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Trade War

Trump's Asian tech tycoon pals feel strains of trade war

US confrontation with China rattles plans of SoftBank, Foxconn and Alibaba

HONG KONG -- SoftBank's Masayoshi Son, Foxconn's Terry Gou and Alibaba's Jack Ma were the Asian tech tycoons who were going to help U.S. President Donald Trump "Make America Great Again."

The chief executive of Japan's SoftBank was one of the first company chiefs to congratulate Trump at his New York headquarters after his November 2016 election victory, with Ma following soon after. Son carried with him a promise of investment from Gou, who would himself visit Trump at the White House the following April. Together the trio pledged to invest at least $60 billion in the U.S. and help create more than 1 million jobs.

Nearly two years on from Trump's victory, the ground has shifted. Ma, the outgoing chairman of Alibaba Group Holding, publicly dropped his jobs pledge in an interview with Chinese state media in late September. Foxconn Technology Group, formally known as Hon Hai Precision Industry, has confirmed a Nikkei Asian Review report that it will scale back the initial phase of its new LCD factory in the U.S., although it insists the company will eventually keep Gou's promise to invest $10 billion and create 13,000 jobs. Finally, SoftBank's investment plans have stumbled on suspicions elsewhere in the Trump administration about the close ties between one of the world's biggest tech investors and China.

"The more trade tensions escalate, the harder it gets for them to keep those promises," said Alberto Moel, a former Asian technology analyst now working for Veo Robotics in Massachusetts. "Their initial outreach and actions clearly were insufficient to prevent the current sticky situation... They are collateral damage to a much bigger geopolitical game."

Trump is as eager as ever to drum up investments in U.S. manufacturing. When Foxconn broke ground on the first phase of its Wisconsin panel display factory in late June, Trump spoke nearly twice as long as scheduled.

"This is just the beginning," Trump said then. "I know Terry. As big as this is, this is just a toy compared to the main facility" to be built.

Trump was even more effusive about Son, who he called onto the stage, saying that the SoftBank boss had already invested $72 billion, "much more" than the $50 billion he had originally promised.

"He's not finished yet," the president said. "Big stuff."

Son spoke just as grandly. "This is a great historical moment," he said. "This is a beginning of a new ecosystem of high-tech manufacturing back in the U.S."

Referring to the $50 billion pledge, he said: "I couldn't have decided such a thing before this new president... And now I'm very happy." But Son did not confirm the $72 billion figure. Though SoftBank and the $100 billion SoftBank Vision Fund have announced many U.S. deals, neither has provided a tally.

Meanwhile, Foxconn has changed its plan to use the factory for producing so-called 10.5-generation liquid-crystal display panels factory to making smaller sixth-generation panels for phones or other smaller screens. Analysts estimate the switch could reduce Foxconn's initial investment by as much as half.

Despite the Asian tycoons' easy camaraderie with the president, Trump's efforts to confront China have radically changed the business and investment environment for SoftBank, Foxconn and Alibaba.

The tariffs on $200 billion of annual Chinese imports that Trump put into effect on Sept. 24 cover servers, routers and other networking equipment that Foxconn, the world's largest server producer, makes for clients such as Dell and Hewlett Packard Enterprise. The iPhones Foxconn puts together for Apple and the smart speakers it assembles for Amazon.com and Google may have escaped this round of tariffs, but Trump has already signaled plans to raise import duties on almost all remaining products shipped from China next time around.

The Committee on Foreign Investment in the U.S., a top-level interagency group that screens deals for national security concerns, in January blocked a $1.2 billion takeover of money transfer company MoneyGram by Alibaba's Ant Financial Services Group over data protection worries. This came less than a month after Ma had told a U.S. television interviewer that Trump deserved more time.

"You can never achieve something within one year," Ma said. "At least he's trying." At that time, New York-listed Alibaba, known for its online shopping platforms Tmall and Taobao, was already under investigation by the U.S. Securities and Exchange Commission over its accounting practices, a probe that kicked off months before Trump's election.

CFIUS also has yet to sign off on Son's top priority deal, the $26.5 billion merger of SoftBank-owned mobile network operator Sprint with rival T-Mobile. According to the Financial Times, the agency held up SoftBank's $3.3 billion buyout of Fortress Investment Group until Son agreed to limitations on his control on the private equity company and put conditions on SoftBank's purchase of robotics company Boston Dynamics. The U.S. agency has also stalled the latest injection of funds that stood to make SoftBank the largest shareholder in ride-services company Uber Technologies. Amid these troubles, SoftBank hired a top lobbyist from Ford Motor to push its case in Washington.

The Obama administration had blocked Son from merging Sprint with T-Mobile in 2014 and the SoftBank chief executive was counting on Trump to change the environment. "Because he said he would do a lot of deregulation, I said, 'This is great, the U.S. will become great again'," Son said after his congratulatory meeting with the president-elect.

CFIUS' activity, as well as its powers, thanks to a new law passed in August, have increased due to growing alarm in Washington about Chinese efforts to acquire advanced technology and the rising sense that the U.S. and China are engaged in a new cold war.

"CFIUS is much more active and is looking at smaller deals that before it wouldn't bother with," Moel said. He added that many transactions which previously would have passed through easily are now getting blocked.

The tech tycoons are being forced to walk a narrow line between China and the U.S.

"I believe our investments contribute to technological advances in each country," Son said in August. "We have our headquarters neither in the U.S. nor China, but in Japan, which is a neutral country," a phrasing that might not help Son with U.S. regulators.

American concerns about Son have grown since SoftBank confirmed a Nikkei Asian Review report that it was spinning off 51% of the China operations of chipmaker ARM Holdings to a consortium involving several Chinese state investment funds to meet Beijing's desire for locally controlled technologies.

While Foxconn insists it still plans to invest $10 billion in its Wisconsin manufacturing complex, it has announced an equivalent level of new projects in China over the past year. These include 37.5 billion yuan ($5.46 billion) for the expansion of a Nanjing smartphone assembly factory and a research and development center, and 25 billion yuan for projects involving batteries and new technologies in the city of Kunshan near Shanghai. Indeed, just three weeks after Son carried Foxconn's promise to invest in the U.S. to Trump in 2016, the Taiwanese company unveiled a 61 billion yuan plan for a LCD plant in Guangzhou.

Ma, meanwhile, has seized on the Trump administration's three-month halt on sales of microchips and other technologies to telecommunications equipment maker ZTE to throw his rhetorical and financial support behind efforts to develop Chinese chipmaking technologies.

Speaking in mid-September at Alibaba's annual investor day, Ma despaired that the U.S.-China trade war could last "maybe 20 years." He followed up in an interview with Xinhua News Agency by backtracking on his pledge to help create 1 million jobs by getting 1 million U.S. small businesses engaged with Alibaba's shopping sites.

Ma was blunt about the reasons for his U-turn. "This commitment [was] based on friendly China-U. S. cooperation," he said. "The current situation has already destroyed the original premise. There is no way to deliver the promise."

Additional reporting by Nikkei staff writers Minoru Satake in Tokyo, Cheng Ting-fang and Lauly Li in Taipei and Coco Liu in Hong Kong.

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