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8. Zachary Karabell is a WIRED contributor. He is the head of Global Strategies Envestnet and president of River Twice Research. The following are excerpts from his June 27, 2018 article headlined "Trump's Trade War Won't Hurt China. It Could Hurt Tech In the US".|
...For starters, China’s tech investment footprint in the US is remarkably small. The value of China tech investments was $9.9 in billion 2015. That rose by some estimates to more than $15 billion in 2016, and then dipped to $13 billion in 2017; last year’s number would have been much smaller without an $8 billion investment in Uber by Tencent, in conjunction with Japan’s SoftBank. The number of deals has fallen as well, to 165 last year from 188 in 2015, and has plunged in 2018 so far. The biggest reasons: The Chinese government has clamped down on easy credit that fueled these deals, and Chinese companies have grown wary of investing in industries that might come under the Washington spotlight....
Much as with immigration, the Trump administration is touting aggressive policies on an issue where the trends already have reversed course. Chinese direct investment is, in relative terms, small; limiting it will have minimal impact on US startups and growth companies (though it’s possible that one of those companies would have become a unicorn of the 2020s). Limiting such investment will also have minimal impact on the domestic Chinese economy. It will, however, cast an even greater pall over future economic ties, further propelling China to seek investments elsewhere.
As for restrictions on US technology exports to China, those too are a pinprick. First, the US government has been selectively trying to contain exports of technology it sees as vital or sensitive for many years. Under Obama, chipmakers such as Intel and Nvidia were not allowed to sell certain types of chips with military, supercomputer, or security applications. More to the point, US technology companies don’t export that much to China. Even by a generous definition of technology that includes aircraft parts, US technology exports to China amounted to less than $30 billion in 2017, out of total trade with China in goods and services in excess of $700 billion.
Most of what US tech companies sell to China does not show up as US exports because the products aren’t made in the United States. Hence an iPhone, which is nominally an American product that sells well in China, isn’t actually an American export to China because the phones are mostly assembled in … China.
As a result, restricting what American tech companies can sell to China doesn’t ultimately prevent many of those companies from selling to China, because of their global supply chains. In addition, there’s a good chance the restrictions would lead to unintended consequences: Faced with uncertain crackdowns on their exports from the US, American tech companies could shift more production overseas, rather than risk restrictions on their outbound American-made goods.
So here, as elsewhere, we have what appears to be forceful action designed to punish China and “restore” American competitiveness. The actual dollar amounts, however, are tiny, and the number of companies that will be meaningfully impacted is small. China is spending heavily on AI research, as well as on cybersecurity and robotics. Preventing Chinese companies from investing a few million here and there on American startups might make it harder for said startups to raise money, but it changes the competitive balance going forward hardly at all.
As symbols, though, these moves send a message that the US increasingly is not open for business. They signal to companies around the world that they would be better off looking for alliances and arrangements not subject to unpredictable American tariffs or investment restrictions. Denying foreign firms and countries access to US capital and US markets 20, 30, or 40 years ago would have represented a nearly insurmountable challenge. Faced with such measures, most countries and companies would have and did accommodate American demands. That is not the world we inhabit today.
With limited tools and unlimited words, the Trump administration cannot significantly alter US-China trade today. But it can, and has, soured the climate for future economic bonds. In the short term, the economic harm could be quite limited. It’s the longer-term challenges that should be of greater concern. If Trump’s policies make the US a less desirable place to invest, if they channel ever more global activity away from America, the damage will accrue steadily. Like the frog as the water gets hotter and hotter, it may not feel like much year by year, and when the damage finally hits home, it may be too late. We have time, but it’s not infinite. (End excerpts)