WASHINGTON — A looming trade war between the United States and China has put Qualcomm, one of America’s largest technology companies, squarely in the middle of the battlefield.
A major supplier in both China and the United States, the San Diego-based chip maker has long managed to play the trading relationship between the world’s two largest economies to its advantage. But an escalating trade battle over which country will dominate the technologies of the future is now threatening Qualcomm’s business and its growth.
On Monday, Qualcomm lost the ability to export semiconductors to one of its biggest customers after the United States banned Chinese telecom equipment maker ZTE Corporation from purchasing American technology for seven years.
In China, Qualcomm’s plan to acquire NXP Semiconductors, a critical part of its growth strategy, has been stalled by a prolonged antitrust review, a move critics see as Chinese retaliation for President Trump’s aggressive trade moves. On Thursday, Chinese officials said that Qualcomm will have to make more concessions to compensate for the market power it would enjoy after completing the deal, without providing details.
The White House, which has already threatened tariffs on more than $150 billion in Chinese goods, is preparing new restrictions on Chinese investments in the United States and could limit American partnerships with Chinese firms abroad. Such a move could place further restraints on American companies with advanced technology, like Qualcomm, General Electric and Boeing, as they seek to form overseas partnerships. It would also likely incite more retaliation from the Chinese. On Tuesday, the administration advanced a new rule that would limit the ability of Chinese telecommunications companies, including Huawei, one of Qualcomm’s competitors and a customer, to sell their products in America.
Qualcomm’s situation illustrates the perils of trying to punish a major trading partner that has become a crucial link in supply chains stretching across the globe. By targeting foreign players with ties to their own markets, the United States and China are putting their own economic futures at risk. The question is whether the Trump administration will balk at paying that price — or see its goal of punishing China for unfair trade practices as more important than any collateral damage that could ensue.
“They’re obviously really caught in the middle,” Andrew Gilholm, the director of analysis for greater China at Control Risks, said of Qualcomm. “The demands the Chinese government has on them, and the demands coming from the U.S. side, at some point might become irreconcilable.”
The cold war that is emerging between the United States and China is increasingly centered on the kind of advanced computer chips that Qualcomm produces. The company’s chips are now common in smartphones, but they also serve as the basis of next-generation 5G systems, vast networks of sensors that may soon govern the function of everything from autonomous vehicles to smart power grids and manufacturing systems. Qualcomm is locked in competition with China’s Huawei for dominance of this new industry.
The emergence of this technology means that, for the Trump administration, national security is no longer confined to airplanes, tanks and weapons systems. Since these chips allow companies to collect vast amounts of information, control critical infrastructure and know the location of people and objects in real time, foreign ownership could pose an unprecedented security threat.
The administration’s focus on Qualcomm’s technology may be partially of the company’s own making. Earlier this year, the company asked the Committee on Foreign Investment in the United States, which evaluates foreign acquisitions for national security threats, to intervene as it faced a hostile takeover attempt by Singapore-based Broadcom.
The Trump administration, already interested in the security implications of 5G technology, embraced the idea and made clear that the United States’ success was tied to Qualcomm’s. “China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” a United States Treasury official wrote in a letter to the companies. In March, Mr. Trump scuttled Broadcom’s $117 billion bid for Qualcomm, citing security concerns.
The administration is now considering giving regulators even more power to block Chinese investments by issuing an executive order modeled on a congressional bill on reviewing mergers for national security threats, people briefed on the discussions said. Those reviews would most likely apply to certain “critical sectors” that China uses its industrial policy to support — including semiconductors, aerospace and artificial intelligence.
Daniel H. Rosen, a partner at the research firm Rhodium Group, said policymakers worldwide are just now discovering that using foreign technology creates vulnerabilities that have outpaced governments’ ability to manage them.
“This is not just a China-U.S. phenomenon, but a matter of things which just a few years ago we thought were relatively benign now being weaponized in ways that we haven’t anticipated,” he said.
But trying to clamp down on Chinese products and investment flowing into the United States could be more painful for American companies that depend on access to partners and markets around the world than for their Chinese counterparts.
