Will the US-China digital cold war hit Apple?

The US-China tech/trade war just escalated. You see, ZTE is an important Chinese company. It is the country’s second largest telecom equipment maker after Huawei Technologies. It is also the fourth largest seller of smartphones in the United States. And now its future is in serious doubt, thanks to the Trump administration. Reuters reports:

The United States has banned American firms from selling parts and software to China’s ZTE Corp for seven years, potentially devastating for the telecoms equipment maker and exacerbating tensions between the world’s two largest economies. . . . The U.S. Commerce Department imposed the ban following ZTE’s violation of an agreement on punishing employees that was reached after it was caught illegally shipping U.S. goods to Iran. . . . Particularly damaging, Google’s mobile services including the Google Play App Store are likely to be covered by the ban even though the Android operating system is free, said Richard Windsor, an independent analyst at Radio Free Mobile. “I think that there is a risk that ZTE loses all of its non-Chinese Android business,” he said. “In almost every region outside of China, it is almost impossible to sell an Android handset that does not have Google Play installed.”

Indeed, Reuters goes on to quote sources suggesting the company may be put out of business by the move. No wonder China quickly responded by saying it would take action to protect Chinese firms, although no specifics were given. How hard does Beijing want to push back? If the answer is “very hard,” then an obvious target is Apple. Here is what my AEI colleague Claude Barfield wrote after AT&T, apparently feeling US government pressure, nixed a deal with Chinese tech giant Huawei to sell the company’s new smartphone here:

Why shouldn’t Tim Cook over at Apple be worried and apprehensive? The Chinese market has been described by Cook as a key element in Apple’s future growth. The company, after struggling for several years in the highly competitive Chinese handset market, has seen sales “soar”over the past quarter. But given the deteriorating state of US-China trade and investment relations, won’t it be tempting for Beijing to mirror the US and raise “security” concerns about Chinese citizens using a US company’s technology?

Now Apple does have the advantage of being a popular product in China, especially with wealthier Chinese of the sort with political juice. (Just like in America.) But, as Stratechery’s Ben Thompson explains, none of that means Apple isn’t at risk for retaliation:

At the same time, this action against ZTE surely raises the risks of retaliation against tech companies generally and Apple specifically: ZTE’s punishment may have been legitimate outside of the context of a trade war, but that context is only theoretical; in reality there is a trade war and the U.S. government just kneecapped one of China’s tech champions.

The Economist has described digital trade conflict as the “motherboard of all wars.” And given that the world’s two largest and most important economies are vying for tech supremacy, it is hardly an understatement.