Author Archives: Graham Webster

Trading tariff threats; Will Mattis find linkage in Beijing? (2018.06.25)

Welcome to Transpacifica Issue 6. This issue focuses on U.S.-China exchanges of threats and statements on trade and investment restrictions.

Although the Trump-Kim meeting in Singapore was one of the most important events in U.S.–China relations in recent years, I’m going to leave it aside because I have little to add, for instance, to comments by my Yale colleague Mira Rapp-Hooper or by Jeff Bader of Brookings. When it comes to the Korean Peninsula, we’ll have to wait and see. When it comes to trade and investment, however, events are developing rapidly, and if we wait a while, we’ll probably see a very different landscape…

Meanwhile, in news from the New America DigiChina project, Jeff Ding, Paul Triolo, and Samm Sacks last week published a great assessment of Chinese efforts to shape global artificial intelligence standards. And we were proud to announce a new partnership between DigiChina and the Ethics and Governance of AI Initiative based at the MIT Media Lab and Harvard’s Berkman Klein Center.  –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].

U.S. Names Tariff Targets on $50B of Imports; China Matches; U.S. Threatens $200B; China Goes Tit-for-Tat

The U.S. Trade Representative on June 15 announced targets for 25 percent tariffs “on approximately $50 billion worth of Chinese imports containing industrially significant technologies, including those related to China’s ‘Made in China 2025’ industrial policy.” The $50 billion is split between a first set, worth about $34 billion and effective July 6, and a second set, subject to public notice and comment, accounting for $16 billion. The team at WilmerHale has a good light-weight explainerof the action and what comes next, including the Ministry of Commerce’s prompt response, immediately matching the $34 billion for July 6.

After President Donald Trump days later threatened 10 percent tariffs on a further $200 billion in Chinese imports to the United States, a Ministry of Commerce statement said China would employ both “quantitative” and “qualitative” measures in retaliation for any further U.S. tariff lists, Reuters reported.

Some thinkers and officials in China now worry that their government and economy will not be able to withstand a U.S. onslaught, or that recent bold moves by the Chinese government have been premature, Bloomberg reported. Nonetheless the combination of the ZTE experience and erratic U.S. leadership will make it very difficult to argue in Beijing that government efforts to stand up more independent Chinese technological capabilities should yield. If the U.S. wrenches some concessions from China under tit-for-tat conditions, far from a foregone conclusion, don’t expect them to ease the growing friction centered on “industrially significant technologies.”

U.S. Considers Norm-Busting Effort to Stem Chinese Investment. Are Chinese Students and Scholars Next?

Reports have emerged over the weekend that the U.S. administration is considering designating sectors, or potentially even specific companies, as off-limits for investment by Chinese entities. Some reports said the Treasury Department will propose Friday to administer such restrictions through the Committee on Foreign Investment in the United States (CFIUS) and draw authority from the International Emergency Economic Powers Act (IEEPA). WSJ reported that Treasury “is crafting rules that would block firms with at least 25% Chinese ownership from buying companies involved in what the White House calls ‘industrially significant technology,'” and that U.S. industry would have an opportunity to comment on the proposal. (“The administration is saying, ‘if we declare everything a national security issue we can do whatever we want,’” AEI’s Derek Scissors told WSJ. “It’s a misuse of executive power.” Doing so also disarms U.S. trade lawyers who might otherwise go after weak national security justifications by others.) Administration sources disputed the WSJ reports in inconsistent ways, so we’ll see.

The reported restrictions on investment match one major thrust of a new White House report on “China’s Economic Aggression” from the office associated with the radical adviser Peter Navarro, specifically under the subheading of “technology-seeking, state-financed foreign direct investment.” Another emphasis in the report, under the subheading of “information harvesting” raises alarm both about researchers gaining knowledge from regular scientific exchange and research, and also about “Chinese nationals in the U.S. as non-traditional information collectors.” This section doubles down on FBI Director Christopher Wray’s rhetoric about “a whole-of-society threat on their end.”

