ZTE’s wild ride; A farewell to ‘militarization’ in the South China Sea (2018.05.14)

Welcome to Issue 3 of Transpacifica. Before we get to two big stories—the Trump administration’s ZTE saga, and the still-stirring South China Sea—I want to take a moment to encourage those interested to subscribe for updates from the DigiChina project at New America, for which I serve as coordinating editor.

DigiChina is a cross-organization collaborative project devoted to translating and analyzing primary sources about digital policy in China. Since last July, we have closely watched, among other things, the regime of regulations surrounding the Cybersecurity Law; the Chinese government’s ambitious plans and progresson artificial intelligence and building China into a “cyber superpower“; and the rising bureaucratic status of central cyberspace authorities. Here’s the full list of our work so far.

Readers have asked for updates, and we’re introducing a monthly newsletter to highlight the latest work. So if you follow Chinese developments in the digital economy, cybersecurity, AI, 5G, privacy protection, semiconductors, and much more, subscribe here for a monthly update from DigiChina at New America. –Graham Webster

As always: Please encourage friends and colleagues to subscribe to the Transpacifica newsletter; here is the web version of this message, ideal for sharing on social media; and you can follow me on Twitter at @gwbstr. Please send your comments, quibbles, and suggestions to [email protected].

ZTE’s winding path with the U.S. government

President Trump on Sunday said on Twitter: “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!” A day later, under intense criticism and amidst much confusion, he said: “ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.” How did we get here?

A national security threat?

The Chinese telecommunications equipment company ZTE, now also a major mobile phone producer, has been in the U.S. government’s crosshairs since at least 2012. That year, the House Intelligence Committee released a report placing ZTE alongside Huawei and concluding that “the risks associated with Huawei’s and ZTE’s provision of equipment to U.S. critical infrastructure could undermine core U.S. national-security interests” and recommending that both government and private-sector entities should not use Huawei or ZTE in their networks. The two companies, the report said, “cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems.”

So began years of vague but intense expressions of concern that using ZTE products could allow the Chinese government to threaten U.S. security. Most recently, the Defense Department moved to ban sales of ZTE and Huawei phones from stores on U.S. military bases, with a spokesperson saying: “Huawei and ZTE devices may pose an unacceptable risk to Department’s personnel, information, and mission.” (Service members, however, are not banned from using the phones.)

While not perfectly parallel, these developments limiting ZTE and Huawei in their ability to sell in the U.S. market have coincided with increasing security-linked uncertainty for U.S. businesses selling to China—especially after the Snowden revelations—adding an element of bilateral industrial competition to the picture that has only expanded with the U.S. focus on market access in recent years.

A sanctions violator

For ZTE, however, losing some sales in the United States due to unspecified security concerns was nowhere near as dangerous what happened last month. On April 16, after a years-long series of investigations, Commerce Secretary Wilbur Ross announced that the U.S. government would ban ZTE from using U.S. products, effectively cutting off a crucial supply of components for a broad range of its products.

This “denial order” came after ZTE was investigated for, among other things, breaking U.S. sanctions by selling products containing U.S. technology to Iranian and North Korean customers. But the extraordinary denial order, which caused ZTE to shut down major operations last week, came only after ZTE and the U.S. government had reached a settlement in which ZTE admitted to supplying Iran in violation of U.S. law and “agreed to a record-high combined civil and criminal penalty of $1.19 billion“—an agreement ZTE then allegedly broke.

A Commerce Department Bureau of Industry and Security document dated several months after the settlement, but well before the denial order, presents the ZTE case as a teachable moment for companies that might get caught by U.S. sanctions enforcers. “Lessons” include “Don’t lie,” “Don’t restart your criminal activity during the investigation,” and “Don’t create a written, approved corporate strategy to systematically violate the law.”

The final page includes an ominous quote from Ross: “Those who flout our economic sanctions and export control laws will not go unpunished—they will suffer the harshest of consequences.” Six months later, Commerce took the steps that have brought the company to the brink of collapse.

