U.S.–China Week: Spicer’s SCS red line? Foxconn eyes U.S. factory, digital trade barriers, currency manipulation (2017.01.30)

Welcome to Issue 85 of U.S.–China Week, and happy Lunar New Year! This is not the forum to discuss the widespread political turmoil following President Donald Trump’s controversial executive order on immigration, but amidst the controversy, one little-discussed measure in that order could have implications in for U.S.–China relations. The order calls for the secretary of state to review visa reciprocity agreements “to ensure that they are, with respect to each visa classification, truly reciprocal insofar as practicable.” China’s treatment of U.S. journalist visas has long been an issue, and U.S. China specialists have also noted discrepancies in how the two countries issue visas for various kinds of exchanges. Observers in China will likely face a new challenge familiar to those of us who watch Chinese politics—how to assess the likely concrete implementation of high-level directives. Now on to the many more overt U.S.–China developments this week…

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REGIONAL SECURITY
White House says U.S. will ‘defend international territories’ in South China Sea; Chinese reactions firm but cautious

During a press briefing, White House Press Secretary Sean Spicer said: “I think areas in the South China Sea that are part of international waters and international activities I think the U.S. is going to make sure that we protect our interests there. So it’s a question of if those islands are in fact in international waters and not part of China proper, then yes, we’re gonna make sure that we defend international territories from being taken over by one country.” Spicer’s remarks came in response to a question about secretary of state nominee Rex Tillerson’s statement during a confirmation hearing that the United States should signal to China that China’s “access to those islands also is not going to be allowed.” Foreign Ministry Spokesperson Hua Chunying replied with typical language asserting China’s “indisputable sovereignty over the Nansha Islands and the adjacent waters,” and urged the United States to “be prudent in words and actions to avoid causing disruptions to peace and stability.” Hua’s colleague Lu Kang made an unusual appearance on NBC News to further express Chinese opposition to Trump administration comments. CNAS’s Mira Rapp-Hooper told Reuters, “The Trump administration has begun to draw red lines in Asia that they will almost certainly not be able to uphold, but they may nonetheless be very destabilizing to the relationship with China, invite crises, and convince the rest of the world that the United States is an unreliable partner.”

ANALYSIS: Spicer’s statement is hard to interpret seriously using the tools South China Sea analysts have grown accustomed to. In the past, pundits would turn immediately to the UN Convention on the Law of the Sea (UNCLOS) to discuss the statement’s legal implications. But Spicer (intentionally or not, though I suspect not) used terms with no meaning under the convention. One could reasonably assume “international waters” means “high seas,” but it could also mean places such as an exclusive economic zone where the coastal state has limited jurisdiction. “China proper” is a strange term to use in this context, since in scholarly usage the phrase refers to an area that does not include large portions of completely undisputed Chinese territory today. I have no idea what “international territories” are supposed to be. I share Rapp-Hooper’s concern quoted above about unsupportable red lines, but the benefit of this statement’s apparent lack of pre-consideration is that there’s no clear red line for now. China’s official responses to me indicate a sense that response was needed, but that vague resolve is about all officials are ready to signal.

STAGE SETTING
Chinese officials keep it general on U.S ties; Mattis to visit Japan, S. Korea; Navy Secretary pick has China experience

Chinese officials made more public remarks about bilateral ties than last week but remained cautious in choosing their messages. In one context Hua told reporters “I don’t comment specifically on the remarks of President Trump” and, regarding a possible future Trump–Xi meeting, she said, “At this point, I have no specific information to offer.” In a speech at a new year’s reception, Foreign Minister Wang Yi said, “We are ready to work with the new U.S. administration on the basis of respect of each other’s core interests.” Ambassador to the United States Cui Tiankai said China has contacts with the Trump administration. Asked if those contacts have been cordial, he said, “this is a rational relationship. Of course we want to make it friendly and cordial.” And Premier Li Keqiang, writing in Bloomberg Businessweek, called China “an anchor of stability and growth.”

Several Trump administration developments had implications for China ties. Defense Secretary James Mattis is to visit South Korea and Japan this week; this first overseas trip as secretary is seen as a ally-reassurance mission. Trump nominated Philip Bilden, “a former military intelligence officer and private equity executive with broad experience of Asia, particularly China” to be secretary of the Navy. Bill Gertz wrote on competing support for Bilden and the earlier-rumored favorite, Rep. Randy Forbes, and on the possibility that Trump officials would dial back on bilateral military contacts—though sourcing on the latter is weak.

TECH + CYBERSPACE
Foxconn considering Pa. factory; Apple sues Qualcomm in Beijing; Report pushes responses to ‘digital trade barriers’

Fast Company reported electronics manufacturing giant Foxconn is considering plans for a factory in Pennsylvania, and suggested H-1B visa policies will be a factor in its decisions about U.S. expansion. The medical arm of Google’s parent company Alphabet, Verily Life Sciences, may be considering expansion in China following an investment by Singapore’s Temasek, Bloomberg reported. Apple filed a lawsuit against Qualcomm in Beijing‘s intellectual property court “alleging the chip supplier abused its clout in the chip industry and seeking 1 billion yuan ($145.32 million) in damages,” Reuters reported. A Citigroup report says China surpassed North America as the leading investor in financial technology, Fortune reported. Lawfare published an assessment of a draft U.S. cybersecurity executive order. And AEI’s Claude Barfield argued in a new report that “digital economic and security issues” should be a top priority in contact with China. The report “presents an escalating series of proportional responses to the challenge of China’s digital trade barriers.” Among these responses is “breeching the Great Firewall through the World Trade Organization.”

