American tech companies fear that a federal clampdown on Chinese tech firms over national security concerns could prompt retaliation from China — and leave Silicon Valley’s business interests caught in the middle.
The White House and members of Congress have pushed back aggressively on Chinese tech companies seen as too close to the Chinese government.
{mosads}On Wednesday, the Pentagon announced that it would ban two Chinese phone makers, Huawei and ZTE, from selling their products on U.S. military bases. At the same time, the White House is reportedly considering a new executive order that could come as soon as next week to limit the presence of some Chinese firms in the U.S.
The moves follow a steady stream of legislative and administrative actions over the past year — all accompanied by strong rhetoric — from politicians on the right who want a crackdown on Chinese technology.
The administration and members of Congress have said that their moves are motivated by fears that Chinese technology companies are too close with the country’s government, making them willing to create exploitable security flaws or hand data over to Chinese intelligence agencies.
“We don’t want undisclosed back doors into our systems,” Rep. Mike Conaway (R-Texas) told The Hill earlier this year.
Last year, the administration twice blocked Chinese firms from acquiring U.S. companies. In Congress, lawmakers have pursued legislation that would bar federal agencies from contracting with Chinese technology companies, while also reportedly pressuring AT&T to scrap a deal with Chinese phone maker Huawei.
But U.S. tech companies fear that the restrictions on Chinese companies could prompt retaliatory measures from China.
“Tariffs and any Chinese retaliation that could follow would hurt American consumers, businesses and workers, and not level the playing field with China,” said Ashley Berrang, a spokeswoman for the Information Technology Industry Council, a tech industry trade group.
Experts say that this concern is not misplaced.
“China could come up with a bogus antitrust concern and go after U.S. firms. They can do whatever they want. There’s no barrier to stop them,” said Rob Atkinson, the president of the Information Technology and Innovation Foundation, a Washington, D.C.-based think tank.
China could implement the same tactics used by the U.S. government: stopping mergers between Chinese and U.S. companies, constraining investments in foreign companies and barring foreign businesses from obtaining federal contracts.
“The risk of divestiture of orders, limits on market access — all those tools are available to the Chinese government that has been historically more hands-on than the U.S.” said Tony Balloon, head of the corporate China practice at the law firm Alston & Bird.
The Chinese government is also less likely to face opposition for taking a large role on economic issues.
“China is an interventionist in its economy — that threat has always been there. The question is: ‘are they more likely to deploy the tools they have in retaliation?’ And I think the answer is yes,” he added.
China has already signaled that it’s concerned with American actions against its tech companies.
During ongoing negotiations in Beijing this week, China reportedly tried to appeal to U.S. officials to soften a recent ban on ZTE selling products in the U.S. for the next seven years.
“If the Commerce Department sticks to its ban, the U.S. is essentially killing China’s No. 2 phonemaker,” said Paul Triolo, the head of practice on technology policy for the Eurasia Group.
“A worst-case scenario from this is a company like Apple is exposed,” he said.
China may have a hard time targeting companies like Qualcomm, which is integral for much of its tech businesses. But the government could more put pressure on by restricting companies like Apple, which are less critical to the Chinese economy.
Silicon Valley is especially concerned because tech presents an easy target for the Chinese government amid larger trade tensions between the two countries. And, according to Brookings Institution senior fellow Michael O’Hanlon, the U.S. government would likely have little recourse.
Still, O’Hanlon sees some U.S. restrictions on Chinese tech companies as inevitable because of security concerns.
“You would just be foolish and imprudent to let that kind of company have easy access to our secrets and our conversations,” he said.