A confusion of objectives

Enter Trump, whose administration has pursued trade and investment brinksmanship with China, with a major emphasis on high-tech industries and a serious under-emphasis on coordination and realistic goals.

It is unclear what precisely led Trump to make the eye-popping statement that he had instructed Commerce to reverse an enforcement action that cost “too many jobs in China.” But it is clear that ZTE remains in the crosshairs—even if key characters aren’t totally clear why.

Rep. Adam Schiff, the top Democrat on the House committee that in 2012 raised the alarm about Huawei and ZTE, responded to Trump’s tweet, saying: “Our intelligence agencies have warned that ZTE technology and phones pose a major cyber security threat. You should care more about our national security than Chinese jobs.”

It wasn’t the warning of a threat to U.S. security, though, that underwrote the deadly denial order; as described above, it was a pretty extraordinary sanctions case—with a huge fine, a detailed settlement, and an alleged failure to comply. Everyday observers, and even a journalist new on the beat, might be forgiven for confusing the “security risk” and “sanctions scofflaw” narratives, but Schiff should know better. Blurring those lines serves no one.

Indeed, the U.S. public deserves a fuller accounting of its government’s behavior. If Huawei and ZTE are really such major security risks, we deserve better information so that reasonable security measures can be debated and implemented. If trade tensions or reputed security risks clouded Commerce’s law enforcement decision making, we deserve a full accounting of political motivations. If the U.S. government is going to effectively assassinate a major company, we deserve to know the process was fair. And the various issues really are separate, as may well be the case, leaders like Schiff should refrain from confusing matters. More broadly, the Trump administration owes the public a fuller accounting of its behavior with regard to China, especially in the trade arena. (If he’s going to cooperate with Xi to resuscitate a company gravely wounded by his government, we ought to know why.)

Time will tell what “larger trade deal” Trump claims to be negotiating with Xi. There are indications that, with Trump’s planned meeting with North Korean leader Kim Jong-Un fast approaching, the president may be motivated to resolve things quickly rather than favorably. Either way, there is no indication that Chinese leaders will back off from efforts to develop indigenous “core technologies.”

Bidding farewell to ‘militarization’—but not to the South China Sea

President Xi never actually said China would not militarize the South China Sea. As interpreted, standing alongside President Obama in September 2015, Xi said: “Relevant construction activities that China are undertaking in the island of South — Nansha Islands [Spratly Islands] do not target or impact any country, and China does not intend to pursue militarization.” The emphasized section, as repeated many times official Chinese reports, was 无意搞军事化. It was well translated, but intentions can change.

This month CNBC reported that China had installed “anti-ship cruise missiles and surface-to-air missile systems on three of its fortified outposts west of the Philippines in the South China Sea.” Close observers identified this development as crossing a threshold from some ambiguity about Chinese installations (tenuous though it was, with airstrips and other military-compatible infrastructure long under construction) to a final resolution: The Spratlys are militarized.

It’s worth having a little fun with the term “militarization” (one that some of us would be happy to see fall quietly away). U.S. military ships and aircraft have long traversed the South China Sea, including near the Spratlys, at times with explicit missions to demonstrate U.S. views on the law of the sea or to conduct surveillance of the Chinese military. Chinese and other militaries also regularly operate in the area. If militarization is a process, it’s hard to mark a time before which it began.

Pedantry aside, the South China Sea has not gone away—and U.S.–China dynamics there could shift rapidly if there is an encounter between militaries or if anyone takes actions far outside of the tenuous norm. If U.S. “freedom of navigation” operations are still going on, they’re generally not being publicized anymore and are staying out of the headlines—which is as it should be. But that doesn’t put the issue away, even if North Korea and trade dominate the headlines for now.

