Is banning individual firms sensible in a complex world?

The US aims to limit China’s development of advanced semiconductors. Huawei and ZTE can no longer sell their equipment in the US. TikTok is under pressure to be banned in the US, and some US states already limit its use. But the reality of high tech, national security, and data is much more complex than stopping individual companies or products. Do these individual activities make sense, or do they divert attention away from more important things?

It is easy to look at an individual company or product and decide to impose restrictions on it. However, the picture becomes quite murky when we think about the development of advanced technologies, global Internet platforms, and ownership of logistic chains. What seems like a simple decision may turn out to be not so effective in practice, and can also be very expensive for the countries involved.

Let’s look at some factors that make risk and restriction evaluations complex:

1. Global cooperation is crucial (e.g., development, production, and supply chains for microchips).
2. Ownership of companies – e.g., Chinese companies own a lot of logistics infrastructure globally and raw material production in Africa and Asia.
3. Some countries don’t belong directly to any major geopolitical bloc.
4. Political changes can alter the situation of a country rapidly.
5. The price of risk. Everything has its risks to varying degrees. In the end, each country or business should be able to calculate the possible cost of its risks and how to optimize them. Furthermore, there could be risks that go beyond normal business risks.

Individual companies in a broader ecosystem

To take microchips as a topical example, it is very complex and expensive to develop new microchips. No single country can make them alone. So, if the world is divided into two (or more) blocs that produce microchips separately, this will impact development. Competition can improve microchip development, but when the microchip manufacturing process depends on a network of many players, the impact of blocs will likely be negative.

It’s noteworthy that the US restrictions on microchips targeting China don’t only impact the already existing production capability in China – they also have an impact on the foreign companies that have production in China. This is not necessarily accidental, as the US and some other governments would naturally like to see production move elsewhere. Then we have cases like Foxconn’s strikes in China that might be good for the US government, but not so good for Apple.

The factors mentioned above, coupled with already high inflation, lead to an increase in prices. The reality is that nowadays, almost all electronic products have microchips. The ultimate question is whether the costs of restricting microchip development are higher than the costs associated with the risks. These are very difficult things to evaluate.

TikTok has been a headache for western governments for some years now. It is also expanding its business to e-commerce. But it is doing this with partner companies, such as TalkShopLive and ChannelEngine. This is just one example, but it raises a more general question: how do you evaluate partnerships if governments want to restrict some services or products?

Even more complexity

Several western companies are getting better at evaluating which Chinese companies they are willing to do business with. They can assess a company’s ownership, management, and relationship with the Chinese government. But how much of this reveals the real risks, when Chinese companies are required under a 2017 law to cooperate with Beijing’s intelligence apparatus? We have also seen what happened in Russia. It didn’t matter with whom you made business in Russia – it was over after February 24.

How about countries where China has a lot of ownership and influence? How do we evaluate the risk of operations in those countries, or cooperation with companies from those countries? Then we have countries like Hungary and Turkey that are EU and NATO members respectively, but their position in the blocs is not so stable. Maybe they even want to utilize the situation by picking cherries from cakes of all blocs.

And more generally, if, say, a populist party wins power somewhere and decides to ignore western commitments in favor of quick economic wins by making deals with Beijing or Moscow, can western countries do much? What if this populist win happens in the US in 2024?

Then we have acquisitions. The UK is looking at the acquisition case of Britain’s biggest semiconductor plant, Newport Wafer Fab, by a Dutch company owned by China’s Wingtech. China’s COSCO is willing to buy a stake in Hamburg port, one of the key logistics hubs in Northern Europe. One can say a majority stake is grounds for blocking it, but what about a minority investment? Is the risk the same?

We need proper evaluations, not political posturing

Let’s face reality: there are no simple and clear answers to these questions. Each government and business must make its evaluations and decide what they want to do, what risks they want to take, and the costs associated with the risks. Besides, there are issues related to national security, personal freedom, and ethics that are much more important than any normal risks and business calculations.

And it is not only about what the US or EU make, but also what China, India, Russia, Brazil, and other important countries are doing. But there is a difference – for the real global powers (e.g. the US, China, and EU), it is hard for anyone to ignore them, and everyone needs to have a solution to work with them somehow.

It would be fundamental that each government and actor makes proper analyses and evaluations of those issues and understand the consequences. Simple decisions to ban individual elements can send political signals, and sometimes are an easy way to score political points at home. But do they really bring value? Are they enough? Could they also cause damage?

Alternatively, do those individual cases take up too much attention, when we could (and perhaps should) be considering other actions that would actually be much better in the context of the bigger picture?

The global business nowadays is a complex network where most nodes are somehow directly or indirectly linked to all other nodes. Therefore, it requires proper analyses and a lot of data to really understand impacts and consequences.