Tech Battle 2015: China’s Restrictions on Foreign Tech Companies Could Ignite Trade War

by Matt Klassen on December 29, 2014

Whether it was a knee-jerk reaction to American fear-mongering regarding technological espionage, tit-for-tat for the U.S. labelling certain Chinese companies as “threats to national security,” the NSA spying controversy, or simply because American companies are dominating the Chinese tech market, China’s decision earlier this year that requires all  “banks, the military, state-owned enterprises and key government agencies” to shift to home-grown Chinese technology could mean an all-out trade war is looming on the horizon, one that could define 2015 as China and the United States battle for tech dominance.

There’s no question that with 80% of China’s banks using American-made servers that any legislation that restricts the operations of foreign businesses in China will have huge consequences for the likes of Cisco, IBM, and Intel, not to mention the impact such restrictions will have on the likes of Google, Apple, and other foreign operators like Samsung in the mobility sector as well.

Simply put, the longstanding irony for American businesses is that they have always encouraged their domestic market to “Buy American” in an effort to bolster our own economy, all the while convincing other foreign markets that it’s in their best interests to do the same, foregoing their own local economies. Well it looks like China’s dependence on American technology is quickly coming to an end, and it’ll be interesting to see what, if anything, America can do about it.

The bad news for America in this looming trade war is that it seems, for my perspective at least, that China holds all the cards (all the important ones anyways). Sure America has the world’s most popular technology brands, but other than the fact that those brands are located in the U.S., there’s really not much “American” about them. With the local tech market almost completely saturated, all American tech businesses depend on foreign expansion for sustained growth, and China is the largest foreign market we have.

Further, in order to keep the prices down on all our favourite tech gadgets American businesses have had to outsource the entire production process, and I don’t need to tell you that most of that tech production has ended up in China, a country that seems perfectly willing to sacrifice the wellbeing of its workforce for cheaper production costs.

With this new legislation, core pieces of China’s infrastructure will now need to comply with the country’s new regulations by 2019 regarding “safe” technology, a move designed both to bolster its own domestic technology sector and to safeguard itself against foreign cyber attacks. If a foreign tech supplier would like to continue operating in China beyond that date, it will need to share its core technology with China or allow the country’s security inspectors access to their products or services.

Simply put, for those American companies looking to safeguard their secrets yet ruthlessly expand in foreign markets, this is bad news indeed. “I see a trade war happening,” Ray Mota, CEO of US-based ACG Research, told Bloomberg. “This could get ugly fast, and it has.” In fact, this trade war will likely go well beyond a discussion about technological gadgets. “It’s not going to be a technology discussion. It’s going to be a political discussion,” added Mota.

But as I mentioned, if such a trade war breaks out I have to wonder who will be on the losing end, as it seems China is now taking the necessary steps to grow its own domestic brands, brands that will rival their American counterparts in every regard. Now juxtapose that domestic growth with America’s tech stagnation and things really don’t look well for our tech industry going forward.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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