About Transpacifica

The Transpacifica newsletter is produced by me, Graham Webster, a senior fellow with Yale Law School’s Paul Tsai China Center and fellow with New America, where I am coordinating editor of the DigiChina project, working from a home base in Oakland, California. The opinions expressed here are my own, and I reserve the right to change my mind. For three years after its founding in February 2015, this newsletter was known as U.S.-China Week. It now appears biweekly, delivered by free e-mail subscription.

Beyond reckoning in U.S.–China relations; U.S. pressure hardens Chinese IT efforts (2018.04.30)

Welcome to Issue 2 of Transpacifica. Back to the old U.S.–China Week convention of Monday publication this time. Experimentation with format will continue, so your thoughts both substantive and regarding style are very welcome. –Graham Webster

As always: Please encourage friends and colleagues to subscribe to the Transpacifica newsletter; here is the web version of this message, ideal for sharing on social media; and you can follow me on Twitter at @gwbstr. Please send your comments, quibbles, and suggestions to [email protected].

Understanding Changing U.S.–China Relations: Beyond Reckoning

In a recent issue of Foreign Affairs, Kurt Campbell and Ely Ratner helpfully summarized some of the emerging conventional wisdom that U.S. political thinkers must recognize changes in U.S.–China relations, including changes in the countries’ comparative power and leverage across economic and security domains. Campbell and Ratner described something that U.S. thinkers on Asia policy had increasingly grasped, but like so many others they faltered on what specifically to do about it.

Their realization wasn’t new. I have argued that the Obama administration’s “rebalance” (designed and implemented in part by both Campbell and Ratner) had essentially recognized the need for greater attention to change in the Asia-Pacific, and succeeded in devoting that attention, but never advanced beyond the defense of a partially-imagined status quo of U.S. leadership.

This week Evan Feigenbaum offers some new clear thinking on why, despite the fact that many have identified a mismatch between observed reality and dominant modes of thinking about U.S. policy toward Asia, it’s been hard for Washington insiders to chart a forward course. A crucial distinction is that Feigenbaum describes a world in motion, rather than a status quo under threat. That motion in the world is not due only to China’s increased relative power and its government’s initiatives, but also (especially since Trump took office) to the fact that theUnited States is itself a revisionist power.

China too is a revisionist power in this framework, but “not a revolutionary one,” he argues, describing Chinese efforts as intended to shape the evolution of the international scenebut not to overturn the structures that have underwritten increased prosperity and power for Chinese and their government. Specifically, he argues that Chinese initiatives internationally seek to diversify Chinese leverage, not to replace existing institutions in which China’s involvement and influence has grown.

Pointedly, Feigenbaum criticizes voices that reflexively seek to oppose China as a threat to a (partially imagined) preeminence many in the U.S. policy community reasonably want to maintain—arguing that “whining isn’t competing.” Instead of reflexively pushing back on any Chinese action, he calls for “bolstering America’s own power, presence, initiative, role, relationships, and arsenal of military, economic, and technological tools. And it can best do this in concert with other partners who have stepped into the vacuum created by U.S. absence, disinterest, protectionism, and worse.”

This is different from seeking simply to match and counter Chinese capabilities, to hold the line. This is a perspective that acknowledges that the international system is changing and will continue to change. And it’s a perspective that recognizes the need to push forward, not simply push back.

Signs Are That Trump Administration Pressure Is Reinforcing China’s Drive for Indigenous Innovation

Last issue, I discussed the most intractable elements of the U.S. demands against Chinese development, trade, and investment practices—specifically a “cross-sectoral Chinese government effort to decrease the Chinese economy’s dependence on foreign intellectual property, to move up the value-chain, and to ensure that foreign technology does not pose a security threat to the Chinese people or the Communist Party.” U.S. demands on this count have only sharpened, and Chinese reactions indicate that far from conceding, Chinese authorities are emboldened in efforts to develop an independent, “secure and controllable” information technology (IT) stack.

