The total value of Apple’s stock this week passed $2 trillion, the first company ever worth so much. Meanwhile, about 30% of that valuation can be attributed to its business in China, estimates longtime China-based American venture capitalist Gary Rieschel. (He joined the Techonomy Tech + Geopolitics session on the future of US-China tech relations on August 21st.)
The American and Chinese tech and internet industries have long been intertwined, but recent moves by the Trump administration aggressively seek to sully those ties. Apple and others are worried. The President has ordered Chinese internet giant Bytedance to divest itself of the U.S. operations of its TikTok subsidiary, or find itself completely banned. The administration already banned telecommunications giant Huawei, the world’s largest maker of smartphones and also its largest vendor of infrastructure for cellular networks, in several ways. Huawei cannot sell in the U.S.; it cannot use U.S. chips and tech in its products; and this week it was also banned from making its own chips or buying chips from others if U.S. technology or software is used to do so. This could be a death knell for Huawei’s smartphone business. Even before the latest move, the company was reportedly running out of chips. In addition, the Trump administration has announced an opaque and still-unexplained move against WeChat, the China-dominating communications platform owned by Tencent.
Some of this makes sense, others parts of it do not. But it is to understand the implications for the industry, policy, and geopolitics, that Techonomy convened VC Rieschel along with Blackberry CEO John Chen, a longtime expert on China and tech, and Scott Malcomson, author of Splinternet: How Geopolitics and Commerce are Fragmenting the World Wide Web.
One area where the U.S. leads the world is in chip technology. While several U.S. companies–notably Intel and Micron Technology–are giant chipmakers themselves, the U.S. also makes much of the software for designing chips, as well as much of the hardware and software used in the “fabs” where they are made. If Trump decides to wield all those elements of the industry as a geopolitical club against China, it will likely hurt both sides. American companies will lose a lot of revenue. (Disclosure: Micron is a Techonomy partner.) But China’s tech industry, even beyond Huawei, could be paralyzed. Experts estimate it would take China at least 3-5 years to design and manufacture its own chips comparable to those Trump is denying Huawei.
The hardening of U.S. trade and foreign policy towards China poses risks to much of the U.S. tech sector, because it is so intertwined with China. A huge number of companies on both sides could be deeply affected by what some call a “new cold war” between the two countries. The moment poses particular risk for Apple, despite its current stratospheric valuation. Not only did Apple get about 16% of sales in China in the latest quarter, but it manufactures most of its products there. The Chinese government may be tempted to target Apple to strike back against the curbs on Huawei, Tiktok, and others.
Microsoft has jumped in to attempt to peel away TikTok from Bytedance by Trump’s mid-September deadline. This makes sense for several reasons. The hosting opportunities of a deal, especially if Microsoft could bring all or most of Bytedance to its Azure cloud service, would be huge. (And the cloud hosting implications may explain why Oracle, otherwise a pure enterprise company, has thrown its hat into the TikTok ring.) Microsoft also could get a little of the outsized market cap that social media companies command, potentially thrusting it ahead of Apple in valuation (Microsoft is now at a not-shabby $1.6 trillion.)
But one thing not sufficiently understood about Microsoft is how well it handles China. Says panelist and Blackberry CEO John Chen: “Microsoft has shown itself better able to navigate the two countries than other tech companies.” I wrote about this in Fortune Magazine back in 2007 after traveling in China with Bill Gates for 10 days, in a piece entitled How Microsoft Conquered China. That’s one reason I bet Satya Nadella’s company will be the eventual winner in the battle to buy all or part of TikTok. (Twitter is also reportedly in the bidding.)
Eventually, the experts like our panelists believe that only if we could leave behind the kind of hard-power zero-sum approach of the Trump administration could we potentially come up with a workable tech détente with China. Rieschel would like to see multilateral tech and data agreements with allied and other countries, sort of like a Trans-Pacific Partnership of Tech. (That deal was deep-sixed by Trump.) Rules around privacy, transparency and data management would be clearly articulated, and China invited to play by the rules or get left out. Blackberry’s Chen has a similar view. “The way to deal with China,” he says, “is to be practical and pragmatic and come up with a win-win compromise. But you can’t do that standing in front of CNN or CCTV.” Journalist Malcomson believes a post-Trump administration should be open to multilateral negotiations with the leading technology powers, including China: “Dividing the commercial internet into political spheres of influence is really not in the American interest.”
I watched an extraordinary talk this week by Jim Balsillie, the Canadian entrepreneur who co-founded RIM, which later became Blackberry. Now he’s a philanthropist and deep thinker about economics and modern tech. He says the key in all these issues is to realize that today, data is important not unlike how land was in the feudal era. In the end, the tech competition with China is about who owns the data and how it gets handled. To resolve this and other questions, Balsillie said in the talk to the Institute for New Economic Thinking, it “takes an enlightened view of the world, not a great power rivalry.” For that, we may have to wait.