U.S.–China Week: Trump China visit likely Nov., USTR: China threatens trade system, Lattice and the future of CFIUS (2017.09.18)

Welcome to Issue 113 of U.S.–China Week. 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].

TRADE + INVESTMENT
Trump administration blocks Chinese covernment-linked acquisition of U.S. semiconductor company

The Trump administration blocked a $1.3 billion purchase of Lattice Semiconductor by a Chinese government-backed fund, the White House said, because of “the potential transfer of intellectual property to the foreign acquirer, the Chinese government’s role in supporting this transaction, the importance of semiconductor supply chain integrity to the United States Government, and the use of Lattice products by the United States Government.” Lattice and the fund, Canyon Bridge Capital Partners, had appealed directly to President Donald Trump after the interagency Committee on Foreign Investment in the United States (CFIUS), which examines foreign acquisitions for national security concerns, recommended the deal be blocked. WSJ reported that Lattice Chief Executive Darin Billerbeck had said “Lattice and Canyon Bridge tried to address all possible national-security issues through an agreement to give the U.S. government control over Lattice’s intellectual property and technology if the tie-up were approved.” A Ministry of Commerce spokesperson said, “Conducting security checks on a sensitive investment is a nation’s legitimate right, but it shouldn’t be used as a protectionist tool.”

  • RELATED: USTR: China a “threat to the world trading system that is unprecedented.” U.S. Trade Representative Robert Lighthizer said the WTO was not designed to deal with “mercantilism on this scale.” More: “We must demand reciprocity, in home and in international markets. So, expect change, expect new approaches and expect action.” APBloomberg

ANALYSIS: The reporting on the CFIUS and Trump decision to block the Lattice deal leave unclear what specific national security interests they expected would be harmed if this acquisition had gone through. Some in the United States see it as a national priority to maintain a U.S. edge in the  semiconductor industry, and China’s government has made no secret of its efforts to develop a world-leading chip industry. Have CFIUS and Trump judged that Chinese ownership of Lattice would have harmed U.S. national security directly, or was their reasoning more indirect—that Chinese government-supported ventures should not be allowed to acquire assets in this “strategic” industry? As we await a debate over changes to CFIUS that could include economic security as a factor in evaluating transactions, this is something to keep an eye on. Three academics writing at WaPo believe it’s already more complicated than pure national security. And we’ll have another test case soon as Alibaba-linked Ant Financial prepares to resubmit its $1.2 billion acquisition of MoneyGram for CFIUS approval after no verdict was reached during its first 75-day review period.

SUMMIT CIRCUIT
Trump visit to China rumored for November Asia trip, and preparations apparently underway

  • With a Trump visit to China before the end of 2017 a longstanding element in Chinese talking points since the President Xi Jinping visited Trump in Florida in April, reports are emerging that Trump will visit China in November—one of the known possibilities since the visit could be combined with the Asia-Pacific Economic Cooperation (APEC) meeting in Vietnam and the Association of Southeast Asian Nations (ASEAN) meetings in the Philippines.
  • A Chinese readout from a Trump-Xi phone call Monday reiterated preparations for a “state visit” this year.
  • In the “mid-November” timeframe, Commerce Secretary Wilbur Ross is seeking U.S. business leaders for a trade mission to China.
  • State Councilor Yang Jiechi met with Secretary of State Rex Tillerson (MFA readout). The next day, he met with National Security Adviser H. R. McMaster and Trump adviser and son-in-law Jared Kushner, and a Chinese readout said they discussed the Trump China visit.
  • A U.S. Congressional delegation including representatives of the U.S.–China Working Group met with Vice Foreign Minister Zheng Zeguang in Beijing.

ANALYSIS: Keeping an eye on the negative space: In the Chinese government’s reports about Yang’s meeting with Tillerson, it mentioned the four-pillared dialogue mechanism framed in Florida in April. What it didn’t mention was when the first meeting of the “law enforcement and cybersecurity” pillar might occur. Does the U.S. government have positions it would take into such a meeting?

KOREAN PENINSULA
U.S. continues to threaten ‘secondary sanctions’ against big Chinese banks if North Korea pressure judged insufficient

  • Trump warned that the newest round of UN sanctions against North Korea were “nothing compared to ultimately what will have to happen,” and House Foreign Affairs Committee Chair Ed Royce said the U.S. government “should target ‘major Chinese banks doing business with North Korea,'” FT‘s Gabriel Wildau reported. He added: “For China, much would depend on how U.S. authorities calibrate their action. While the U.S. assets of China’s six largest banks comprise only 1 per cent of their global total, a full shutdown of access to the U.S. would have an outsized impact. … The central role of the U.S. dollar in global trade and investment requires foreign banks to clear payments through the U.S., even if they are doing business elsewhere. That requires a dollar clearing license from U.S. authorities.”
  • “China will implement all United Nations Security Council resolutions, ‘no more, no less,’ Cui Tiankai, China’s ambassador to the U.S., told reporters at a briefing in Washington when asked if China would cut oil shipments,” according to Bloomberg.
  • Oh yes, and North Korea conducted another missile test, sending a rocket over Japan. According to FT, McMaster said “We’ve been kicking the can down the road, and we’re out of road. There is a military option. It’s not what we’d prefer to do. We call on everyone to do everything we can to address this global problem short of war.” And South Korean President Moon Jae-in said, “Dialogue is impossible in a situation like this.”

#USChinaWeek1967
‘Nixon Sees Asia Helping Itself: Predicts More Joint Action, Backed by U.S. Power’

“An emerging regionalism in Asia, backed by the power of the United States, will shape the economic development and military security of the Pacific area, in the view of former Vice President Richard M. Nixon. Mr. Nixon, a leading possibility for the 1968 Republican Presidential Nomination, has been a frequent traveler in Asia. He discussed the region’s future in an article entitled ‘Asia After Vietnam‘ in the autumn issue of Foreign Affairs quarterly. … Mr. Nixon suggested that the Asian and Pacific Council could become the foundation for this kind of security system. Present council members are South Korea, Japan, Taiwan, Thailand, Malaysia, South Vietnam, the Philippines, Australia and New Zealand. The council was organized for cultural and economic cooperation, but Mr. Nixon wrote that ‘the solidifying awareness of China’s threat should make it possible to develop it into an alliance actively dedicated to concerting whatever efforts might be necessary to maintain the security of the region.’ … ‘All around the rim of China,’ he wrote, ‘nations are becoming Western without ceasing to be Asian.'”

(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, and he is based in Oakland, California.

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

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