  • The U.S. government acted on Iran-related sanctions and banned U.S. companies from exporting key components to the Chinese IT company ZTE, jeopardizing broad swaths of its business that rely on U.S. firms for semiconductors. [NYT]
  • Chinese officials in a number of contexts responded by doubling down on national goals to develop a domestic semiconductor design and manufacture industry. [Reuters] And the government-backed National Integrated Circuit Investment Fund (IC Fund) was said to be inviting international investors to pile into the effort. [Bloomberg]
  • Xi Jinping gave a major speech on digital technology and cyberspace that raised the profile of the talking point to “move forward the construction of China as a cyber superpower through indigenous innovation.” [DigiChina translation]
  • State media have published a variety of reports advocating for domestic IT development, for instance “Commentary: Urgent need for China to start new round of self-innovation,” featuring Ni Guangnan, a longtime advocate for a domestically designed Chinese operating system.
  • Reporting suggests that U.S. officials traveling to Beijing this week for economic talks will encounter no significant compromise on efforts to strengthen a domestic tech industry (prominently through the Made in China 2025 program). “A senior Chinese government official said that Beijing is unwilling to negotiate with the United States on any curbs on Made in China 2025, which includes large-scale government assistance to favored industries in advanced-technology manufacturing,” NYT reported.

Chinese unwillingness to abandon domestic development strategies is absolutely understandable in the context of U.S. unilateral action to seriously undermine a major company such as ZTE. But the U.S. action was not out of the blue; rather, it came after ZTE allegedly failed to live up to a deal it reached with the U.S. government after it was found to be violating U.S. sanctions on Iran. Some Chinese voices have criticized ZTE as irresponsible, but the fact that the U.S. government took the action it did (and has indicated a potential investigation on similar grounds into the much larger company Huawei) does nothing to ease the pressure to help Chinese companies escape this kind of lurch in the future. If semiconductor suppliers were globally diversified, Chinese authorities might have less to worry about, but they’re not; some classes of chips are only available from U.S. suppliers. So if Chinese planners want to see a diversified global market, why not build it at home?

About Transpacifica

The Transpacifica newsletter is produced by me, Graham Webster, a senior fellow with Yale Law School’s Paul Tsai China Center and fellow with New America, where I am coordinating editor of the DigiChina project, working from a home base in Oakland, California. The opinions expressed here are my own, and I reserve the right to change my mind. For three years after its founding in February 2015, this newsletter was known as U.S.-China Week. It now appears biweekly, delivered by free e-mail subscription.

The intractable U.S. economic demands (2018.04.15)

Two weeks ago I announced that after three years and 121 issues, U.S.–China Week would become the Transpacifica newsletter—shifting to a biweekly publication schedule, covering selected issues in U.S.–China relations and Chinese policy, and emphasizing analysis over news summary. My site Transpacifica.net had always been the home of U.S.–China Week, and I look forward to continuing the conversation under the Transpacifica name. Like in the beginning, I will be experimenting for the next few issues with format and content, and your feedback would be greatly appreciated—including about when during the week you’d most like to receive a message such as this. Without further ado, welcome to Issue 1 of Transpacifica. –Graham Webster

As always: Please encourage friends and colleagues to subscribe to the Transpacifica newsletter; here is the web version of this message, ideal for sharing on social media; and you can follow me on Twitter at @gwbstr. Please send your comments, quibbles, and suggestions to [email protected].

The intractable U.S. demand at the heart of Trump’s ‘trade war’ bluster

There is a confusion of rhetorics and interests in the escalating U.S. demands on China surrounding trade, investment, and competition. In one vision, captured for instance in President Donald Trump’s tweets, the U.S. government is fighting years of imbalances in the trade in goods that allegedly hurt U.S. workers. A demand to achieve a different trade balance would actually be relatively easy for the Chinese government to accommodate if it so wished, but the broader U.S. demand—the one that has afforded Trump some support for tough trade action, even if not for the tariff threats we’ve seen—is far less tractable.

