If I'm a European, I'll happily sell stuff to Iran if that means I'll make a profit. US sanctions do not apply to me.
Because they are a Chinese entity that buys U.S. made components in the U.S., and violated associated controls on the export of those components.
Yes they were guilty, no normally that would not result in a sanction of this kind, they'd be fined and life would most likely go on the way it it did before.
Is it entirely a coincidence? Who knows. The Obama DOJ saw fit to fine ZTE 1.2 billion as part of the plea deal. So the conduct was serious. That makes it hard to argue that the punishment for violating the plea deal is some new thing Trump concocted to fuel a trade war.
AFAIK: We don't know if they violated the plea deal; there is no due process; we only have the claims of an administration that is widely believed to lie. We can't distinguish a political decision from a legal one. (Please correct me if I'm wrong about the process.)
And it doesn't matter what the facts are, it's perception that counts. The appearance is that the current U.S. administration disregards process, fairness, honesty, and the rule of law; is an unreliable international partner; and particularly targets China. The ZTE penalty will be perceived in that context. Any leader must account for perception, whether they like it or not; I think we can fairly assume that the administration is aware of the essential nature of perception, is aware of the perception of this action, and has chosen it.
this presupposes that punishments fit crimes for corporations in our country, and that there isn't rampant partiality
See the separate events in the last decade or so with major players getting minuscule punishments: Goldman Sachs et al, BOA, HSBC, Wells Fargo, etc etc
Maybe they'll decide not to pay and withdraw from the US completely, but that would seriously complicate any future re-entry once the current sourcing bans expire.
My guess is that they will switch to Chinese components and basically become a captive hardware manufacturer for the PRC government, which presumably won't let them fail completely even if their handsets are no longer market-competitive.
extracting a fine from a big foreign corporation is more like a good deal. Limiting the business of your country businesses - hardly so.
Btw, Taiwan, not China should be the point of focus, without Taiwanese semiconductor manufacturing capabilities a very large number of Western companies would suddenly be without product.
Yes and similarly without Western markets Taiwanese semiconductor will suddenly without a big paying customer. There is a "demand" and a supply, none of them exist on their own.
China (who doesn't respect IP) = 11T GDP
pretty sure China needs the developed world's customers more than they need China.
China can be replaced by automation and other developing countries for labor
> pretty sure China needs the developed world's customers more than they need China.
For now, yes.
> China can be replaced by automation and other developing countries for labor
We'll see. For now they seem to be doing pretty good, and in fact even if they replace their workers with automation they will do even better than they do today. Or do you believe that automation will magically bring back the production facilities?
I mean, the factories that production was offshored to (in China and more recently in SE Asia) were built largely in the last decade or two, by companies with fairly short ROI horizons.
There's no particular reason that new facilities couldn't be built in other locations in about the same amount of time. Intriguingly, China basically showed how quickly you can move a big chunk of global industrial production around from one place to another, and it's not that long. What global trade giveth, global trade can taketh away.
Modern factories are basically just big steel sheds built on concrete slabs, in which you house machinery and equipment that becomes obsolete over time. It would not be hard to build them elsewhere. My guess is that if you take labor costs away, the next critical factors are energy costs and transportation issues (both raw materials inbound and finished goods outbound). It could lead to some interesting manufacturing locations.
The assumption that those advanced economies would want manufacturing back seems like nostalgia to me. Wouldn't that be going backward, to jobs of the mid-20th century with their income and quality of life? Those economies should be moving forward to better, more productive, safer, less physically difficult, higher paying jobs. Try working in a factory for awhile and you might appreciate your desk job with its ergonomic challenge of monitor height.
> If there's no labor advantage, offshoring production is a logistical nightmare.
Based on what I've read, labor plays only a small role. It's local expertise and its network effect, as with any geographical cluster for any industry. SV is an example: All the technical experts, the financiers, the schools ... even the real estate developers and local governments know what startups and IT giants need.
Other such factors are environmental regulations, tax breaks, shipping costs (which should always work out in favor of domestic production), cost of raw materials and energy (as you noted), access to those raw materials, knowledge, cost of land and other capex.
A high volume factory is nothing like a steel shed on concrete slabs, a factory is a building that is very much optimized for its function, and yes, it's not hard to build them elsewhere but once you have them they are hard to move.
