The US government is escalating its trade war against China, and tech companies in both countries are among the first to be hit by increasing tensions.
Yesterday, US federal prosecutors slammed one of China’s largest tech companies, Huawei, with criminal charges — a total of 23 major indictments against the company and one of its top executives. The sweeping charges include allegations that the company stole US technology trade secrets (including trying to steal a part of a T-Mobile robot called “Tappy”) and conducted illegal business that violated US sanctions against Iran.
At the same time, the Department of Justice issued a request to extradite Huawei’s CFO, Meng Wanzhou. Wanzhou, who is also the daughter of the company’s founder, was arrested last month in Canada and is currently being detained in the country. The possibility of her being extradited to the US could have far-reaching consequences for US-China business relations. There’s also a broader push by the US and its allies to limit Huawei’s international expansion of its 5G mobile internet network, citing fears that the Chinese government could use that infrastructure as a way to spy on foreigners.
The Chinese government has denounced all claims of wrongdoing, accusing the US government of trying to crack down against Chinese companies in order to stifle competition.
“For some time now, the United States has deployed its state power to smear and crack down on targeted Chinese companies in an attempt to kill their normal and legal business operations,” Chinese Foreign Ministry spokesman Geng Shuang said in a statement on Tuesday.
While political drama between the US and China over stealing trade secrets is nothing new, the Huawei charges are some of the most serious indictments yet, and put even more pressure on an already intense tit-for-tat trade war. Since the US launched an investigation into Chinese trade policies two years ago, it has launched a series of tariffs on Chinese-made products. Beijing in return has done the same for many products coming from the US. For Huawei and other Chinese tech giants like ZTE, this is obviously bad news. And for major US tech companies, this could help reduce competition and potentially reduce instances of intellectual property theft.
But a deepening rift in the Washington-Beijing relationship could have a negative effect on the bottom lines of US tech companies, which depend on selling to a growing Chinese consumer market.
The battle is already starting to have a negative effect on some major US tech firms, including Apple. In an open letter ahead of their last earnings, Apple cited the ongoing tariff war as a reason for weaker sales in the region.
CEO Tim Cook wrote in a letter to investors ahead of Q1 earnings this year.
We believe the economic environment in China has been further impacted by rising trade tensions with the United States. As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed.
Setting aside the potential impact on balance sheets, there could be a chilling effect on the ability of executives to do business abroad. If Huawei’s Wanzhou is extradited from Canada, she could face trial and jail time in the US. That would not only set a precedent for other Chinese business execs who might fear traveling to the US again, but could also mean that the Chinese government could similarly arrest US businesspersons traveling on its soil. China has recently arrested a former diplomat and business executive from Canada, where Wanzhou is currently being detained.
This battle is all but sure to escalate further — especially because now, with bipartisan support not just from the usual protectionist trade hawks but Democratic leaders like Senator Mark Warner, the Trump administration has more leeway to enforce its punitive trade policy.
US companies like Apple with broad Chinese markets — as well as Huawei and other Chinese tech giants — had better gear up for more turbulent times ahead.
This article originally appeared on Recode.net.