The U.S. government Section 301 investigation report, issued March 22, outlines grievances shared much more broadly than a circle of Trump advisers and supporters of the trade-deficit, job-recovering narrative. As Lorand Laskai of the Council on Foreign Relations has written, the 301 report devotes a great deal of attention to a specific Chinese government plan and concept: Made in China 2025 (MIC2025). That document is symbolic of a broader, longer-term, and cross-sectoral Chinese government effort to decrease the Chinese economy’s dependence on foreign intellectual property, to move up the value-chain, and to ensure that foreign technology does not pose a security threat to the Chinese people or the Communist Party.

This challenge is by no means merely a Trump administration concern. It’s a bipartisan and international objection to policies that put foreign competitors at a disadvantage in China’s market or systematically wrest intellectual property from foreign hands. Ryan Hass, a former White House China adviser now at Brookings, argues that confronting Chinese practices should be an international undertaking. In Hass’ words, one way to move forward would be to “muster a strong chorus of countries and companies that each stress to Beijing a uniform set of requests about areas where it needs to adjust its practices.” Doing so could deny the Chinese government the privilege it currently enjoys of playing the steadfast global citizen against an erratic U.S. backdrop.

But what could the U.S. and other governments successfully demand of Chinese officials? Developing a set of tough but achievable demands would require an attention to detail and to the art of the possible that is not apparent in the Trump administration approach. As Hass writes, “There are no cost-free options left. We are where we are. The stakes are high. Trump owes the American people an explanation of where he plans to take this dispute, what he intends to achieve, and how he plans to do so.” To this sensible prescription I will add that U.S. and other international demands need to be shaped by a realistic understanding of maneuverability in the Chinese system.

It’s not just the Trump administration demanding relief from a broad array of Chinese policies—one so broad as to guarantee thorough relief will never come. And it’s not just the Trump administration identifying grievances without a realistic path to resolution. Given the presumption among many that the Trump administration will not listen to reason, perhaps it is time for independent researchers to assemble realistic ideas for a calmer time when, no doubt, the present tensions will remain in some form.

Stay tuned…

  • The U.S. “Free and Open Indo-Pacific Strategy” got a major official boost with a State Department briefing by Deputy Assistant Secretary Alex Wong. “By open, we first and foremost mean open sea lines of communication and open airways,” Wong said. The South China Sea is by no means off the table, even if it’s quiet in the headlines for now. Per Wong, “open” also means infrastructure: “We want to assist the region in doing infrastructure in the right way, infrastructure that truly does drive integration and raises the GDPs of the constituent economies, not weigh them down.” If that’s not a pot-shot at the Belt and Road Initiative, I don’t know what is.
  • The Taiwan issue, which saw the first Trump-linked curveball in U.S.–China relations after Trump spoke with Taiwanese President Tsai Ing-wen during the transition, is rising again. After the Taiwan Travel Act reopened the issue of high-level contacts between U.S. and Taiwanese officials, reports are speculating about whether and when a prominent U.S. official might visit Taiwan. Wong, from the previous item, has already visited. The Economist reported on rumors that a cabinet member might go this summer, and the Taiwan Times read the Economist to suggest National Security Adviser John Bolton might be the one. Bolton, of course, has advocated using Taiwan as a lever with China on other issues. What he thinks would become of Taiwan and its people when used as a pawn is not clear.

About Transpacifica

The Transpacifica newsletter is produced by me, Graham Webster, a senior fellow with Yale Law School’s Paul Tsai China Center and fellow with New America, where I am coordinating editor of the DigiChina project, working from a home base in Oakland, California. The opinions expressed here are my own, and I reserve the right to change my mind. For three years after its founding in February 2015, this newsletter was known as U.S.-China Week. It now appears biweekly, delivered by free e-mail subscription.

