Silicon Valley Needs A Diplomatic Approach In Dealing With Washington

President Trump and Tim Cook meet

Tim Cook, CEO of Apple, Inc. meets with President Trump to discuss the proposed China tariffs and the impacts on Apple. Photographer: Al Drago/Bloomberg

© 2019 Bloomberg Finance LP


For at least four decades, Silicon Valley was quite happy to keep Washington bureaucrats in the dark about what was going on in this high tech mecca of the world. Their position was “what they don’t know will not hurt them” and that was their basic approach to Washington until 1995-1996. 

That position changed dramatically with the birth of the Internet. Silicon Valley leaders, led by then Cisco CEO John Chambers, and Venture Capitalist John Doerr, realized that the Internet was not just the next “big thing” but that it had the potential to be a world-changing technology that would impact just about everything in the future. These leaders went to Washington to make them aware of the impact the Internet would have on business and government and how it could impact consumers over time. 

Their original door into Washington was provided by Vice President Al Gore, who was one of the more savvy politicians when it came to how technology could impact government. As a Senator, he had a hand in funding ARPANET, which became the backbone of the future of government communications. Very soon, the concept of the Internet, known then as Information Highway, made it simpler to use via the Netscape Browser, began to catch on with government officials and business leaders.  

One of the downsides of Silicon Valley’s reaching out to Washington was that the Tech world began to come under their regulatory eyes. That was the number one reason that for decades, Valley leaders wanted nothing to do with Washington unless it was related to government and military contracts.  

Sure enough, around 2001, the US government went after Microsoft in the famous browser antitrust case, ironically spurred on by John Doerr and Netscape Browser investors. They believed Microsoft’s bundling of their browser in Windows would give them a monopoly in browsers and thus began the first serious antitrust case on a tech company since the Ma Bell era.   

The US government has extended its reach into the Tech world and Tech is one of the industries impacted by the battle with China over tech piracy and China’s quest for technical dominance at America’s expense.    

The current round of tariffs has the potential to deliver a significant impact on many tech-related products. The Trump administration has had much feedback on this from the leaders of many tech companies like IBM, Dell and ATT. But Apple's CEO Tim Cook appears to have become Silicon Valley’s non-appointed designated diplomat to the Trump administration, especially on the issue of Chinese tariffs.  

Tim Cook exudes southern charm and is one the easiest CEOs to talk with. I spoke with Steve Jobs many times over the years, and while he could be charming at times, more than once I was witness to his volatile management style and sometimes abrasive commentary. Cook is the exact opposite of Jobs in that sense.  

Tim Cook is a brilliant operations guy and a superb CEO, given the value he has created for Apple shareholders and customers since he took over from Steve Jobs. He doesn’t seem to get rattled and approaches every decision with intelligence and logic. He seems very well suited to argue against these tariffs with the current administration to try and stave off future tariffs on tech products and try to even reverse them if possible.  

Recently, Cook had dinner with President Trump to discuss the issue of tariffs and according to one of the President's tweets he said: “He made a pretty compelling case and I now have to think about that.” While we don’t know exactly what they talked about, besides the reported angle that tariffs could impact Apple's ability to compete fairly with Samsung, it appears that the focus of Cook’s discussion with Trump was around how these tariffs could impact tech companies in particular as well as any companies impacted by all of the tariffs in effect to date.  

However, I sense that there was another issue on tariffs that pushed this meeting to happen now. Trump and the team delayed the 10% tariff on smartphones and other tech products until December 15. A 10% tariff is probably manageable even if Apple had to pass some of that to their customers. Various reports have stated that some components in the new iPhones have come down in price enough so that this alone could offset these 10% tariffs immediately.  

But the lurking threat of pushing another 15% tariff on top of the 10% tariff that goes into effect December 15, could be disastrous for Apple and almost all of the companies impacted by this higher tariff. Nomura Securities released a report a few weeks ago that predicted that the full 25% tariff fees could happen by the end of the year. 

Trump delayed the 10% tariff on some of the $300 billion of goods until December 15, 2019, but Nomura and others still maintain that unless there is a breakthrough on the trade front with China, it will be inevitable that a 25% tariff increase could come after the first of the year.  

Simple math suggests that if this happens, an iPhone priced at $1000 coming from China would now cost $1250 based on a 25% tariff penalty. While Apple might be able to absorb a 10% tariff, a 25% tariff would force them to push most if not all of that cost onto their customers.  

Top-level tech CEOs also have a fiduciary responsibility to make their voice heard more strongly when it comes to these tariffs' impact on their business and Tim Cook's diplomatic approach serves as a good model of how this should be done to make their position clear to Trump and his team.  

How successful Cook will be on convincing Trump and his team to reverse their position on new tariffs is hard to predict. But Tim Cook is perhaps the best person from Silicon Valley and the tech world when it comes to trying to convince President Trump to change his tune on tariffs.

