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The Chinese government is turning up the pressure on American technology companies and restricting their ability to compete with Chinese companies within the enormous Chinese domestic market.
I don’t want to form a nationalist pitchfork-carrying mob to denounce them evil feriners.
But any reasonable person would have to admit that there’s a point at which the national policies of a foreign government create an unfair playing field that demands a response of some kind.
The question is: Are we there yet?
For the past year, the Chinese government has instituted rules and policies that all have the same effect—reduce sales and availability of American technology products and services and reduce them as competitors to Chinese alternatives.
In recent months, the Chinese government has been banning U.S. products from the list of allowable purchases by any Chinese government agency. The list includes Symantec’s anti-malware, Microsoft Windows 8 and others.
Speaking of Microsoft, the company was raided twice in the last few weeks by Chinese antitrust authorities as part of the launch of an investigation into yet un-specified antitrust violations.
An attack on Microsoft for abusing its monopoly position is laughable—its dominant market share in China is based almost entirely on stolen and pirated copies—even within the Chinese government. An estimated 77 percent of all software used in China is pirated, for example.
When Microsoft ended support for the 13-year-old Windows XP operating system (which means that in order to get support the Chinese government would actually have to pay for Windows for the first time) the secretary-general of the Beijing Competition and Anti Monopoly Law Commission, Wei Shilin, said “This move just goes to show how dominating Microsoft is in the Chinese market,” adding that “The fact that most of Microsoft’s software is pirated is unrelated to this monopoly case.”
The Chinese government has also gone after Qualcomm, the American chip maker, branding it a monopoly and threatening to fine the company $1 billion.
China’s state-owned CCTV said that the iPhone’s ldquo;Frequent Locations” feature constituted a threat to Chinese national security because Apple could collect the location of every iPhone user and thereby divine state secrets somehow.
The Chinese government in May launched a formal review about whether IBM computers should be banned from all Chinese banks, citing fears about U.S. National Security Agency spying.
The Chinese state-owned and Communist Party-owned media have also engaged in a constant drum-beat of FUD (fear uncertainty and doubt) about the safety, security and reliability of U.S. technology products. The media have also repeatedly have claimed that Apple has singled out Chinese consumers for discrimination and abuse.
So What’s the Right Response?
The reality is that American technology companies have endured abuses, threats, bans, lawsuits, unfair press, biased judges, piracy, counterfeiting, hacking and worse in order to play ball with the Chinese government.
And the reason is that most companies believe someday the market will be opened and fairer to foreign companies operating in China. For decades, the conventional wisdom has been obsessed with the massive population of China, believing that even a small percentage of business there would be worth a fortune. So they’ll endure anything to stay in the good graces of the authorities there.
Chinese Protectionism, U.S. Passivity Raise Spector of Tech Trade War
For example, approximately the same number of Windows PCs are sold in China as are sold in the United States, yet Microsoft’s revenue for China is about 5 percent what it is in the US. Microsoft has been sticking it out, hoping that someday Chinese consumers, business and the government will actually pay full price for Windows like everybody else.
Now, just as foreign companies are finally making real gains, the Chinese government signals its unwillingness to allow foreign and especially American companies gain a major foothold.
So what’s the right response by the US government?
The range of options includes everything from doing nothing to aggressively pursuing a trade war with the country. A trade war is defined as “a situation in which countries try to damage each other’s trade, typically by the imposition of tariffs or quota restrictions.”
Right now, the President Barack Obama’s administration is being passive in the face of this enormous attack on U.S. companies in China.
The worst outcome would be an over-reaction on the part of the U.S. government. But doing nothing is the second worst option.
I believe there should be an equal and opposite response to every move the Chinese government makes against U.S. technology companies.
For example, the government could start imposing special taxes on any consumer electronics device assembled in China, which would incentivize the likes of Foxconn (a Taiwanese company) to divert investment in new factories away from China and toward countries like Brazil, Mexico and the United States. The official reason could be humanitarian grounds—because of worker abuse and child labor in China.
In fact, tariffs and restrictions could be applied to any or all goods and services coming from China—the U.S. runs a pretty consistent trade deficit with China anyway.
I don’t advocate a trade war. What I’m in favor of is free trade between the United States and China. But what we have now is a one-sided trade war. China is working hard to damage U.S. trade in China, while the U.S. is doing very little to restrict Chinese trade within the U.S.
(Critics of U.S. policy talk a lot about a 2011 Congressional report citing Huawei and ZTE networking equipment as security threats that recommended that the US government not buy products from these companies. All that became of this was that two years later, some U.S. agencies, including NASA, the Department of Justice and Department of Commerce were required to get permission from the FBI before buying IT equipment from these two companies. This is not comparable to the scope and scale of Chinese actions against U.S. products.)
The George W. Bush and Obama administrations have both done massive damage to the U.S. technology industry by allowing the NSA’s indiscriminate and reckless exploitation of US technology companies to spy on the world.
It’s time now that the U.S. government actually do its job and protect U.S. interests by standing up to the Chinese Communist Party and denying Chinese companies some access to the world’s largest consumer market in equal measure to the access to Chinese consumers denied to U.S. companies.