U.S.–China Week is now the Transpacifica newsletter

Dear U.S.–China Week reader,

Since the last edition in December, U.S.–China relations have taken several dramatic turns. Issue 121 of U.S.–China Week noted that a draft of the U.S. Section 301 report on Chinese trade and investment practices was circulating, and the final report was just released. Dramatic rhetoric between the United States and North Korea has for now yielded to the dramatic announcement that the two countries’ leaders agreed to meet. Technology and cyberspace policies in both countries have continued to rise in security, economic, and competitive importance. Meanwhile, I have been preparing for the future of U.S.–China Week.

U.S.–China Week is now Transpacifica

Today I’m announcing that starting with the next edition in two weeks:

  • U.S.–China Week will be renamed Transpacifica after its home from the start, my decade-running online resource on East Asian relations with the United States;
  • The Transpacifica newsletter will appear every two weeks instead of weekly, a change that will allow me to continue producing quality analysis amidst a changing professional life (about which more below);
  • The newsletter will cover a more focused set of issues with greater emphasis on analysis. U.S.–China Week sought to deliver news summaries and analysis on the most important bilateral news regardless of issue area, but readers consistently responded most positively to topics that received deeper analysis. Thus I will no longer seek to cover every issue but rather to closely track those issues on which I—and any future collaborators—are equipped to provide the greatest insight; and
  • Transpacifica will open the process of seeking collaborators for the newsletter and other projects.

These changes come alongside exciting professional developments. Last summer, I made the move to Oakland, Calif., to pursue a portfolio of work centered around China’s digital technology policies and U.S.-China relations.

I continue to work as a senior fellow with Yale Law School’s Paul Tsai China Center, now managing our bilateral programming on artificial intelligence and digital technologies in U.S.–China relations. I have taken up a role as a fellow and lead coordinator with New America’s DigiChina project, where we translate, contextualize, and analyze Chinese digital policy sources. We’re proud of the first nine months of DigiChina’s collaborative work, and we’ll be picking up the pace significantly beginning next month. And working independently, Transpacifica, LLC, provides research and consulting services on Chinese and Asia-Pacific policy issues, in addition to producing the renamed Transpacifica newsletter.

I am grateful to every one of the more than 1,500 subscribers to U.S.–China Week during its first three years. Many of you have offered insights, critiques, and encouragement both online and in person, and many more publish analysis that has deeply informed my thinking.

There is no guarantee of smooth sailing in the transpacific world today, but I greatly look forward to navigating along with you. I remain confident that, through careful thinking, some great follies can be avoided and some great opportunities can be realized.
Sincerely,

Graham Webster
PS, as always: Please encourage friends and colleagues to subscribe to the Transpacifica newsletter; here is the web version of this message, ideal for sharing on social media; and you can follow me on Twitter at @gwbstr. Please send your comments, quibbles, and suggestions to [email protected].

U.S.–China Week: U.S. strategy calls China ‘revisionist power’ and ‘competitor’; drumbeat of China-focused trade moves (2017.12.18)

Welcome to Issue 121 of U.S.–China Week. I’m back in Oakland after a busy trip to Beijing, Shanghai, and Wuzhen, Zhejiang, where I had the chance to attend the Chinese government’s World Internet Conference. This edition covers the new National Security Strategy and a gathering tide of trade and investment action by the U.S. government, but first:

  • Before the Wuzhen show, the New America DigiChina team and our CSIS colleague Samm Sacks published “China’s Cybersecurity Law One Year On: An Evolving and Interlocking Framework“—our effort to summarize what has already emerged and what’s still a work in progress a year after the law’s text was released and six months after it officially took effect.
  • After the Wuzhen show, we observed that a (to us) crucial speech by new Politburo Standing Committee Member Wang Huning at the conference had not been published in full. Based on audio, we transcribed and translated the speech, which goes into some detail on cyberspace policy, including cross-border data flows. This New America post by Rogier Creemers, Paul Triolo, Jennifer Meng, and myself.
  • Happy news: U.S.–China Week was listed in “SupChina Sources 2017,” which provides a great compilation of resources on China and the world from the folks who bring us SupChina and the Sinica podcast. Congrats to the many colleagues and subscribers out there who were also recognized.