While China has already threatened tariffs of its own on United States products, it has other ways to retaliate — most notably, making life difficult for the many American businesses that depend on the country to source products or sell to China’s growing middle class.
For Qualcomm, that may already be happening. Its plan to expand its business into technology-connected vehicles depends in large part on acquiring a Dutch firm, NXP Semiconductors, for $44 billion. The deal has been approved by every government except for China, whose regulators have asked for more time to assess any antitrust violations.
On Thursday, Gao Feng, a spokesman for China’s Ministry of Commerce, said that the acquisition could have a “profound” impact on the technology industry but that the plan Qualcomm submitted to the regulator on how it would mitigate market competition issues would not be enough.
Many observers believe that China is using the review as leverage to exert pressure on the United States, which sees Qualcomm’s success as critical to American dominance in 5G.
“At a time when there is so much trade friction, Chinese regulators don’t necessarily need to stall the deal. They just need to continue postponing the review,” said Guan Zhisheng, an associate professor of economics at Sun Yat-sen University.
If trade tensions between the United States and China continue, American companies — especially those that use China as a platform to export to the United States — could see themselves embroiled in more time-consuming regulatory reviews revolving around pricing, monopoly power, food and drug safety, or bribery, Mr. Gilholm of Control Risks said. “That is another potentially very powerful front in this that China has not really used yet,” he said.
Qualcomm’s bottom line is also likely to be hurt by American efforts to target the Chinese. On Monday, the United States government said it was placing a seven-year ban on exports of American products to Chinese telecom firm ZTE, after the company made false statements to the government as part of an investigation into possible violations of American sanctions.
Jeff Fieldhack, research director at Counterpoint Technology Market Research, said this will be a considerable blow to the company, which provided chips for more than half of the roughly 45 million smartphones that ZTE sold globally last year. Qualcomm declined to comment.
Qualcomm has found itself under an increasingly uncomfortable spotlight in China in recent years. By 2013, the company was deriving more revenue from China than any other market, just as the Chinese government began expressing concern that its companies were forced to depend on the network infrastructure of American technology giants like Qualcomm and Cisco.
In late 2013, Chinese government investigators raided the Beijing and Shanghai offices of Qualcomm. After a 15-month investigation, regulators handed the company a record $975 million fine and declared Qualcomm a monopoly. The firm was forced to slash prices and pledge to move more of its sophisticated manufacturing to China and help boost the technological abilities of Chinese companies. Today, a growing chorus of American companies have complained that China has pressured them into sharing their technology in similar ways.
Fang Xingdong, a free speech activist and founder of the think tank China Labs, said their complaints had little merit. “The pressures on companies such as Huawei and ZTE in the U.S. market are much higher than those of U.S. companies in China,” he said. “The U.S. sanctions on ZTE are enough to kill the company.”
If China wanted to retaliate, Mr. Fang said, the simplest option would be to emulate American actions toward Huawei. “They could ban products from Qualcomm, Intel and Cisco in government, infrastructure and other areas of the market, based on security concerns,” he added.
In targeting Qualcomm, China could be seeking to influence the Trump administration by putting pressure on a company that has been politically connected in the United States, often serving as an unofficial liaison between the countries.
Over the years, Qualcomm has lobbied the United States government to further its interests in China, at one point helping to pave the way for China to join the World Trade Organization. In the late 1990s, Clinton administration officials pushed China to adopt American standards for mobile phones on behalf of Qualcomm.
But Qualcomm’s ability to influence the White House is unclear: The Trump administration has focused on recruiting American companies to build up their businesses domestically, not encouraging them to go abroad.
“Yes, the Chinese have a way to squeeze Qualcomm to really hurt their China revenue, and yes, Qualcomm has fought a lot of battles in the U.S. government arena,” said Derek Scissors, a resident scholar at the American Enterprise Institute. “The one weakness in the Chinese approach is it’s not clear the Trump administration cares about how much U.S. firms make in China.”
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