Silicon Valley and Washington: Ships in the night?

Enjoying boom times in China, U.S. tech companies are nervous about a political battle brewing.

commentary A day before Apple celebrated the life and career of its legendary co-founder, the company disclosed that its business in China is growing at a spectacular clip. The numbers: China accounted for 16 percent of Apple's fourth-quarter sales, roughly $4.5 billion; that's nearly quadruple what it sold there a year ago.

It was only coincidence but news of Apple's banner sales to the Middle Kingdom comes as the possibility of a full-scale trade war between the United States and China has moved from the realm of "no frigging way" close to becoming a reality.

You're excused if this triggered a deja vu response. The same stale dispute has waxed and waned in intensity for years with the U.S. pressing China to let its currency appreciate with the Chinese mumbling appropriately soothing words as they kicked the proverbial can down the road.

This time, though, the dispute isn't getting pushed to the backburner.

By a 63-35 bi-partisan vote, the U.S. Senate wants to force--not convince, but force--China to raise the value of the yuan. The yuan has gained 30 percent against the dollar since 2005, but that's not enough for congressional critics who say China's exporters still receive what's essentially a trade subsidy by virtue of an undervalued currency. The thinking is that a sharper move would spur domestic demand in China and simultaneously reduce America's skyrocketing trade deficit.

The Chinese obviously don't see it that way and they warn that the U.S. bill violates international trade rules and could ignite a trade war. Some on this side of the Pacific may already be in a mind to bring it on. On Wednesday, a consortium of U.S. solar-panel makers accused their Chinese rivals of dumping their products on the U.S. market and called upon Washington to punish violators by enacting extra duties.

Needless to say, Silicon Valley is watching this latest cable drama with no small amount of upset as a lot is riding on the outcome.

Apple is not the only tech company enjoying boom times in China. A senior Intel executive has described China as "the first market" for the chipmaker Microsoft may be nearing the $2 billion revenue mark in sales to China. IBM's sales in China rose 17 percent in the last quarter. In fact, U.S. tech infrastructure makers of all different stripes are reporting similarly bullish numbers and were banking on more of the same in the months and years ahead. Now they wonder how larger political interests may affect that outlook. If history is any guide, Chinese internal politics--much like what goes on domestically in the U.S.--could make a bad situation a lot worse, especially if they feel the Americans are trying to put a proverbial gun to Beijing's head.

"Nobody expects China to cut off its nose to spite its face but there's always the chance they might retaliate against the U.S. by threatening to reduce high-tech purchases, in the event this bill makes it any further," an official with one U.S. computer company said, asking to remain anonymous because of the sensitivity of the dispute. "There's a lot of money on the line for us but we know that the Chinese are gearing up for a change of leadership at the next party congress in 2012 and nobody wants to lose face to the Americans."

On the flip side, what with unemployment stubbornly remaining above 9 percent, the Congress already in a sour mood, sees China as an obvious--and easy--target. And a lot of people share a similar senate in the House of Representatives, where the bill heads next. But there's still the chance that this may not lead to an Armageddon-like trade spat. In his initial reaction to the Senate vote, House Speaker John Boehner (R., Ohio) described the prescribed approach to China as "dangerous."

This story originally appeared on CBSNews.com.

 

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