After today, U.S.–China Week is going on winter vacation, both to take time off for the holidays and to plan for this project’s future. I commit to being back with you by February 9, the third anniversary of the first “beta” edition. Thanks for reading, writing, and arguing—and see you in 2018!As always: Please encourage friends and colleagues to subscribe to U.S.–China Week. Here is the web version of this issue, ideal for sharing on social media, and you can follow me on Twitter at @gwbstr. Please send your comments, quibbles, and suggestions to [email protected].

SIGNALS
Trump ‘National Security Strategy’ positions China, Russia as ‘revisionist powers’; Official won’t say Trump has read it

The White House today released a new National Security Strategy, Trump’s first and the first since Obama’s last document in 2015. Here at Transpacifica, I excerpted the main sections having to do with U.S.–China relations and made some comments. I’ll mention a few here, but the most important thing to keep in mind is that this document may not reflect the behavior of the president. Indeed, a spokesperson for the National Security Council told CNN: “I can’t say that [Trump] has read every line and every word” of the big-splash new document. This fact is of a kind with broader Trump administration policymaking: Bureaucrats working with a variety of agendas and at varying levels of professionalism may produce visions, but execution at the presidential level is subject to Trump’s own erratic style. Professional bureaucratic counterparts in other capitals, and certainly in Beijing, are left without reliable signals except to say that a remarkably less friendly framing of U.S.–China relations made it past final approvals to be introduced by a Trump speech.

The strategy, whatever its strategic weight, signals attention to intellectual property and the U.S. “National Security Innovation Base (NSIB),” introduced in this document in a paragraph that begins, “Every year, Competitors such as China steal U.S. intellectual property valued at hundreds of billions of dollars.” This plays into the trade and investment developments below—and it reflects the rather Beijing-compatible Trump administration argument that “economic security is national security”—a phrase highlighted in today’s strategy.

At the most basic level, China is highlighted as one of “three main sets of challengers—the revisionist powers of China and Russia, the rogue states of Iran and North Korea, and transnational threat organizations, particularly jihadist terrorist groups.”

Perhaps the broadest statement of explicit separation from past China policy is this: “For decades, U.S. policy was rooted in the belief that support for China’s rise and for its integration into the post-war international order would liberalize China. Contrary to our hopes, China expanded its power at the expense of the sovereignty of others. China gathers and exploits data on an unrivaled scale and spreads features of its authoritarian system, including corruption and the use of surveillance. It is building the most capable and well-funded military in the world, after our own. Its nuclear arsenal is growing and diversifying. Part of China’s military modernization and economic expansion is due to its access to the U.S. innovation economy, including America’s world-class universities.”

Paired with the observation that “great power competition has returned,” it’s hard to conclude that the drafters envision substantial cooperation with China. Add to that the apparently imminent U.S. actions against China on trade issues, and U.S.–China relations appear to be in for much more friction. The grand caveat is at the top of the U.S. government; I’m not going to make confident predictions of where the Trump administration or the president’s own inclinations will go—especially when I’m stepping away from the newsletter for several weeks.

Much more to digest in my fuller jottings on China-relevant passages.

TRADE TIDES

  • U.S. charges three Chinese for hacking U.S. firms, and reports link their cybersecurity firm to the Chinese government
    Three Chinese hackers working for a company known as Boyusec were charged for hacking three companies and taking “trade secrets,” “proprietary commercial data,” and “proprietary and confidential economic analyses, findings and opinions” from three separate firms.

    The U.S. government announcement included the phrase “commercial advantage” in its headline, and the indictment noted that one of the alleged victims’ geographic positioning technologies “had no military applications”—both clear call-outs to the Obama-Xi statements of Sept. 2015 that, as Obama put it, neither government would “conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information for commercial advantage.”