A nice example is the semiconductor industry, which used to be a United States / Europe affair and then after a brief detour through Japan ended up mostly in Taiwan, China and South Korea.
their rate of growth is faked. have a look at their provinces confessing a 20-30% fake revenue
> For now they seem to be doing pretty good
Their economy is saddled with debt, and their growth is slowing/stopping so much that Xi JingPing had no choice but to announce dictatorship way earlier (before riots and revolutions), their money is fleeing the country, their stock market crashed, they have demographics crisis, gender crisis, middle income trap crisis, the population's money are all stuck in real estate bubbles which are now deflating, their exports are down, their imports are up, their factories moving to other countries, etc.
I don’t think many people will buy the idea that China is more “open for business” or that the government there can’t act capriciously.
America just reacts, I wished the rest of the world treated China as they threat others
Every country has to face the fact that because of the Internet we now live in a totally globalized world. Borders only exist on paper maps and globes and in the mind of governments. Those of us developing tech don't care about such things, we dont even see these kinds of barriers anymore. We just see good ideas, and smart people.
Care to elaborate? Which individuals? Sounds more like this was the culmination of an investigation by both the Commerce and Justice departments. And I'm fairly certain the sanctions themselves were imposed by the US Congress back in 2010.
India and South-East Asia countries have no love affair with China.
Africa is more and more disillusioned with China `investments`.
I'm all for leveling the playing field, but I'd hope it would be done with some intelligence rather than these knee jerk responses that actually achieve the opposite effect. Nobody forced United States and EU companies to relocate their manufacturing to the other side of the planet. If we want to be less reliant on the Chinese then it starts with no longer buying the cheapest crap possible.
IP games are the last resort of failed companies, maybe it will also be the last resort of countries that have lost all their other abilities.
No you're not, or you'd realize you're advocating a zero sum game
It's the same as advocating for more women and minorities in industry; white men lose. Some other side will lose, because our economy doesn't operate on "even playing fields."
It operates on "I have advantage and must protect it." The rich have an advantage of being rich and can sell some argument about knowing how to use their leverage to build companies to put people to work.
USA had "The rest of the world is a smoking crater." after WW2
China has "No one else has a manufacturing base for electronics like we do."
Advocating for a level playing field would be like universal healthcare, and not being forced trade away to the rich elite our creative endeavors for basic survival.
You're peddling disingenuous political correctness that ignores physical reality.
And that's only if you are a completely selfish sociopath and care nothing for the welfare of others. If you are a healthy person who does care about others (which is a foundation of democracy - the belief that others should get a vote equal to your own), all the more reason for them to be free and prosperous too.
U.S. foreign policy has long supported the freedom and prosperity of others, in large part for that reason. (Yes, there are many exceptions to that policy; I'm just talking about economics. EDIT: And yes, there are many exceptions to the economic policy too.)
With lines like that I'm sure you'll make lots of friends here. /s
The world economy has profited handily from globalism at the same time that it has concentrated power and has made a very few people insanely rich.
If we want to get to a more sustainable model for the longer term then we will have to forego short term profits and our hunt for the cheapest priced items. It's an open problem on whether or not capitalism combined with democracies and the power of money in politics is sustainable or not. I'd bet against it, but time will tell.
I'm not saying it was ever good, but at a later stage, a lot improved. I believe mostly because of world wide media and things that leaked ( stealing resources,...), Which put a lot of pressure on the government
Since this is so well known once can only assume you have no idea what you are talking about. .
Congo is currently a global center of valuable minerals for western companies and has been plundered ruthlessly for 300 years by the west.
It's like pointing to the sorry state of Iraq, Libya or Syria 50 years on to insinuate some deficiency while forgetting to mention the complete destruction and devastation of these countries on brazenly false pretexts by western governments.
> I'm not saying it was ever good, but at a later stage, a lot improved. I believe mostly because of world wide media and things that leaked ( stealing resources,...), Which put a lot of pressure on the government
China is simply acting in their long term best interests, according to what they can get away with - adhering to trade agreements where they can without disadvantage, apologizing and promising to do better where they violate them. Meanwhile, half clueless American politicians fiddle while China takes an ever larger lead in critical areas of manufacturing and technology, adding to the manufacturing portfolio that is completely under their control.
Unlike so many others, you yourself can at least see what's happening ("Nobody forced United States and EU companies to relocate their manufacturing to the other side of the planet"), but with seemingly at least half of people under the impression that there is tariff parity between the US & China (who knows where they get such wrong ideas), that China is completely compliant on all agreements, and that any disagreement here is completely an issue of the POTUS being an uninformed child, how do you recommend serious policy makers approach this situation?