ANALYSIS: The tech- and cyberspace-related aspects of the Trump administration’s likely trade frictions with China have been relatively little discussed, but the AEI report provides an important summary of the kinds of concerns many in the United States have, as well as some of the measures the U.S. government might take in return. One reason these elements of trade discontent have not made as many headlines is that they are not specifically or even especially Trump team concerns. A Hillary Clinton administration would very likely have gone to work quickly on these issues, possibly as a central focus in U.S.–China trade diplomacy. Lurking in the background is the potential that business community support for positive U.S.–China ties could drop even more than it already has if companies do not gain more confidence they won’t be shut out of the Chinese market. If Trump and team make more sudden, destabilizing moves with China (e.g. something big on Taiwan, the South China Sea, or a so-far untouched issue), the bilateral relationship will need a strong and diverse chorus of calls for caution, stability, and/or a crisis-mode walkback.

ECONOMIC
A call for renewed U.S. economic leadership; Trump Org. political risk in Shanghai, Pandas; Currency manipulation

Former Ambassador to China Jon Huntsman, former U.S. Trade Representative Charlene Barshefsky, and insurance executive Evan Greenberg write: “We urge the administration to use the opportunity of withdrawal [from the Trans-Pacific Partnership (TPP)] to meet with our TPP partners, outline areas of concern and devise a negotiating agenda to rectify its deficiencies.” Their short piece on a U.S. economic strategy for the Asia-Pacific draws on a longer CSIS commission report. “Implementing this kind of strategy is complicated by the popular preference to rebuild at home rather than lead abroad. But this is a false dilemma: America’s domestic prosperity is inextricably linked to our international leadership. A vacuum of US leadership in Asia filled by less benevolent players would take decades to reverse—and at a huge economic cost by way of lost markets and legitimacy.” / WSJ investigated the politics-linked downfall of a Shanghai real estate deal involving the Trump Organization. A source “said Shanghai Big’s government overlords cooled on the branding idea as Mr. Trump’s political profile crystallized. For them, he said, it was impossible to imagine ‘that the president of the United States’ name is on hotels.'” (In the cutest instance of potential entanglements between Trump’s businesses and his administration, the New York Post reported that a leader of an effort to bring pandas to New York’s Central Park is trying to convince Trump’s adult sons to build a panda pavilion at a discount.) / McClatchy reported on the implications of a possible Trump administration decision to designate China a currency manipulator, while Sen. Chuck Schumer pushed for Trump to make the manipulator designation—something a McClatchy source called “a nonsensical political position” given today’s reality. / And the U.S.–China Business Council released a report saying “the U.S.–China trade relationship actually supports roughly 2.6 million jobs in the United States.

COMMENTARY
Calm expressions of the risk of calamity

SCMP reported on a Chinese military officer’s commentary saying “‘A war within the president’s term’ or ‘war breaking out tonight’ are not just slogans, they are becoming a practical reality.”  —  Mike Pillsbury spoke to Chinese state TV, which questionably called him a “U.S. top adviser.”  —  Tsinghua’s Yan Xuetong wrote that bilateral ties “will inevitably deteriorate with Mr. Trump at the helm.”  —  Former Obama adviser Evan Medeiros is back on the CSIS podcast discussing bilateral ties in the new administration.  —  Medeiros tells FP, “The U.S. looks somewhere between confrontational and disoriented on the South China Sea. This is how you can stumble into a crisis.”  —  MFA think tank CIIS’s U.S. studies chief Teng Jianqun writes that “the existing balance of power between the two countries has either been broken already or is in the process of becoming so.”  —  CSIS released a new report and short summary on South China Sea strategy.  —  And as Joel Wit and Richard Sokolsky offer “The Art of a Deal With North Korea,” a North Korean official said the country is ready to test an intercontinental ballistic missile.

US-CHINA WEEK 1967
‘U.S.–Chinese Talk Held in Warsaw: Peking’s Envoy Rejects Calls for Stepped Up Schedule’

“WARSAW, Jan. 25[, 1967] — Communist China rejected today a request by the United States that they step up the pace of their ambassadorial meetings here. Ambassador John A. Gronouski announced after a conference with Wang Kuo-chuan, the Chinese envoy, that no meetings would be held until June 7. ‘I had proposed an earlier date but Ambassador Wang said anything earlier than June 7 would not be convenient,’ Mr. Gronouski explained. … Mr. Wang, who left first, disclosed only the date of the next session. After the last encounter on Sept. 7, he broke with the procedure of the 12-year-old series of conferences and issued a denunciation of the United States and the Soviet Union. Today he said he had no comment.”

(Source: The New York TimesThis entry is part of an ongoing feature of U.S.–China Week that follows U.S.–China relations as they developed in another era of change and uncertainty, 50 years ago.)

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 research scholar, lecturer, and senior fellow of the Paul Tsai China Center at Yale Law School, where he specializes in U.S.–China diplomatic, security, and economic relations through research and Track II dialogues. He is also a fellow for China and East Asia with the EastWest Institute. His website is gwbstr.com.

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

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