Silicon Valley rallies against Washington over China tariffs

‘Make America Great Again’ might be the slogan pinned to anti-China aggression from the White House, but Silicon Valley is creating a tsunami of discontent against the short-sighted policies.

Jamie Davies

June 21, 2019

5 Min Read
Tense relations between United States and China. Concept of conflict and stress

‘Make America Great Again’ might be the slogan pinned to anti-China aggression from the White House, but Silicon Valley is creating a tsunami of discontent against the short-sighted policies.

The Office of United States Trade Representative (USTR) has opened up for public comment regarding a new wave of tariffs to be placed on Chinese exports. While this will generate additional income for the US Government, anyone who believes these actions will not be reciprocated by the Chinese Government is probably fooling themselves.

For months, President Donald Trump has seemingly held a belief he can do whatever he chooses without repercussion, and the industry has largely stood-by with little action or objection. But no-longer, the list of comment submissions is growing by the hour, and there are some pretty big names to take notice of.

In one statement, Intel, Microsoft, HP and Dell Technologies have jointly submitted an opinion suggesting the laptop industry will be under-threat. The team point to price increases for US consumers and businesses, while also claiming the action would weakening the competitive edge these companies have on the international market.

“At the same time, the imposition of tariffs on such products would not address the underlying Chinese trade practices that USTR’s investigation seeks to remedy,” the submission states. “Instead, the tariffs will harm US technology leaders, hindering their ability to innovate and compete in a global marketplace.”

Price is of course a concern to these businesses, as the consumer electronics segment is one which operates under the cloud of low margins and high costs. With the threat of Chinese retaliation on the horizon, costs could be about to soar. With this in-mind, the team would the proposed tariffs to be amended with a horde of exemptions.

And when there are increased costs, there are fewer profits and therefore less money to spend. The jobs category is one which could be under-threat.

“While we appreciate the Administration’s efforts to address longstanding issues the software and other innovative industries face in China, we are concerned that the proposed modification will significantly and negatively impact economic growth, jobs, and innovation,” said Tommy Ross, Senior Director of Policy for The Software Alliance. “The proposed tariff increases will raise costs and reduce competitiveness across the international software industry and beyond.”

According to Ross, the software industry employs 2.9 million US citizens directly, while supporting a further 10.5 million indirectly. The tariffs threaten profitability and the ability for the firms to hire. This may well have a negative impact on growth as well as innovation.

On the handsets and devices side of things, there are of course numerous comments from a range of different parties. John Shane of Fitbit is requesting the USTR remove HTSUS

subheading 8517.62.0090 from the tariff list, as this would cause economic harm to his firm and its competitors, while also having the perverse effect of advancing primary Chinese

objectives under Made in China 2025.

Roku is another which has objected, suggesting Section 301 could negatively impact its ability to capitalise on the opportunity it has with the Roku Operating System. Roku has emerged as somewhat of a challenger to the traditional TV market, with 54% of Roku users not utilising traditional linear TV. This is an emerging segment, though Jim Lamoureux argues the tariffs would inhibit innovation and impact Roku’s ability to lead globally in this potentially profitable segment.

This is the greatest danger of the USTR actions against China with these tariffs; retaliation from the Chinese Government might ensure the damage inflicted on US firms and the prospects of the wider US economy in the international markets would exceed the benefits.

Then you have to consider the impact the White House’s actions will have on allied nations.

“While the USTR has a vital role vis-àvis China, the proposed tariffs could unwittingly affect products made by American, European, Japanese, South Korean, Taiwanese firms and firms from countries of non-offending origin – the very countries with whom the US wants to strengthen trade going forward,” said Roslyn Layton of the American Enterprise Institute.

In her comment, Layton has voiced support for the actions, though seems to encourage more thought when it comes to the law of unintended consequences. Layton seems to be encouraged by firm position the USTR is taking in opposition to China but questions the effectiveness of its current path.

You have to wonder how much collateral damage the US Government is prepared to stomach in its crusade against China. We strongly suspect it does not care in the slightest that a firm of a couple of hundred people are negatively impacted, NeoPhotonics has been crippled by losing Huawei as a customer, but when the tech giants start to get twitchy politicians might start taking notice.

Layton also pays homage to the international allies of the White House. Trump has not exactly been collecting compliments on his diplomatic strategies over the last couple of years, and should the tariffs directed at China have negative impacts on its trade partners, we can imagine strained relationships would be put under further pressure.

All of these businesses are requesting exemptions from the tariff list, but also question the logic behind the decision. There is going to be collateral damage and friendly-fire, though you also have to question whether the strategy is going to satisfy the desired aims.

What is also worth noting is that we are only focusing on the technology segment here; there are more than 2,000 comments so far on a very wide range of topics, industries and verticals. A large number of these submissions are calling for exemptions on the products, components or services which are deemed critical to their work. We suspect if you go through every comment, every item on the tariff list will be mentioned by someone, somewhere.

There are still a flood of questions and concerns which need to be addressed by the USTR, though one which we are interested in is who the US Government will choose to wear the collateral damage. Some exceptions will be granted, and some requests will be ignored. The USTR has to decide which industries to protect from the trade-war and which are going to sacrificed for ‘the greater good’.

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