May 8, 2018

ZTE sanctions might strengthen Chinese tech

Illustration: Rebecca Zisser/Axios

When the U.S. announced new trade sanctions against Chinese tech giant ZTE last month, it didn't intend to strengthen China's domestic semiconductor industry. But trade fights can have unexpected consequences.

"The Trump administration probably didn't think twice about sanctioning ZTE, but it's going to have real effects," said Jim Lewis, senior vice president at the Center for Strategic and International Studies and a former head of the Commerce Department team dealing with national security issues in high tech trade with China.

The broad strokes: In mid-April, the U.S, which says ZTE has illegally traded with North Korea and Iran and covered up its actions, barred the company from access to all U.S. exports for 7 years. ZTE is dependent on American microprocessors to build its wares.

  • On Friday, the Wall Street Journal reported China would invest $47 billion to develop its own semiconductor industry to cut reliance on the west.
  • That appears to be in play whether or not ZTE is successful in this week's request for the U.S. government to suspend its penalty.

The intrigue: Skirmishes over semiconductors and those involving China's two leading hardware firms, Huawei and ZTE, always happen under a cloud of national security and cybersecurity fears.

  • The U.S. blocked the sale of semiconductor firms to Chinese owners for national security reasons.
  • ZTE and Huawei phones were recently banned from U.S. military base stores for cybersecurity concerns and the House draft of the annual National Defense Authorization Act released Monday bars military purchases of equipment from the Chinese companies.
  • The U.S. has long warned telecom firms not to use the Chinese firms' products, which the FCC moved to formally ban the use of federal funds to purchase in April.

The big picture: China represents 60.6% of the global semiconductor market, but lacks both the design and production capacity to make anywhere near enough for its own needs. U.S.-based firms like Intel and Qualcomm tend to benefit from this lack of capacity.

  • In 2014, China launched a $22 billion fund to grow indigenous semiconductor companies.
  • That was enough to raise U.S. concerns that China was putting its finger on the scale of tech markets.

Be smart: China's government isn't going to let ZTE fail.

  • Beijing will need to give ZTE gigantic low- or no-interest loans to weather the storm — something Lewis gives a roughly "100% chance" of happening.
  • Though ZTE is still deeply dependent on Qualcomm and Intel, Huawei has been preparing to distance its operations from the west for some time and has developed its own less-advanced-but-good-enough processor to use in lieu of American components. To survive, ZTE might need a hand from Huawei's tech.

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Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 3 a.m. ET: 665,164 — Total deaths: 30,852 — Total recoveries: 140,225.
  2. U.S.: Leads the world in cases. Total confirmed cases as of 3 a.m. ET: 124,665 — Total deaths: 2,191 — Total recoveries: 1,095.
  3. Federal government latest: President Trump announces new travel advisories for New York, New Jersey and Connecticut, but rules out quarantine enforcement. Per the CDC, residents of those states must now "refrain from non-essential domestic travel for 14 days," with the exception of critical infrastructure industry workers.
  4. State updates: Alaska is latest state to issue a stay-at-home order — New York is trying to nearly triple its hospital capacity in less than a month and has moved its presidential primary to June 23. Some Midwestern swing voters who backed Trump's handling of the virus less than two weeks ago are balking at his call for the U.S. to be "opened up" by Easter.
  5. World updates: In Spain, over 1,400 people were confirmed dead between Thursday to Saturday.
  6. 🚀 Space updates: OneWeb filed for bankruptcy amid the novel coronavirus pandemic.
  7. Hollywood: Tom Hanks and Rita Wilson have returned to U.S. after being treated for coronavirus.
  8. What should I do? Answers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk
  9. Other resources: CDC on how to avoid the virus, what to do if you get it.

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The big picture: The number of deaths from COVID-19 in the U.S. surpassed 2,000 on Saturday. The United States leads the world in confirmed coronavirus infections — more than 124,000 by early Sunday. The number of those recovered from the virus in the U.S. passed the 1,000-mark on Saturday evening.

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