As US-China Tensions Build, Silicon Valley Rethinks Bonds

In recent years, the tech industry has looked to China as a key partner to help build and sell cutting-edge devices and services.

But rising tensions between Washington and Beijing have Silicon Valley worried it will be caught in the middle of a growing trade war.

Over the summer, President Donald Trump slapped $250 million of tariffs on Chinese goods sold in the U.S. and claimed that China offers U.S. businesses an uneven playing field as Beijing seeks to make China into a tech super power.

The detention in Canada earlier this month of a Huawei executive for allegedly breaking U.S. sanctions on Iran has made tech executives feel even more vulnerable.

China, for its part, denies the U.S. claims and has taken steps to pursue a formal inquiry about the tariffs at the World Trade Organization.

A delicate line

For the tech industry, the increasing tensions come as it was already walking a delicate line. Tech executives complain about intellectual property theft in China and what they see as unfair conditions for doing business. But the two regions have strengthened their bonds through investment, trade and partnerships in areas such as artificial intelligence, robotics and autonomous cars.

The tensions have left tech executives questioning what they can share about their work, said Stanley Kwong, adjunct professor at the University of San Francisco.

“All of these people are worried if they traveled back and forth, they might be arrested because of the IP, something they know and they talk about in both China, and in the USA,” he said.

Silicon Valley firms have complained the relationship “isn’t as reciprocal as it needs to be,” said Sean Randolph, senior director of the Bay Area Council Economic Institute.

The relationship, from some tech firms’ point of view, is about “the extraction of technologies involuntarily from foreign companies to accelerate China’s technology leadership,” he said.

Critical technologies

Chinese money that has helped fuel the current tech boom in Silicon Valley may start drying up. One reason — a new U.S. law, the Foreign Investment Risk Review Modernization Act (FIRRMA), beefed up oversight of foreign investment and acquisitions of critical technology that are deemed strategically important. The Committee on Foreign Investment in the U.S. has expanded powers to block foreign purchases of U.S. firms.

“Silicon Valley people have been optimistic for a long time,” said Xiaohua Yang, professor of international business at the University of San Francisco. “But now, they have begun to worry … about the lack of Chinese investment coming to support Silicon Valley technology development.”

Lawmakers are concerned that U.S. tech companies, as they pursue the Chinese market or seek Chinese investment, might hand over core technology to the Chinese government, a competitor and sometime adversary on the global stage. The tech industry waits, as what constitutes “critical technologies” under FIRRMA is still being developed.

For U.S. entrepreneurs, the changing climate may mean they will become more cautious, said Kwong, who advises startups.

“If you want to do business in China, if you’re doing consumer products, I say, that’s probably fine,” he said. “But let’s presume you’re doing AI. You better find out exactly what you’re doing. You can have AI in a coffee machine, and I don’t think that’s much to do with defense. If you’re doing facial recognition that may be something that’s going to have a major problem.”

Randolph said that the tech industry has long had an “open market, open platform” approach, with the idea that anyone can come and “we’re moving innovation forward globally.”

But if tensions between Washington and Beijing continue to escalate, experts say, the very openness of Silicon Valley may be a casualty — even if tech firms stand to benefit if China becomes more open for doing business.
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