U.S./China Trade Fight Could Hurt Global Tech Supply Chain

With the U.S. picking up its actions against Chinese technology firms, analysts and consultants are warning that it will create big economic problems for the global technology sector.

The Financial Times, citing consultants and analysts, reported that with the U.S. gearing up to publish proposals this week that would prevent some U.S. government agencies from using technology from Chinese tech companies Huawei or ZTE and a ban on U.S. military contractors working with those two companies — in addition to the U.S. blocking a memory chip deal and banning component sales — technology companies around the world could be heavily affected.  With China reliant on semiconductor imports, stricter U.S. policies could hurt its revenue growth and disrupt supply chains to foreign nationals. It’s also prompting tech companies in China to develop their own semiconductors, which could pressure the chip makers in the U.S.

“The complexity of this issue is mind-boggling because the electronics value chains are much more complex and globally integrated than they were in the past,” Christopher Thomas, a partner in McKinsey’s Beijing practice, said in the report.  The report noted that for ZTE, which makes smartphones in China, finding alternative sources for chips can be tough, given that Japan and South Korea don’t have enough capacity, and state-backed chip makers are behind their rivals. Part of the trade talks between China and the U.S. last week called for the ban on ZTE to be lifted and for the end of restrictions on U.S. exports of sensitive tech products, noted the report.

As a result of the riff with the U.S., the Financial Times reported China is making moves to lessen its reliance on technology outside of its borders. For instance, China has been trying to lure overseas workers and has moved more of its business in-house to cushion the blow from supply chain disruptions, noted the report.  The Financial Times pointed to Alibaba as one example. The Chinese eCommerce giant is spending $15 billion on R&D while other big tech companies are engaging in joint innovation labs with the Chinese government.