The United States assumed the role of world leadership from England based on a lot of luck (geographical isolation from WW2), from my vantage point China is well on it's way from doing the same to the US, but without even needing the benefit of a war, Western corporate leaders have done an amazing amount of work in industrializing China, and the young University educated American public is doing great work running interference for Chinese leaders, by suggesting any voices who dare mention the possibility that China is doing anything wrong are motivated by something equivalent to racism.
To me it seems like an utterly bizarre situation, I can hardly believe I am witnessing it. In my experience, I am a massive minority in these beliefs, but I've never been able to find someone to point to reasoning for why my thinking is wrong.
It's going to be a very interesting two decades ahead and it's always good to remind yourself that to live in interesting times is a curse, not a blessing.
Agreed, but the writing has been on the wall ever since the first set of Rubbermaid molds shipped to China (iirc on account of Walmart pushing them to lower their prices).
then they realized they had to give up 50% of company, their IP were stolen, the 1.4 billion customers never came because China's upper middle class income is $1000/month and half the population made $200/month, they had to give up board seats to Chinese officials, they gained some customers in China but lost most of their customers in NA, Europe and Japan because Chinese competitors sponsored by states stole them, they lost sales due to Alibaba, Amazon and Ebay shipped counterfeit products that was copied exactly like their own, directly to customers. And they died.
btw jacquesm did you go to the dark side of dictatorship? why are you openly supporting China?
I think you have reading comprehension issues if you feel that I'm supporting China.
It helps to actually try to understand something if you want to solve it. That's nothing to do with 'supporting China', but everything to do with analyzing how we got here and what will get us out. Hint: trade wars - either direct or by proxy - and protectionism are not going to get us out.
Japan used to be viewed in much the same way as China is today: cheap counterfeiter of Western designs. Korea ditto. And now, 30 years later they produce stuff on par with what the West was - not is - once capable of. China is also going that route but is substantially larger and far more ruthlessly managed. If we don't wise up and start playing this game a little smarter we will end up losing it in a big way.
I think US is playing the game pretty well. US is threatening to block their huge customer base from China, unless China plays fair, allows 100% ownership from foreigners and opens up their market and stop stealing IP, like they promised when they got into WTO. Via trade wars and protectionism. Not sure what else US can do besides completely stop trading with China.
And remember you're now dealing with a dictator. Dictators are irrational, stupid with economics, and lots of arrogance. They only respond to massive threat, which they did (thus saying they want to reduce tariff on cars)
And you're also dealing with Xi Jinping...
From an outside perspective (Australia), it seems that the current US president matches this description as well. At this point it may be a good idea for at least one of the leaders involved in this trade war to step back and push for reasonable debate. Unfortunately I don't see either Xi Jinping or Donald Trump doing this, so I'm not sure if I'd agree with "US is playing the game pretty well".
If the US completely stops trading with China it won't be good for either party, and it would probably have negative carry-on effects to most of the global economy. We're in a state of economic brinkmanship, and we don't want to start an economic world-war.
And open to steal your IP as they always have.
The only countries that have strong IP laws are the US and the EU and it works against us as much as it works for a small group of very wealthy countries and individuals. The whole idea of IP originated here.
Japan did a lot of IP theft in the 50s/60s but I don't think those two are really in the same camp as Russia or China.
The same happened with a lot of semiconductor fabrication and ditto on the tool front with companies like Okuma taking the bread and butter away from the likes of Cincinnati and Bridgeport.
Some of those brands survived but significantly diminished in stature and turnover, some of them turned into little more than patent portfolios.
As for South Korea, it took a bit longer to get of the ground and for the longest time the quality wasn't there but today they are only a little bit under the Japanese but still substantially ahead of the Chinese when it comes to mechanical affairs, and in semiconductors they are an absolute powerhouse.
Also interesting: Almost all powerful industrial countries came through a major war with their infrastructure in tatters, Germany, Japan and South Korea all had their industrial capability decimated by wars, only to bounce back stronger than before, presumably because they (forcibly) shed their old production gear and could start afresh using the most modern technology available. China never really had that advantage which is one of the reasons it is taking them as long as it does to get to parity on the quality front. Outside of Foxconn the work being done in China is still surprisingly manual, though in time obviously they too will automate.
There is a famous Bollywood song from 1955 where the lead actor, the even more famous Raj Kapoor , plays a beggar-like character who sings about "Japanese shoes", which at the time were seen as "cheap knock-offs" only worn by poor people. Here's the song on YT: https://www.youtube.com/watch?v=TdQwPwmsUC0
As opposed to China and Xi Jinping?
