There are renewed signs of disagreement between the U.S. and China, particularly around flash points such as Taiwan and China’s support for Russia’s invasion of Ukraine, as well as the continuation of broader economic and geopolitical competition.
As China continues to seek a larger role in the world, an economic conflict between the two world superpowers becomes more and more likely. This inevitable conflict has broad implications on American companies, particularly those in the tech industry providing critical support to America’s military.
Consider the latest example -- a major American technology company was compelled to walk back part of its business presence in China. Recently, Apple announced that it had suspended plans to use computer chips from the country’s Yangtze Memory Technology Co. in future products.
The move comes on the heels of the Biden Administration’s restrictions on American participation in China’s semiconductor industry. As a result, many other large U.S. tech companies are also shifting production away from the country and removing investment and products from its marketplace.
That seems to be a sensible response to changing circumstances.
Apple and others increasingly understand American tech companies are going to be forced to “choose a flag.” Though the companies won’t admit it, doing business in China is not a good look anymore. China has been known to take technology and use it to suppress content damaging to the Chinese government, such as censoring pictures of “Tank Man” (which were briefly taken down on Microsoft’s Bing search engine), or removing online comments critical of its leaders.
As the country veers closer towards authoritarianism, free tech and free censorship are becoming more and more distant.
Despite the common-sense idea that tech companies should stay away from countries that won’t let them freely operate their systems and platforms, many American tech companies are still headed in the opposite direction. Microsoft, Amazon, Facebook, and IBM have expanded their businesses in China, which now accounts for significant portions of their annual revenue.
And despite the blatant censorship and challenges to their own autonomy, all appear ready and willing to forge close connections with the Chinese government in an effort to remain financially successful in the country. This business trend presents increasing risks to U.S. consumers and our major government agencies.
US companies deepen ties with China
This is especially problematic to the extent that the American military relies on these technology companies for its own operational capabilities. Whether it’s the cloud services provided by Amazon to the intelligence community, Apple developing wearable equipment for the military, or the Pentagon awarding Microsoft the $10 billion JEDI cloud computing project (which it eventually canceled in 2021), American tech companies are deeply integrated in the national security enterprise.
Yet, as hostages to massive revenues generated in China it will be difficult for them to choose a side when the economic conflict escalates -- and potentially catastrophic to national security if they choose unwisely.
The depth of the tech companies dependence on China is quite striking. Amazon, for example, has maintained a close relationship with the Chinese government, including a partnership with the country’s propaganda arm and adjusting its operations to align with China’s strategic priorities. Other companies including Facebook, IBM, and Microsoft have 10% of their collective AI research labs housed in China, and such investments are increasing.
Earlier this year, Microsoft announced the development of four data centers in the country, raising the company’s total number of facilities in China to nine. The Microsoft Research Asia center in China has been termed the “cradle of Chinese AI,” and “played an instrumental role in the growth and development of both Dahua and Megvii.” Both companies have been tied to the surveillance and oppression of ethnic and religious minorities in China
And, less than a month ago, Microsoft celebrated both its 30th birthday and expansion into China. At the same time this celebration was happening, it was announced that Chinese state-sponsored hackers attacked Microsoft exchange, putting nearly 30,000 U.S. businesses and governments at-risk.
The question now becomes, what should we expect in the future? If, as suggested, every tech company will soon have to choose a flag, how can they reduce their dependence on China in a way that protects American national security? Should the American government take even more aggressive steps to protect its own security interests?
The trend line is clear -- soon the dissonance of dual loyalty will force a choice. Amazon, Microsoft and the others will no longer be able to operate and grow their businesses in both countries without consequence.
Economic conflict between the U.S. and China seems inevitable. We can hope and expect that American tech companies will stand on the right side of history and back the country where they were able to prosper and grow. To be sure, China represents a huge market, with exponential growth potential. But American tech companies cannot have their cake and eat it too.
They may choose Chinese growth or, in the end, they may choose to foster and grow their operations in the U.S. Which choice they make will, in many ways, determine our technological future and the fate of our national security.
Paul Rosenzweig is the Founder of Red Branch Consulting, a homeland security and cybersecurity consulting firm. He previously served as Deputy Assistant Secretary for Policy at the Department of Homeland Security.
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