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The U.S.-China Tech War Just Intensified. It Could Impact Microsoft, Amazon.

The U.S. and China have the worst timing.

As Treasury Secretary Janet Yellen prepares to visit China later this week in a bid to improve relations, the two countries have succeeded in doing the complete opposite.

The Biden administration is set to restrict access to Chinese companies’ using U.S. cloud-computing services, The Wall Street Journal reported Tuesday. It could mean tech giants such as
Amazon
(ticker: AMZN) and
Microsoft
(MSFT) will require U.S. government permission to provide services using AI chips to Chinese customers, the report added.

For its part In what in an escalating Cold War between the world’s two largest economies China has just announced export restrictions on gallium and germanium, two components key to the production of semiconductors.

The juxtaposition of these developments and the diplomacy point to a damaging mismatch between the two nations’ words and actions.

In May, President Biden said he expected ties with China to improve “very shortly” after the U.S. shot down a suspected Chinese spy balloon earlier in the year. But just hours later Beijing ordered operators of key infrastructure to stop buying products from U.S. chip maker
Micron
(MU).

Then last month Secretary of State Antony Blinken’s trip to China offered hope of progress. The visit appeared to be going well until Biden referred to President Xi Jinping as a dictator in a speech in California.

Reports that China plans to build an eavesdropping facility in Cuba, just 100 miles from Florida, quickly followed.

Now ahead of Yellen’s visit, there’s a sense of déjà vu.

The two nations can have all the high-profile meetings they want but if they continue this tit-for-tat spat over bans, restrictions and export controls, the reality is the relationship is on a downward spiral.

The impact looks stark for some stocks. Tech companies, such as Micron, and maybe even
Microsoft
and
Amazon
will be losers.

Microsoft, Amazon and the U.S. Commerce Department did not immediately respond to a request for comment early Tuesday.

Write to Callum Keown at [email protected]

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