By who? ZTE already admitted they screwed up. USA can essentially blackball any company in the world, just ask Deripaska, and EUis likely to follow if USA sanctions aren't enough.
Yes, and you're free to buy as much of their stuff as you want, single piece through Aliexpress at prices your local store can't even match including delivery, by the box, container or trainload.
> Your statement is so inaccurate that I suspect you're pushing some agenda.
Hilarious. And pray what agenda do I have?
FFS I've been on HN for almost a decade, are you seriously suggesting I made this account so that I could push some silly talking point or that I have a stake in the outcome other than that I'm a citizen of a European country that sees more and more of its manufacturing capacity moved to the far East?
The idea that anyone would call this environment "open for business" is simply laughable and shows a total ignorance on the topic.
The flow of containers from China is a pretty good indicator of the state of the world economy.
Yes it is hard to do business in China, and as a foreign company to sell into their market without a 'partner' (I use the term lightly). How clever of the Chinese to both guarantee themselves a cut and to get a continuous eye in the kitchen of all those Western companies that can't wait to fall over each other to send their precious IP to China where manufacturing takes place.
Open for business doesn't mean you get to dictate the terms, the USA can do that on its own turf and can limit its companies to do business with the Chinese. But the reverse isn't true, the Chinese will try to import as much as they need in order to keep their economy rolling along and in the meantime they will export the added value of one of the largest (and soon one of the most skilled, give it another 20 years or so) labor forces in the world.
To deny these facts is Ostrich politics at its best, the only parties that were really inconvenienced by this act are the domestic companies that see a chunk of their exports evaporate.
The opaque and arbitrary control of the government isn't all that different from the way lots of other places in the world still work. But contrary to most of those other places China is in an excellent position to become a very large economical threat to the United States and Western Europe, if it isn't already past that time.
Or another one to also build their phones and products.
ZTE can probably use a range of existing suppliers to acquire parts but they probably would not escape harm because there are layers of middle-men getting added to the equation, and that's expensive.
Doesn't matter how many proxies they use, it takes one tear down to see if they used any US based components.
Although, I wonder, had they used a proxy company when they were doing business with N.Korea and Iran, it probably would've been much harder to prosecute in the US. Perhaps their upper management didn't care enough at the time.
The more layers you use to obfuscate a thing like this the clearer it is that you know that you are doing something you should not be doing.
However, a cell phone needs a couple of big, expensive, important components. In particular, the main processor often comes directly from Qualcomm and ZTE isn't buying quantities that can be handled by anything less than a direct relationship.
The more interesting question is how much this will impact Qualcomm's bottom line.
ADDED. Maybe the former would've gone against WTO rules or GATT rules.
They can't really 'invest' in creating their own chips. Currently, all the countries that have semiconductor technology have put them on their export control and won't hand it over to china at any cost. IIRC China overbid for the tech (Was it Micron?) and the government blocked them.
China lacks mainland fabrication capacity, but Chinese fabless IC companies have very good working relationships with TSMC. Tsinghua Unigroup's bids to buy Micron failed, but they're building a $30bn 3D NAND fab which is due to go online this year. The Chinese government are very serious about building up modern fab capacity.
ARM are British, so there's nothing stopping ZTE from licensing the technology they need to develop a flagship SoC. TSMC will happily fab it for them on a modern process node. Huawei have done it, ZTE are undoubtedly doing feasibility studies as we speak and I wouldn't be at all surprised if Xiaomi and Oppo are thinking about it. In the long term, this sanction could massively backfire by pushing Chinese manufacturers to reduce their dependence on American suppliers.
Aren't Chinese companies also engaging in rampant Cyber theft of IP?
>Aren't Chinese companies also engaging in rampant Cyber theft of IP?
I suppose the Chinese don't consider themselves subject to US laws. Not sure if they've signed any treaties..
I'll also temper my comment by saying the West (US in particular) also engages in same behavior, but with less direct benefit.
Shit's hard, yo. :)
Because you can give someone your entire IP portfolio, and they still don't have the institutional knowledge to put it all together.
Digital Equipment Corporation literally had almost 100 Korean engineers on site in Boston in an attempt to teach Samsung how to make Alpha microprocessors. They were only marginally successful, and both parties wanted each other to succeed.
Apple, for example, only knows how to build chips because they bought SiByte who were a bunch of ex-Digital Equipment Corporation microprocessor designers--who learned from people who had something like 3 decades of institutional knowledge upon which to draw.