    Though the U.S. releases did not tie the hackers or Boyusec to the Chinese government, security researchers had previously identified Boyusec as the entity behind a hacking group known as APT3 and linked Boyusec to China’s Ministry of State Security. Josh Chin of WSJ reported that Boyusec dissolved in the weeks before the announcement and that U.S. officials got “no meaningful response” when they reached out to the Chinese government on this case before going public.

    My Yale colleague Rob Williams and Harvard’s Jack Goldsmith argued that the indictment “suggests that China is either violating the 2015 deal or exploiting its ambiguities and thus exposing the norm against commercial cybertheft as weak.” If Boyusec was indeed acting on behalf of the MSS, that much seems clear.

  • U.S. formally opposes granting China market economy status at WTO
    Reuters reported: “The United States has formally told the World Trade Organization (WTO) that it opposes granting China market economy status, a position that if upheld would allow Washington to maintain high anti-dumping duties on Chinese goods. The statement of opposition, made public on [Nov. 30], was submitted as a third-party brief in support of the European Union in a dispute with China that could have major repercussions for the trade body’s future. The U.S. and EU argue that the state’s pervasive role in the Chinese economy, including rampant granting of subsidies, mean that domestic prices are deeply distorted and not market-determined.” A Xinhua commentary said the U.S. position was “in reckless disregard of the relevant WTO rules.”
  • U.S. probe into Chinese aluminum marks first ‘self-initiated’ action against major partner in decades
    FT reported: “The move to ‘self-initiate’ an anti-dumping investigation into imports of aluminium sheeting from China marks the first time since 1985 that the US Commerce Department has launched its own investigation without a formal request from industry. The last case was brought by the Reagan administration against Japanese semiconductor imports and came at a time of high trade tensions. A parallel investigation launched on Tuesday into illegal subsidies given to the Chinese sheet industry marks the first time since a 1991 Canadian lumber case that the Commerce Department has self-initiated a probe into subsidies.” China’s Ministry of Commerce reportedly expressed “strong dissatisfaction.”
  • USTR’s 301 investigation report circulating
    Politico reported: “Two sources told Morning Trade that USTR has completed a draft report that is now being shared with the interagency committee overseeing the investigation. A USTR spokeswoman wouldn’t comment on the report’s status, but said it has not gone to the White House and declined to provide any update on when it would be released.”
  • Treasury official: New ‘Comprehensive Economic Dialogue’ is ‘stalled’; Branstad: No U.S. decision on future of BIT talks
    FT reported that David Malpass, under secretary of treasury for international affairs, said the new Comprehensive Economic Dialogue was at least temporarily defunkt. “China is not moving in a market-oriented direction so for now the CED is stalled,” FT quoted him as saying. “There is not a dialogue on restarting the CED.” / U.S. Ambassador to China Terry Branstand said that, on earlier talks for a U.S.–China bilateral investment treaty that had been progressing quietly through the end of the Obama administration, “the administration has not made the decision whether to go forward.”

ABOUT U.S.–CHINA WEEK

U.S.–China Week is a weekly news and analysis brief that covers important developments in U.S.–China relations and features especially insightful or influential new policy analysis.

Graham Webster is a senior fellow at the Paul Tsai China Center at Yale Law School, where he specializes in U.S.–China relations and technology, and a fellow at New America, where he is developing the DigiChina project on China’s digital policies. His website is gwbstr.com, and he is based in Oakland, California.

Disclaimer: Opinions expressed here are my own (and I reserve the right to change my mind).

Free Subscription to U.S.–China Week by clicking here or e-mailing me is open to all, and an archive of past editions appears at my long-running website on East Asia and the United States, Transpacifica.

Contact: Follow me on Twitter at @gwbstr. Send e-mail to [email protected].