Let's hope he succeeds. If not, we in the tech world may face a difficult position with customers not willing to pay more for tech products in 2020, something that could harm tech companies' bottom line in the new year. 

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For at least four decades, Silicon Valley was quite happy to keep Washington bureaucrats in the dark about what was going on in this high tech mecca of the world. Their position was “what they don’t know will not hurt them” and that was their basic approach to Washington until 1995-1996. 

That position changed dramatically with the birth of the Internet. Silicon Valley leaders, led by then Cisco CEO John Chambers, and Venture Capitalist John Doerr, realized that the Internet was not just the next “big thing” but that it had the potential to be a world-changing technology that would impact just about everything in the future. These leaders went to Washington to make them aware of the impact the Internet would have on business and government and how it could impact consumers over time. 

Their original door into Washington was provided by Vice President Al Gore, who was one of the more savvy politicians when it came to how technology could impact government. As a Senator, he had a hand in funding ARPANET, which became the backbone of the future of government communications. Very soon, the concept of the Internet, known then as Information Highway, made it simpler to use via the Netscape Browser, began to catch on with government officials and business leaders.  

One of the downsides of Silicon Valley’s reaching out to Washington was that the Tech world began to come under their regulatory eyes. That was the number one reason that for decades, Valley leaders wanted nothing to do with Washington unless it was related to government and military contracts.  

Sure enough, around 2001, the US government went after Microsoft in the famous browser antitrust case, ironically spurred on by John Doerr and Netscape Browser investors. They believed Microsoft’s bundling of their browser in Windows would give them a monopoly in browsers and thus began the first serious antitrust case on a tech company since the Ma Bell era.   

The US government has extended its reach into the Tech world and Tech is one of the industries impacted by the battle with China over tech piracy and China’s quest for technical dominance at America’s expense.    

The current round of tariffs has the potential to deliver a significant impact on many tech-related products. The Trump administration has had much feedback on this from the leaders of many tech companies like IBM, Dell and ATT. But Apple's CEO Tim Cook appears to have become Silicon Valley’s non-appointed designated diplomat to the Trump administration, especially on the issue of Chinese tariffs.  

Tim Cook exudes southern charm and is one the easiest CEOs to talk with. I spoke with Steve Jobs many times over the years, and while he could be charming at times, more than once I was witness to his volatile management style and sometimes abrasive commentary. Cook is the exact opposite of Jobs in that sense.  

Tim Cook is a brilliant operations guy and a superb CEO, given the value he has created for Apple shareholders and customers since he took over from Steve Jobs. He doesn’t seem to get rattled and approaches every decision with intelligence and logic. He seems very well suited to argue against these tariffs with the current administration to try and stave off future tariffs on tech products and try to even reverse them if possible.  

Recently, Cook had dinner with President Trump to discuss the issue of tariffs and according to one of the President's tweets he said: “He made a pretty compelling case and I now have to think about that.” While we don’t know exactly what they talked about, besides the reported angle that tariffs could impact Apple's ability to compete fairly with Samsung, it appears that the focus of Cook’s discussion with Trump was around how these tariffs could impact tech companies in particular as well as any companies impacted by all of the tariffs in effect to date.  

However, I sense that there was another issue on tariffs that pushed this meeting to happen now. Trump and the team delayed the 10% tariff on smartphones and other tech products until December 15. A 10% tariff is probably manageable even if Apple had to pass some of that to their customers. Various reports have stated that some components in the new iPhones have come down in price enough so that this alone could offset these 10% tariffs immediately.  

But the lurking threat of pushing another 15% tariff on top of the 10% tariff that goes into effect December 15, could be disastrous for Apple and almost all of the companies impacted by this higher tariff. Nomura Securities released a report a few weeks ago that predicted that the full 25% tariff fees could happen by the end of the year. 

Trump delayed the 10% tariff on some of the $300 billion of goods until December 15, 2019, but Nomura and others still maintain that unless there is a breakthrough on the trade front with China, it will be inevitable that a 25% tariff increase could come after the first of the year.  

Simple math suggests that if this happens, an iPhone priced at $1000 coming from China would now cost $1250 based on a 25% tariff penalty. While Apple might be able to absorb a 10% tariff, a 25% tariff would force them to push most if not all of that cost onto their customers.  

Top-level tech CEOs also have a fiduciary responsibility to make their voice heard more strongly when it comes to these tariffs' impact on their business and Tim Cook's diplomatic approach serves as a good model of how this should be done to make their position clear to Trump and his team.  

How successful Cook will be on convincing Trump and his team to reverse their position on new tariffs is hard to predict. But Tim Cook is perhaps the best person from Silicon Valley and the tech world when it comes to trying to convince President Trump to change his tune on tariffs.

Let's hope he succeeds. If not, we in the tech world may face a difficult position with customers not willing to pay more for tech products in 2020, something that could harm tech companies' bottom line in the new year. 

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