There aren't that many chip designers in the world. And a lot of them got out because making and selling chips is such a horrifically bad business (long timelines, high capital cost, high risk).
Losing US-made components will be painful for ZTE, but it's survivable. They can re-spin existing designs around MediaTek SoCs and keep most of their existing market share. Losing the US consumer market would have been a massive blow, undoing years of work that other Chinese smartphone manufacturers have failed to replicate.
This action is ostensibly about sanctions on North Korea, but it’s clearly part of a bigger battle where both the US and China are trying to reduce their technological reliance on, and vulnerability to, the other.
If the US and China got into a war, does anyone doubt that the US would seriously consider ordering Apple and Google to deliver “updates” turning devices in China into spying tools? Or demand that FB hand over the private messages of all foreign users?
And does anyone doubt that China would consider doing the same with Huawei or ZTE phones and networking equipment?
They have been for the last 35 years or so.
> This action is ostensibly about sanctions on North Korea, but it’s clearly part of a bigger battle where both the US and China are trying to reduce their technological reliance on, and vulnerability to, the other.
No, it has the exact opposite effect. It reduces China's reliance on the United States. Normally the United States would welcome such dependencies. By playing this card early it loses its power at a moment in time when it doesn't matter much giving the Chinese ample time to source their bits and pieces elsewhere or even to set up domestic production.
> Governments are realizing that they can’t depend on companies controlled by potential adversaries.
Again, you have it backwards. The United States is giving up control over a company, it's not that the United States is forbidding it's own companies to import hardware from China, it is forbidding US companies from exporting components.
> If the US and China got into a war, does anyone doubt that the US would seriously consider ordering Apple and Google to deliver “updates” turning devices in China into bricks or spying tools? Or demand that FB hand over the private messages of all foreign users?
I don't think anybody would be dumb enough to assume that.
> And does anyone doubt that China would consider doing the same with Huawei or ZTE phones and networking equipment?
Neither, but it doesn't have anything to do with the matter at hand. The US and China are - for now - not in a war. Though given the degree of uncertainty and randomness in the present day configuration you can't rule it out either.
China has been trying to beg/buy/borrow/steal cutting edge semiconductor tech for ages. They're still having to import all their important chips from US/Japan/Korea/EU. IIRC they're at 100+micrometers, (leading tech from the year 2000) Far from the < 20 that intel/tsmc/etc are at.
A couple more moves like these and you might see that part dropped in return for something more forceful. Keep in mind that trade wars and sanctions are the prelude to shooting wars and that after NATO let the Russians roll all over Ukraine there is substantial doubt about whether or not the West would intervene if China made a move on Taiwan.
They're not. The mainland pitch is the PRC and ROC are a single country. Taiwan and the rest of the world politely (very politely) disagree.
> A couple more moves like these and you might see that part dropped in return for something more forceful
Well sure. Xi is now a dictator. Invading neighbours is what dictators do when they need cheap political points.
More broadly, "we'll trash our neighborhood if you don't do what we want" shouldn't be accepted as valid leverage. If China mucks around with Taiwan, they do so knowing the U.S. is obligated to militarily respond.
It's more complicated that that. Traditionally, the ROC also claimed that China was one country, but that ROC was its legitimate government, not the PRC. This has started to change recently as the younger generations have felt less connection to the mainland and have supported newer parties (the pan-Greens) that advocate for the independence of Taiwan as a separate county.
And yes, these concerns are not new but they are becoming more salient.
As for the effect of this particular action, it is not so simple. You are assuming that the US’s only interest is having chips to hang over China’s head in a moment of crisis.
But we also have more strategic interests, like undermining the global market for potentially backdoored phones ultimately controlled by China’s security apparatus.
A full analysis would have to answer questions such as: What are ZTE’s prospects for finding equivalent components from other sources? Will they need to redesign their devices? How will that affect ZTE’s prices? And how will this all translate to changes in marketshare in various countries? In one year? Two? Ten?
 And this isn’t even a great chip to use in such a crisis. Damage to China’s interests here will be gradual and over a longer period. In real crises, more immediate interests would overwhelm this kind of thing.
And again: this will achieve the exact opposite. Without US chips at the heart of those phones the chances of backdoored phones increase tremendously.
They'd have to think of a different rational, as this action is apparently because ZTE violated sanctions against Iran an North Korea and further violated the penalties it agreed to when it was found guilty.
Also, any Chinese action that would direct the supply chains of American companies away from China would likely be welcomed by this administration.