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Tech's cold war: Here's how geopolitics is shaping your next smartphone

Companies including Google, Qualcomm and Broadcom froze some of the supply of products to Huawei

Jamie Condliffe | NYT 

A surveillance camera is seen next to a sign of Huawei outside a shopping mall in Beijing, China. Photo: Reuters

US President Trump’s latest swipe at could be the start of a deep transformation of the tech sector.

Citing national security concerns, the Commerce Department said this month that American would need special permission to sell some products to and other Chinese This past week, things escalated.

including Google, Qualcomm and Broadcom froze some of the supply of products to the Chinese technology giant. (Google, for instance, will no longer offer the full version of its Android operating system.) The crackdown may expand, with a ban on sales to Chinese surveillance companies possible.

Third-country suppliers also need a license to sell products to Huawei if content from the United States contributes more than 25 percent to their value, and the British semiconductor designer ARM said it would stop licensing technology to Huawei’s chip unit. (Mobile carriers in Britain also stopped offering Huawei phones to some customers, over Android support concerns.)

What now? The United States government offered a 90-day grace period for some transactions between American companies and Huawei. That “doesn’t mean much,” Ren Zhengfei, Huawei’s founder, said, but it could signal that the overarching ban is little more than short-lived trade posturing.

Still, the has spoken repeatedly about its desire to blunt China’s technological development, and China threatened to retaliate. So this could be the start of a long fight — the raising of “a digital Iron Curtain,” as my colleague Li Yuan put it.

“This is a turning point,” said Xiaolan Fu, the director of the Technology and Management Center for Development at Oxford University. “It is changing the direction to a more closed, protectionist approach.”

If the freeze-out persists, the near term looks rough for Huawei’s smartphone division. It has stockpiled Western chips, maintained supply from Taiwan Semiconductor Manufacturing Company (the world’s largest contract chip maker) and developed its own phone software. But it could be crippled by an inability to source components and may struggle to find markets outside China for its devices.

ALSO READ: Huawei's European customers on hold after Trump's move to ban telecom giant

In the long term, the ban could push the world toward divided technologies.

“The lesson the Chinese have taken from the Trump administration’s trade strategy is that the US is pursuing a technology containment approach,” said Adam Segal, the director of the digital and cyberspace policy program at the Council on Foreign Relations. The solution is independence — something China has pushed for by encouraging domestic tech prowess, including in chip production.

“I think we are moving toward a bifurcated technology system,” Segal said. China uses Chinese products, and America uses American products.

A big question then: Which side do other countries take? The United States probably assumes the West will follow its lead. But nations like Britain and Germany aren’t yielding to American pressure to block Huawei from building next-generation 5G wireless networks over national security risks.

Poorer countries are likely to be won over by price: Huawei is one of the leading, and cheapest, developers of 5G technology. For some countries wanting to jump-start economies with fast wireless networks, siding with China may be the only option.

Such fragmentation may affect consumers. Ms. Fu points out that in a globalised economy, manufacturing takes place in the most efficient location.

A move to protectionism would prompt China and the United States to relocate production domestically, or at least to ally nations, which could drive up prices of devices. And the development and deployment of 5G in a fragmented environment could lack economies of scale afforded by globalism, Mr. Segal said. That could potentially delay its rollout and increase cost.

Geopolitics isn’t the only force of change in the smartphone industry: So is the tech industry’s new obsession, antitrust.

On Tuesday, Judge Lucy Koh of United States District Court in San Jose, California, ruled that Qualcomm had suppressed competition in the smartphone chip market and charged “onerous” fees for the use of its patents.

ALSO READ: Who needs Google's Android? Huawei trademarks its own smartphone OS

“Qualcomm’s licensing practices have strangled competition,” she wrote. It must now strike new licensing agreements and be monitored for seven years to ensure compliance.

Phone makers, particularly Apple, had bristled at Qualcomm’s royalties, which could be as high as 5 percent of a handset’s wholesale price.

(Apple turned the other cheek and settled its royalty case with Qualcomm last month, sacrificing $27 billion in damages and making a payment of at least $4.5 billion to use Qualcomm’s 5G chips.) So the ruling could reduce costs for smartphone makers and consumers.

It also undercuts Qualcomm’s business model, which is largely based on profits from patent fees. It could also complicate efforts by the United States to assert itself in the creation of 5G networks.

America’s first AI rules

The Organization for Economic Cooperation and Development announced a set of principles on Wednesday to guide the development of artificial intelligence. Conspicuous by its presence on the list of nations backing the rules: the US.

ALSO READ: Possibility of including Huawei in trade deal with China, says Trump

The long shied away from such policies. But as my colleague Steve Lohr reported in April, it was spurred into action by a wave of tech regulation — particularly Europe’s new General Data Protection Regulation. The realisation: Regulations that would affect the nation’s tech industry were coming, and federal officials needed to participate if they were to shape them.

So the administration decided to collaborate with the Organization for Economic Cooperation and Development, and this is the first time that it has formally endorsed a set of AI guidelines. The guidelines — which suggest that A.I. should benefit people and the planet, and be designed to respect the rule of law and human rights, among other things — aren’t legally binding.

But Jack Clark, the head of policy at OpenAI, an artificial intelligence lab in San Francisco, said it was “quite significant” that the United States had signed on to them. It is, he said, a sign that the administration is “putting its weight behind” the development of AI.


First Published: Sun, May 26 2019. 00:38 IST