U.S.–China Week: Trump trade action, ‘fire and fury,’ AI, FONOP, industrial policy, Kushner (2017.08.14)

Welcome to Issue 108 of U.S.–China Week, back after two weeks off and publishing from my new home base in Oakland, California. Much has happened in the last three weeks, and it would be impossible to cover it all in depth. This issue therefore comes in a lively rundown of recent events and ideas.

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  • Intellectual Property and Tech Trade: After two weeks of hinting and delays, President Donald Trump signed an “executive memorandum” that was expected to direct the U.S. Trade Representative to determine “whether to investigate any of China’s laws, policies, practices or actions, that may be unreasonable or discriminatory, and that may be harming American intellectual property, innovation or technology.” USTR Robert Lighthizer said in a statement they would “engage in a thorough investigation and, if needed, take action to preserve the future of U.S. industry.”
    • This move sets the stage for an investigation under Section 301 of the 1974 Trade Act, which may result in trade retaliation inconsistent with WTO rules. Commerce Secretary Wilbur Ross wrote in an FT op-ed that “the American patent system and the American genius it protects are under serious attack. … China is a primary culprit.” Ross claimed more than 3 percent of U.S. GDP is lost to “theft, piracy, and espionage,” and additionally highlighted Chinese acquisition of IP-holding U.S. firms.
    • Trump’s announcement, which had been previewed Friday night when he spoke with President Xi Jinping and reportedly told him the action was coming, has been overshadowed in U.S. media by controversy over the president’s reluctance to condemn white supremacists who staged a rally in Virginia Saturday. The announcement was reportedly delayed, too, amidst U.S.–China interactions over North Korea, but an unnamed official told reporters Saturday that trade and North Korea “are totally unrelated events.”
    • Chinese officials meanwhile reacted negatively to a separate U.S. trade investigation into aluminum foil imports.
  • New Sanctions and ‘Fiery’ Rhetoric on North Korea: China’s government on Monday issued new bans on importing North Korean coal, iron, and seafood to implement a new UN Security Council resolution that targeted the DPRK’s nuclear and missile programs. The new sanctions were celebrated by some as evidence of U.S.–China cooperation, but others noted that the measures avoided further scrutiny on Chinese entities that do business with North Korea. The U.S. government also reportedly backed away from threats of unilateral sanctions on Chinese banks that deal with North Korea, with one diplomat telling Reuters such forbearance “played an important role to get China on board.” If so, Chinese cooperation in pressuring North Korea’s government must be seen as limited, if it was only secured by surrendering another means of pressure.
    • Trump meanwhile implicitly threatened nuclear war if North Korea takes unspecified actions, saying, “North Korea best not make any more threats to the United States. They will be met with fire and fury like the world has never seen.” This statement was followed by a North Korean government statement that it was “carefully examining” plans to launch missiles at Guam. This arguable threat was not followed by “fire and fury. Ankit Panda and Vipin Narang have the best concise analysis of the deterrence implications of such bombast that I have seen.
    • The U.S. government has other messengers. Chairman of the Joint Chiefs of Staff Gen. Joe Dunford is in China, and Secretary of Defense Jim Mattis and Secretary of State Rex Tillerson published an op-ed Sunday with a much more calibrated message claiming “strategic patience” is being replaced by “strategic accountability.” As former Defense Department official Abe Denmark noted, however, their approach “does not differ greatly from the Obama strategy.” Meanwhile, Former Obama Asia adviser Jeff Bader argued for deterrence and containment as an approach to North Korea.
  • Chinese government and industry artificial intelligence (AI) effortshave gained prominence.
    • Rogier Creemers, Elsa Kania, and Paul Triolo, and I produced a full translation of the State Council’s Next Generation AI Development Plan, published with our three-part commentary through New America’s Cybersecurity Initiative.
    • The Economist published an analysis describing potential downsides of China’s approach to AI development. Elsa Kania wrote for Lawfare on dual-use and military aspects of Chinese plans. And Lorand Laskai at CFR offered context on industry and social developments.
    • Sogou, the Sohu- and Tencent-owned search company, was reportedly to focus on AI as it moves toward a U.S. IPO. Then again, as one China tech industry expert remarked during my recent trip, anyone wishing to impress Wall Street right now might want to hint at AI initiatives, even if they’re never likely to amount to anything.
  • U.S. Navy destroyer conducted a “freedom of navigation” operation (FONOP) Thursday near Mischief Reef in the South China Sea’s Spratly Islands, U.S. officials told Reuters. The news of the operation, conducted by the USS John S. McCain, marks another anonymous public revelation of such a U.S. operation. I detect nothing new in the Ministry of Foreign Affairs language responding to the maneuver, but it is possible the U.S. and Chinese governments are settling into a kind of routine with these events. It is hard to tell, though, whether China’s reaction would have achieved higher volume if North Korea and trade tensions were not loudly dominating the U.S.–China geopolitical story.
    • Earlier, Bill Hayton provocatively but convincingly argued that the U.S. government has surrendered influence in the South China Sea by allowing Vietnam to be pushed away from plans to extract energy from waters China claims for vague reasons but Vietnam claims using international law–supported maritime zones.
  • Apple was criticized for removing VPN apps from its Chinese app store amidst new Chinese government statements about restricting use of the technology, which many use to circumvent internet censorship. As I told WSJand AFP, the uncertain extent of the VPN restrictions raises questions about future access to the global internet for both Chinese and international business. While it is very unlikely all VPN access will be eliminated, businesses, travelers, and Chinese who depend on blocked information services will likely face a more expensive and more government-monitored set of options if the current restrictions continue.
    • Taking stock of Apple’s move, Emily Parker argued among other things that “bending to China’s will doesn’t guarantee success” in the Chinese market.
    • Amazon cloud services customers in China were also told to delete tools that use the Amazon system for VPN purposes, WSJ reported, with an Amazon spokesperson saying their Chinese partner “is responsible for ensuring that its customers in China comply with local laws.”
  • NYT reported that Facebook approved a Chinese app that closely resembles the company’s Moments app, possibly in an attempt to enter the Chinese market through a side door, despite the fact that Facebook is blocked in China. An executive of the company behind the Chinese app appeared in a photograph from a meeting between Facebook representatives and Cyberspace Administration of China officials in Shanghai. Quartz reported, however, that the Facebook-linked app “Colorful Balloons” is far from a hit among Chinese app users.
  • A U.S.–China cyberspace dialogue channel adapted from prior engagements following the Trump-Xi meeting in Florida has not held its first meeting, Tillerson said, but he said they “hope” to hold the first meeting of the law enforcement and cybersecurity dialogue “in the next several weeks.”
  • More good tech and industrial policy reads:
  • As White House adviser and Trump son-in-law Jared Kushner prepares to travel to China with Ivanka Trump (where Jim Mann expects them to encounter tried and true official Chinese flattery), New York federal prosecutors reportedly sought records from the Kushner family business regarding its use of the EB-5 visa program, through which non-citizens can gain permanent residency through investments. The company’s use of Kushner’s name and his White House role in marketing to potential Chinese investors was previously reported.

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].