It’s going to be crucial that universities, companies, and research institutions resist efforts to institutionalize these narratives. This administration does not deserve the benefit of the doubt when it encourages suspicion based on ethnicity, including with language that recalls racist tropes of the “yellow peril” era and presumes, until proven innocent, that people perceived as members of an ethnic grouping are in league with a foreign government. Let’s say we set aside the fact that this line of rhetoric and proposed policy violates fundamental U.S. ideals. If the Chinese government is as crafty as Navarro, Wray, or Sen. Marco Rubio say, would it be so hard for them to pay off someone of another ethnicity?

Keep watching…

Defense Secretary Jim Mattis is traveling to Beijing this week, with denuclearization of the Korean peninsula, the South China Sea, and military-to-military ties on the agenda, according to AP. Perhaps they will discuss possibly China-linked laser incidents experienced by U.S. military pilots in recent months. Mattis has remained relatively clear of the hottest U.S.–China and domestic U.S. controversies, and thus he may be more able to undertake diplomacy on security issues than other U.S. emissaries. As the trade and investment environment gets uglier, let’s watch to see whether officials in Beijing visibly link economic issues and security cooperation. So far, there is an outward appearance of relative compartmentalization, despite Pentagon and military-industrial complex dimensions in rising tech tensions.

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 and 131 issues 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.

Tick-tock to tariff targets; ZTE reprieve; Beijing gathering (2018.06.11)

Welcome to Transpacifica Issue 5, and greetings from Beijing.

Tomorrow in Beijing: Last issue I mentioned a potential get-together here for folks interested in China, technology policy, and U.S.–China relations. We’ll indeed have an informal happy hour Tuesday from 6–8 p.m. in the Sanlitun area. Please write me so I can gauge numbers, and I’ll send the location. Also in town from London will be Trey McArver, a distinguished fellow newsletterist behind China Politics Weekly and co-founder of Trivium China, which puts out an excellent daily update on Chinese politics and economy. Other great folks have also said they’ll stop by. Come say hello!

Recently, in Washington: On Friday I was honored to testify before the U.S.-China Economic and Security Review Commission. The full hearing was packed with great ideas, and my written testimony was significantly powered by our joint work at New America’s DigiChina project. Thanks to all involved, and your comments are very welcome.

Right now, below: This issue comments on two of the important stories of the last two weeks. It does not speculate, because I dare not speculate, on the ongoing events in Singapore, where U.S. President Donald Trump is to meet with North Korean leader Kim Jong-un Tuesday. But I’ll be watching…  –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].

No Deal After Ross Visits Beijing; Tariff Targets Due Friday

Last issue, I said Commerce Secretary Wilbur Ross’ trip to Beijing to talk trade with Chinese counterparts seemed “unlikely to result in a breakthrough.” I wasn’t exactly out on a limb there, but the trip appears to have produced no change at all.

NYT reported that Ross’ delegation did not include colleagues from the U.S. Trade Representative’s office, which is associated with the Trump administration’s statement (after Treasury Secretary Steven Mnuchin had said trade war was “on hold”) that it will identify by Friday, June 15, the list of Chinese imports to the United States that will be hit with tariffs. That statement said the level of tariffs would be announced “shortly thereafter.” A Chinese government statement said: “If the United States introduces trade measures, including an increase of tariffs, all the economic and trade outcomes negotiated by the two parties will not take effect.”

I can see no indication the Trump administration has made progress bridging internal divides, developing a strategy that ties tactics to goals, or convincing Chinese officials to make substantial changes as the result of tariff threats.

Commerce Stays ZTE Execution, but Lawmakers Seek to Reinstate

Ross tried to spin his department’s retreat from a corporate death sentence for the Chinese ICT company ZTE as the “largest penalty [Commerce’s Bureau of Industry and Security] has ever levied and requiring that ZTE adopt unprecedented compliance measures.” Of course, this “largest” penalty, including fines and a murky new oversight deal, would give the company the chance to survive instead of shutting down, as it provisionally has done, due to a loss of access to U.S. components.

