There's no neutral in a trade war

Fully Charged
Bloomberg

Hey all, it's Natalia in Brussels. As tensions mount between Washington and Beijing, companies in Europe increasingly risk becoming collateral damage in the crossfire of new rules and restrictions not necessarily designed for them.

The Chinese government late last week imposed tighter restrictions on artificial intelligence exports, a move that gives it the power to block a sale of ByteDance Ltd.'s TikTok app to American firms like Microsoft Corp. or Oracle Corp.

But the broader nature of the restriction could also complicate plans for other foreign companies. That includes European ones, which might want to acquire Chinese AI technology or other products, and which now need government approval to do so. The new rule comes at a time when European tech deals in China have been steadily rising, according to a report published in May by investment banking firm GP Bullhound.

One example of the fallout in Europe over U.S.-China tensions is the ongoing battle over Huawei Technologies Co., the Chinese telecom giant. At first, Washington's restrictions on Huawei, which it deems a national security threat, appeared to be a gift for European companies, hamstringing U.S. chipmakers and giving EU rivals an edge. A large slice of the components in Huawei smartphones are made by European companies.

On an earnings call in July, Kurt Sievers, chief executive officer of NXP Semiconductors NV,  said U.S.-China trade tension "keeps being a door-opener very clearly," and added that NXP's position as a European company was "definitely a positive lever" in doing business with China. 

But in August, the U.S. expanded restrictions against Huawei, requiring foreign companies to obtain a license if they want to supply Huawei with products based on certain American technology. If the new rule hits Huawei sales, which analysts expect it will, European chipmakers will be particularly vulnerable. 

Another risk: If China chooses to retaliate against the U.S. by targeting Apple Inc., that would also pose a threat to European companies that rely on the iPhone maker even more than they do Huawei.

Some European governments have bowed to U.S. pressure to target Beijing, even to the detriment of their own homegrown companies. Last year, the Dutch government held back from renewing a license chip-gear maker ASML NV needs to export its extreme ultraviolet lithography machines to China, following an extensive campaign by American officials to block the sale, according to Reuters. And European telecom operators are among those who will be squeezed by the U.K.'s order to excise all 5G equipment made by Huawei from the country's network by 2027.

The EU hasn't followed Washington's lead in all things, though. For example, unlike U.S. President Donald Trump, European authorities have not promised to ban TikTok. As a result, ByteDance does not appear to be selling TikTok's European assets. And in a gesture toward European privacy rules, TikTok said it would build a data center in Ireland to house European users' information.

Of course, not much about the EU's tech policy is simple. Europe has its own intricate relationships with both China, an important trading partner, and the U.S, a key geopolitical ally. Those relationships are made even more complex by the bloc's efforts to boost European tech companies and rein in activity by both U.S. and Chinese giants.

But one thing is becoming increasingly clear about the U.S.-China trade war: In the long run, it's going to be very expensive, and not even Europe is immune. Natalia Drozdiak

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