What Tech Leaders Should Look For As Donald Trump and Xi Jinping Meet This Week

Racepoint Global

On Thursday, President Donald Trump will host Chinese President Xi Jinping, marking their first face-to-face meeting. During the two day summit, set to take place at Trump’s Mar-a-Lago estate in Florida, the two leaders are expected to engage in dialogue around the trade between the two nations.

President Trump has already indicated that the meeting may not be entirely cordial as he sits down with the leader of a nation who he has accused of being a currency manipulator and has linked to US job losses.

At the same time, Chinese observers are worried that the two powers may be on a collision course driven by their shared nationalist agendas. According to the South China Morning Post:

“As both men consolidate their power bases in very different political systems – Trump is sensitive about his mandate amid deep division among voters and Xi is campaigning to consolidate his ’core’ status within the party leadership – analysts said the potential for conflict between the world’s sole superpower and its fastest-rising rival is greater. That’s not because of Xi and Trump’s political and ideological differences, but because of commonalities in their respective agendas.”

For the technology industry, where ties between the US and China are close and often productive, this meeting could serve as a bellwether for how they may be affected by the growing economic rivalry between the two superpowers.

What then, should technology industry leaders on both sides of the Pacific be looking for as the two leaders meet – and why does it matter to the global technology industry?

Immigration and Visas: Donald Trump’s “America First” agenda has placed him at odds with decades of US policy that encouraged immigration from skilled workers, a policy that the technology industry has used to attract talent from abroad. With additional scrutiny towards the H1-B visa process announced this week, Trump seems to be making good on some of these promises. If the H1-B visa becomes more difficult to obtain, it would directly affect the relationship between the Chinese and American technology sectors, as Chinese workers are the second largest group taking advantage of the program today with large numbers working for US technology firms.

A related item that could come up in the meeting between Trump and Xi is the reciprocal 10-year visa program initiated by the Obama administration, aimed at easing business travel between the two nations. Already, the Department of Homeland Security has made overtures towards tightening the requirements for visas under this program.

At the same time, President Xi could find an upside in Trump’s more isolationist tendencies, seeing a prime opportunity to position China as a destination for top global talent, especially in the technology sector.

Why This Matters For Tech:  For US tech firms, the ability to find and attract talent from around the globe has been a cornerstone of growth for decades. A more protectionist immigration policy, especially with regards to China, would make it more difficult to bring skilled workers to the United States.

On a global level, however, it could very well shift where companies choose to staff up and, in turn, make China (and other nations with growing tech industries) a more attractive prospect to multinational technology companies and start-ups looking to expand.

China is already the largest – and in some cases most profitable – growth market for multinational technology corporations. Speaking to IDG Connect, Racepoint Global’s Andrew Laxton said in January: “China’s growth and focus on innovation should not be seen as a flash in the pan. It’s here to stay. With its investment in education, particularly STEM subjects (science, technology, engineering and mathematics), China has created the world’s largest pool of talent for these subjects.”

With this investment in STEM and its domestic technology sector, China is well positioned to attract global talent – especially if the United States closes immigration doors.

Trade Policy: During the campaign, Trump repeatedly promised to institute a 45% tariff on Chinese imports – a move that would almost certainly spark a trade war between the two countries. While this drastic measure seems less likely now, Trump’s rhetoric in the lead up to this meeting indicates he will make some attempts to shake up the US-China trade relationship. The ties between the two nations are precarious, with China serving as the second largest owner of US securities, having made significant inroads in the US financial services sector following the global financial crisis.

Additionally, Trump signed two executive orders last week seen as setting the tone for this week’s meetings—one of which initiates a large-scale review of the causes of the US’ trade deficits and a second that calls for stricter enforcement of US anti-dumping laws, seen to especially target Chinese efforts to undercut US steel on price.

Of note for the technology industry, Trump Administration Commerce Secretary Wilbur Ross noted during his confirmation hearing that he was especially concerned with China’s state-backed semiconductor industry, which is growing rapidly. The Chinese policy towards their semiconductor industry is seen by US policy makers as creating an uneven playing field for US companies. The Chinese, for their part, have tried to balance their significant investments into their domestic semiconductor industry with commitments to use chips from US companies like Qualcomm in devices intended for sale in the United States.

A recent set of recommendations from the conservative American Enterprise Institute to the Trump White House suggested that in issues of market imbalance, like the semiconductor concern, “the administration should clearly inform Beijing that the United States may have to restrict or condition inbound Chinese investment . . . until reciprocal restriction are removed on US investment in China.”

For President Xi’s part, he will likely demand that the US treat China as a market economy—something promised 15 years ago in the US-China WTO Accession agreement. While he cannot expect President Trump to agree to this demand, simply making it will be seen as a win in Beijing. According to the China Law Blog, “President Xi will almost certainly continue taking what the international community will view as the high road and just keep firing off missives about how no one wins in a trade war.”

Why This Matters For Tech:  If Trump makes good on his calls for tariffs against Chinese imports, even if they are not at the 45% level promised in the campaign, the technology industry in both nations will face a massive hit. China has become a manufacturing hub for large technology companies and the boom in Chinese manufacturing has driven profits for both American and Chinese businesses. In the event of high tariffs, these firms would be forced to reevaluate their commitments to doing business in China and consumers around the globe would pay more for technology.

At the same time, China has an incredibly large domestic market that may insulate it from the effects of a trade war. Since the global financial crisis, an increasing number of Western technology firms have found profits not only in lower manufacturing costs in China but the higher disposable income of the Chinese consumer and increased sales traction across China.

Cybersecurity: While trade will be a key priority—followed by US-Chinese cooperation on North Korea’s nuclear program – some expect that Trump and Xi may discuss the US-China joint commitment against “cyber-enabled theft of intellectual property.” The agreement, put in place in 2015, has led to a significant drop in cyber-attacks directed from China at US businesses.

According to a report in the Los Angeles Times, some experts are concerned that the agreement may not hold if Trump pushes Xi too forcefully.

“If the relationship goes very sour because of either trade issues or the South China Sea or Taiwan or something like that, the hacking would be an easy way for the Chinese to express their displeasure,” said Adam Segal, an expert on China at the nonpartisan Council on Foreign Relations.

Why This Matters For Tech: For technology companies, there could be a chilling effect in terms of US firms striking deals with Chinese counterparts if assurances on IP rights and cybersecurity were called into question, driving a wedge into key partnership. This measure could also limit prospects for Chinese technology companies looking to make inroads in US markets where they could be viewed as less secure than their competition.

As Presidents Trump and Xi meet this week, the complicated relationship between the United States and China is at a pivotal moment. While the two nations have clear differences in their agendas, their economies are inextricably tied together and nowhere is that seen more clearly than within the technology industry. While it is likely the first of many, the outcome of this meeting between two very different leaders could set the stage for massive changes in the way the technology sector is organized and operates in the coming years.

Written by Nick Horowitz, Account Director at Racepoint Global