Analysis: Sanctions-hit China’s tech industry wonders about impact of Trump-Harris presidencies

Eduardo Baptista and Anne Marie Roantree

BEIJING (Reuters) – Donald Trump’s victory in next week’s U.S. presidential election will muddy the prospects for Chinese technology companies far more than Kamala Harris’ victory, as executives say his unpredictable style could lead to both a delay for the sanctions-hit industry and to strengthening restrictions.

The Republican candidate initiated a trade war between China and the United States during his 2017-2021 presidency by banning high-tech exports to China, citing unfair trade practices and national security concerns. Still, his combative approach coupled with sudden, sweeping tariffs could unsettle U.S. allies and undermine any coordinated effort, Chinese technology executives said.

Voter polls show him tied with his Democratic challenger, whose leaders expect him to continue the incumbent’s policies of regular, gradual changes to export controls and the use of international alliances to slow China’s technological and military development.

Whoever wins, observers widely expect the new restrictions to curb progress at a time when Beijing becomes more assertive in territorial disputes in the South China Sea, increasing naval and air force activity around Chinese-claimed Taiwan. and strengthening ties with embattled Moscow.

Predictability makes Harris a top choice for many executives, but ironically, Trump’s seemingly erratic approach could work in China’s favor, according to opinions contained in more than a dozen analyzes published by Chinese industry groups, think tanks and brokerages reviewed by Reuters.

The analysis provides a more revealing look at how China’s technology sector views its prospects under the next presidency, in contrast to state media, which toe the government line on political and sensitive issues.

Half of the analyzes viewed a Trump victory as negative in the short term due to the greater perceived likelihood of tightening export controls and sanctions on China’s semiconductor sector. During Trump’s tenure as president, he imposed tariffs on billions of dollars worth of Chinese goods and sanctioned conglomerates including chipmaker SMIC and telecoms maker Huawei.

“As the initiator of a comprehensive modernization of the Chinese science and technology containment system, if Trump comes to power again… the domestic semiconductor industry may be further suppressed,” Shanghai-based brokerage Topsperity Securities wrote in August.

The remaining analyzes were more detailed in their findings. Material Energy Times, which writes for Chinese firms that supply raw materials to semiconductor manufacturers, said in July that Trump’s “unilateral policies may also face opposition and non-cooperation from the international community.”

The policies Harris will inherit from President Joe Biden “are more long-term, coordinated and predictable, which could create more stable but long-term challenges for the Chinese semiconductor industry,” the editorial said.

Trump’s unpredictability is evidenced by his statements and social media posts. During his presidency, he expressed a willingness to reverse course on measures he took against Huawei and its rival ZTE. During his current campaign, he opposed a ban on the Chinese social media app Tik Tok, which he himself proposed while in office.

A July editorial by EETop, an information platform and forum for Chinese electronics companies, said Trump’s criticism of U.S. trade relations with allies such as Europe, Japan and South Korea, which in turn have interests in China, could put cooperation is at risk. This would mean that “especially in the globalized semiconductor industry chain, unilateral suppression by the United States is ineffective.”

“It is quite possible that Europe and the Netherlands will deliberately make it easier for us (to get around the restrictions), then we will be able to import EUV,” the editorial said. China relies on foreign extreme ultraviolet lithography machines and lacks the most powerful ones.

SELF-SUFFICIENCY

Regardless of who wins the election, China’s technology sector is far more domestically focused and self-sufficient than when Trump or Biden took power, according to analysts and a Reuters review of data.

The trade war has led to many retaliatory blows, such as Chinese export restrictions related to rare earth resources, but it has also prompted China’s technology industry to insulate itself from sanctions.

In 2016, China had four government procurement projects worth more than 10 million yuan ($1.4 million) in which foreign hardware and software were replaced with domestic alternatives, a Reuters review of tenders found. This year there were 169 such projects, 75 of which provided government funding worth more than 50 million yuan.

Thus, even if Trump or Harris tightens export controls, domestic producers are now much less dependent on foreign technology and better prepared to deal with the consequences of changes in the trading environment.

“We’ve slowed them down in semiconductor manufacturing, but other sectors like robotics you can dream about,” said Robert D. Atkinson, president of the Information Technology and Innovation Foundation in Washington. “They can get everything they need domestically.”

The importance of export controls as an indicator of toughness on China was evident in a speech Harris gave at the Economic Club of Pittsburgh in August, in which she accused Trump of supplying “advanced semiconductor chips to China to help them modernize their military.”

The comment was a reference to the Biden administration restricting access to market leader Nvidia’s cutting-edge chips used for artificial intelligence tasks.

This has not stopped Chinese firms from investing heavily in artificial intelligence. As of July, China accounted for 36% of the world’s 1,328 major language models, trailing leader the United States with 44%, according to the Chinese Academy of Information and Communications Technology.

Biden’s expansion of technological restrictions has dashed China’s hopes of being markedly less bellicose than his predecessor. Thus, this time, some technology companies have decided to abandon forecasts.

“We are now operating in a new environment,” said an executive at a major Chinese technology company. “We don’t know what might happen next, so we just keep going as fast as we can.”

(1 US dollar = 7.1201 Chinese yuan yuan)

(Reporting by Eduardo Baptista and Anne Marie Roantree; Additional reporting by Liam Moe, Kevin Krolicki and Qiaoyi Li; Editing by Christopher Cushing)