Why The US Tech Industry May Soon Face A Crisis

Tensions between the US and China have escalated amidst reports that President Trump is looking to impose $200 billion more in Chinese imports. The world’s two largest economies have already applied tariffs to $50 billion of each other’s goods, but Trump is looking to accelerate a strategy that may have destructive consequences.

Looking at the issue from a pure dollar perspective, one may argue China has more to lose from a strained relationship with the US. The US will be able to put tariffs on up to $500 billion more in Chinese imports, but China’s total imports from the US only amount to $150 billion. Additionally, the US stock market reached record highs this year, while China’s stock market officially entered a bear market with losses over 20 percent.

But the US has a lot at stake in the future. The crown jewel of the markets today—the technology industry—will be most impacted if a trade dispute goes awry.

Innovative American technology starts with US soil, but the entire supply chain takes the technology industry straight to China. Not only are parts made in Chinese factories, but more and more software services are being developed by Chinese coders. Just yesterday, it was revealed that Google’s new hardware security key was made by Feitan, a Chinese company.

Because the tech industry has such deep and co-dependent relationships with China, companies need more support from the government than ever. In the face of forced technology transfer and IP theft, companies are not individually strong enough to defend themselves from theft of innovation or loss of consumers.

Even trillion-dollar Apple will not be able to protect itself alone. Sales from Greater China comprise 21 percent of Apple's total sales, and in addition, the company depends on services from the country; Apple employs around one million people from the country, where final assembly for most of its phones also take place. Even more, an estimated $15.7 billion of the US-China merchandise trade deficit in 2017 were from iPhones.

Unless the trade dispute accounts for the complexities of these relationships, the US will face heavy losses in profit. Chinese companies grew at a rapid scale through a unilateral push from Beijing. If the US were to receive the same level of government backing, it would undeniably strengthen its position in the global economy.

As a whole, Trump was right about trade agreements needing to be revisited. But the US must put in place a comprehensive policy that protects its innovations first.