Data Sheet—How Trump's China Trade War Is Morphing Into a Tech War

Aaron Pressman

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Good morning. Clay Chandler in Hong Kong, filling in for Adam.

Shares in Hangzhou Hikvision Digital Technology, the world’s largest manufacturer of surveillance equipment, and rival Zhejiang Dahua Technology tanked on the Shenzhen exchange Wednesday following news that the Trump administration may forbid the companies from buying U.S. technology, adding them to a national security blacklist that currently targets only one Chinese tech firm, the telecom gear giant Huawei Technologies. The expanded ban could also impact several more as-yet-unnamed companies, Bloomberg reports.

Adding Hikvision and Dahua would up the ante in Trump’s trade war with China, confirming a fear expressed yesterday by Tencent founder Pony Ma that it is rapidly morphing into a tech war.

It also would invoke a new justification for banning Chinese tech firms. The White House blacklisted Huawei on national security grounds. Now Trump officials are seeking to punish Hikvision and Dahua for supplying equipment and technology used in the surveillance and mass detention of Uighurs, a Muslim minority.

China sees both rationales as contrivances to gain negotiating leverage—and in that sense they may be working. Huawei’s founder Ren Zhengfei scoffed at efforts to impede his company’s global rise, boasting that he foresaw a U.S. “attack” long ago and therefore Huawei has been developing its own chips and stockpiling parts from U.S. suppliers. But Huawei’s consumer electronics chief Richard Yu, in an interview with The Information‘s Juro Osawa, acknowledged the company was blindsided by Google’s decision to curtail Huawei’s access to Android software. Yu says he fears Huawei is in for “really a very rough time.”

Hikvision is one of China’s hottest tech firms. Its monitoring devices, which use artificial intelligence to identify and track people by recognizing their faces, gait, or even body language, are among the most sophisticated in the world. The company began as a government research institute and remains under the control of a state-owned entity with a 40% stake. But it has grown into a $39 billion business that supplies monitoring equipment for surveillance systems throughout China and the rest of the world. Customers include the Memphis police department, the Nuremberg railway station, and a Brazilian soccer stadium. Hikvision is a component of the MSCI Asia Pacific Index and a favorite China stock of overseas investors, including pension funds for teachers in New York and California.

While the executive order Trump signed May 15 has been widely interpreted as written for Huawei, it is worded so broadly that it could be applied to drones or virtually any Chinese-made electronic device associated with the Internet of Things, argues Steve Dickinson on the China Law Blog. “The final result is hard to predict,” he concludes. “What we can say, however, is [that]…relations between China and the United States are on a straight-line decline with no end in sight.”

Clay Chandler @claychandler clay.chandler@fortune.com

  • NEWSWORTHY

    Out of power. As Clay mentioned, the widening trade war is morphing into a tech war, too. Now some analysts fear that China could strike back in a way that would cripple a host of U.S. industries: by withholding supplies of rare earth elements used to make everything from wind turbines to electric car batteries to many consumer electronics.

    Half measures. The much-hated “butterfly” keyboard on Apple laptops has been tweaked again. Apple says it is using “new materials” in the keyboard to improve reliability in just-announced updates to its MacBook Pro line up. The company also said it would repair problems with keyboards in the newest models and its last few generations of laptops for free.

    That wasn’t very nice. While the White House is making life tough for Chinese tech companies, a U.S. court slammed Qualcomm for stifling competition in mobile chipsets. District Judge Lucy Koh on Tuesday ruled in favor of the Federal Trade Commission, writing that Qualcomm’s “licensing practices have strangled competition.” The sure-to-be-appealed ruling pushed the company’s shares down 11% in premarket trading on Wednesday.

    The wrong lesson. Digital voice assistants from Apple and others that have default female voices reflect and reinforce harmful stereotypes based on gender, according to a new report from UNESCO’s EQUALS Skills Coalition. “Siri’s ‘female’ obsequiousness–and the servility expressed by so many other digital assistants projected as young women–provides a powerful illustration of gender biases coded into technology products, pervasive in the technology sector and apparent in digital skills education,” the report notes.

    Seen and heard. Trust the cable company with your health? Comcast is working on a pilot program to monitor customers’ health status in their homes, CNBC reports. The planned device could be aimed at helping older people and people with disabilities.

    What’s it like starting out these days? Check out McKenna Moore’s new Entry/Level series for Fortune, in which she interviews an Amazon user experience designer, an assistant merchant at J.Crew-owned Madewell, and an associate account strategist at Google—all just 23-years-old, yet all equipped with some sage advice.

  • FOOD FOR THOUGHT

    In the realm of ‘things everyone knows are true’ is the obvious harm to children from social media. Of course. Slam dunk. Or, not so fast. A massive, new study conducted by Oxford psychologists Andrew Krzybylski and Amy Orben along with Tobias Dienlin from the University of Hohenheim in Stuttgart, Germany, was carefully designed to separate the actual impact of using social media from the tendency for some already unhappy kids to use social media more. The research included input from more than 12,000 kids aged 10 to 15. Ultimately, the study found that kids who were more satisfied with their lives across a variety of measures (such as school, family, and appearance) were less likely to use social media. The effects the other way round–social media’s harm to satisfaction–were smaller and more tenuous:

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  • BEFORE YOU GO

    Were you around 34 years ago for the carbonated beverage abomination known as New Coke? If you missed out on the sickly-sweet reformulation that flopped in the 80s, you’ll get a second chance to sip. Netflix’s Stranger Things series returns for a third season on July 4th and the spooky show will be set in 1985, complete with a New Coke plot line. As a genius bit of marketing, Coca Cola says it will sell a half million cans of the new old soda online. I think I’ll pass.

    This edition of Data Sheet was curated by Aaron Pressman. Find past issues, and sign up for other Fortune newsletters.