Is Google the Omen of a U.S.-China Trade War?

Few people would be surprised by Google co-founder Sergey Brin's bravado. After all, if you were a 36-year-old billionaire, you'd probably be forgiven a little audacity yourself. Even when it came to the implacable, muscle-flexing behemoth that is China. It was in February, just over a month into Google's extraordinary standoff with Beijing, that Brin appeared at a tech conference in southern California. "I'm always optimistic," he responded, when asked about the effectiveness of plans to stop censoring Chinese search results in retaliation for the hacking and e-mail pilfering that takes place behind Beijing's Great Firewall. "Perhaps it won't succeed immediately, or tomorrow, but maybe in a year or two," he said of the search giant's opening gambit in a freedom-of-information tussle that, while ostensibly a commercial dispute, has come to symbolize ideological differences between the U.S. and China.

Such is the confidence of an Internet king. But in the short run, there's little doubt that Google's brazen salvo will turn out to be a splutter — at least in business terms. On March 22, Google began directing Chinese traffic to servers in Hong Kong, where mainland censorship directives do not apply. But the chance for China's Netizens to thereby satiate long pent-up curiosity about the Dalai Lama, or what really happened in Beijing's Tiananmen Square in June 1989, was short-lived. Within hours, mainland censors began blocking access to search results and links, and little had been brought about except Beijing's withering enmity. A State Council Information Office spokesman slammed Google's Hong Kong move as "totally wrong." (See pictures of China mourning the potential loss of Google.)

As a result, the world's largest Internet company may now find itself shut out of the world's largest Internet market. Its partners are already minimizing any damage by association. Tom.com, a hugely popular portal, is no longer powering its search engine with Google, and China's two largest cell-phone companies are expected to tear up mobile-Internet and handset deals. Advertisers who have paid to reach the desirable demographic catered to by Google.cn — college graduates and professionals — are already feeling bereft. Soon, so will suppliers of music and video content to Google's Chinese service.

For the past three decades, since China's opening to the outside world, foreign companies have tried to check politics at the door before stepping into the world's most populous nation. That was the price of doing business — it's what the Chinese government required — and most have been willing to pay it. But Google's rebellion, which includes openly soliciting the U.S. government's support in the fight for Internet freedom in China, has revealed a basic truth that was never far from the surface: big companies in China are welcome as long as they serve the interests of the ruling party. Google, obviously and loudly, has failed that test — and has been lambasted by Beijing for, as the State Council put it, "politicizing" commercial issues. (See pictures of China at 60.)

The truth, for both Beijing and its trading partners, is that commerce is already politicized to an extent rarely seen before. A fight between Washington and Beijing over the value of China's renminbi is part of that. So too are the noises China is making about requiring all government purchases to be from companies that "innovate" in China — a proposal that foreign high-tech companies fear is a way to cut them out of deals. At a moment when Beijing is increasingly confident of its own economic stewardship, these squabbles have the potential to intensify, further poisoning commercial relations.

Read "Who Will Profit When Google Exits from China?"

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