The tariff test: Big Tech's moment of truth in China

The Hill

a day ago

Imagine running your company out of a high-tech campus with armed guards at the gates, listening devices in the walls and a landlord who insists you turn over your blueprints to keep the lights on.
Most executives would scramble for the exits. But for years, American tech companies made peace with that setup in China. Now, exposed by tariffs, they're feeling the consequences of their devilish bargain.
One story of the tariffs has gone untold. While often criticized for their economic inefficiency, they've served a vital purpose. They've exposed how deeply compromised American tech giants are by their operations in China.
By inviting scrutiny, the tariffs are forcing Big Tech to confront the vulnerabilities they long ignored: their excessive reliance on Chinese manufacturing, their reckless partnerships with companies connected to an authoritarian government and their transfer of sensitive technology into the hands of America's largest adversary.
Caught off guard, Big Tech companies are retreating after decades of deep entanglement.
On April 7, Chinese media reported that Microsoft would shut down its Shanghai-based joint venture Wicresoft with 2,000 layoffs. A month or two earlier — the date has never been publicly announced — Microsoft quietly shut down its celebrated artificial intelligence research lab in Shanghai.
'We don't see [China] as a major, major issue for us, quite frankly,' Microsoft CEO Satya Nadella told CNBC in 2023, brushing off concerns about its presence in the country.
But Microsoft was more than a business partner. It helped shape the very technological infrastructure now fueling China's rise. That disconnect between what Microsoft executives say publicly and what their company has built over decades speaks volumes.
The reckoning is long overdue.
The trail of collaboration is long. It all began in 2003, when Microsoft granted the Chinese government access to Windows source code as a condition for market entry. The agency that signed the agreement on behalf of the Chinese government, CNITSEC, is now known to be operated by the Ministry of State Security, Beijing's civilian spy agency.
In 2023, Microsoft's Bing became the most widely used search engine in China after a pattern of complying with state censorship requests. Google, meanwhile, exited China in 2010 and is now banned there after it refused to follow censorship orders.
In 2012, Microsoft also signed a deal with the Shanghai government that allowed 21Vianet, a data center company in China, to operate its cloud service there. 21Vianet is now the sole operator of Microsoft cloud services in China. But 21Vianet admits in an SEC filing that 'the Chinese government may intervene or influence our operations at any time.'
Microsoft is not alone in its exposure. Apple earns nearly a fifth of its revenues from China and produces most of its iPhones there. Bending to Beijing's demands, it has censored the App Store. Apple has depended on Chinese suppliers tied to forced labor and human rights abuses as recently as 2021.
The results of the stress test of tariffs? They revealed that when forced to choose between shareholder returns and geopolitical alignment, many companies opted for market access — until that access came with a higher price.
What we're watching now is not just a supply chain shift, but a slow unwinding of an obsolete idea: that American tech firms could cozy up to our adversaries without a moral or strategic cost. The next phase of globalization will be defined by their resilience.
Microsoft's retreat is an acknowledgment of reality. The U.S.-China relationship is no longer a playground for growth. It's a minefield. Other tech giants would do well to take note.
When you build your business in a fortress owned by a rival, don't be surprised when the drawbridge goes up. The tariff era forced a reckoning. And now, Big Tech is at a crossroads: double down on a compromised model or begin the long, necessary exit.
Geoffrey Cain is policy director of the Tech Integrity Project and author of 'The Perfect Police State' (Hachette).