to set up the largest and most sophisticated surveillance system in the history of mankind. Virtually all the information that Chinese users exchange on the Internet can be spied on by the government, camera systems with facial recognition allow you to monitor the movements of millions of people, limiting their freedoms as happens in few other countries in the world.
A problem therefore arises that goes beyond the technology sector: what is the most just and correct way to do business with China, which is still one of the strongest and growing economies on the planet. Thompson concludes:
The real war when it comes to technology is this: censorship versus freedom, control versus creativity, centralization versus competition. And they are related issues: censorship in China is exercised through control facilitated in turn by centralization. This should prompt Western tech companies and investors to pause for a moment when it comes to China, and it should also lead to thinking about the most appropriate policies to take within our own industry. Freedom, creativity and competition are as interconnected as are their counterparts, and the violation of one should be taken as a threat to the other two.