Members of Congress from both parties set to work trying to kill the deal, though the fate of the various amendments is uncertain.

After the deal was announced, I listed five mistakes the U.S. government made regarding ZTE. In longer form than original tweet, they are:

  • Imposing a penalty—the likely destruction of a major company—disproportionate to the still-serious offense of sanctions violations and breaching a settlement agreement. (There are reasonable arguments that the denial order was appropriate, but it seems to me something like the eventual deal was probably more fitting to begin with—increasing U.S. leverage longer term, rather than pushing ZTE’s lines of business out of existence or into less-supervised firms.)
  • Trump saying on Twitter the reason he asked Commerce to change the penalty was due to speaking with Xi. (If you’re negotiating with Xi, maybe best not to let him drag a law enforcement matter into trade talks. Not to mention the remark about Chinese jobs.)
  • Blending law enforcement, national security & trade deals. (See my WaPo Monkey Cage post on this.)
  • Once ZTE’s fate was blended with trade talks, giving in with little in return. (Did the U.S. side get anything out of retreating from the harsh penalty on ZTE?)
  • Still no details on how ZTE presents a national security risk. (Many voices have conflated the sanctions enforcement matter with U.S. government claims that ZTE threatens U.S. national security. If it does, the U.S. government owes the public a better understanding of the risks.)

With Congressional resistance to the new deal, the ZTE story may not be over, but the message for Chinese officials seeking to develop a more independent tech sector is clear: Keep at it, and double down where the U.S. government might have the largest leverage.

Related: Our recent DigiChina post on how to translate the slogan 网络强国 (we favor “cyber superpower” and “cyber great power” for different reasons) gives background on the Chinese government emphasis on ICT independence over the last few years. It kicks off our series of “Lexicon” posts grappling with tough terms for translation.

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 and 131 issues 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.

Trade war ‘on hold’ to tariffs on the way (2018.05.29)

Welcome to Issue 4 of Transpacifica, coming to you this week on Tuesday following the U.S. Memorial Day holiday.

I’ve been on the road in Europe much of the last two weeks, including for the China Internet Research Conference hosted at University of Leiden. I was grateful to be hosted by Privacy International in London for a discussion on AI, digital policy, and privacy in China. Video of the event, with Scarlet Kim, is available online, and there’s only more to explore as Europe’s General Data Protection Regulation has now gone into effect. Meanwhile, while last edition went into some depth on ZTE’s interactions with the U.S. government, an updated and edited version of that material appeared in the Washington Post‘s Monkey Cage blog. Thanks to the editors for featuring and improving that analysis.

Further travel note: I’ll be in Beijing in two weeks and may be (co-)organizing a get-together for those interested in talking tech policy and U.S.–China relations on June 12. Please write to me if you might be interested in a meet-up. –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].

A week in the life of U.S.–China economic ties

The past week has been whirlwind for U.S.–China trade and investment ties, especially in technology industries. Let’s take a look:

  • Stage-setter: FT on May 17 reported on deep divides within the Trump administration over China economic issues as Vice Premier Liu He began meetings in Washington: “Thursday’s trade talks began against a backdrop of continuing divisions between senior officials eager to strike a deal, such as Treasury secretary Steven Mnuchin, and China hawks, such as White House trade adviser Peter Navarro, according to people familiar with the administration’s internal discussions. The White House on Wednesday initially said Mr Mnuchin, commerce secretary Wilbur Ross and US trade representative Robert Lighthizer would lead Thursday’s discussions with Mr Liu and his delegation. It only later added that Mr Navarro and National Economic Council chair Larry Kudlow would join them.”
  • May 20: Treasury Secretary Steven Mnuchin declared, “We’re putting the trade war on hold. … We have agreed to put tariffs on hold while we try to execute the framework.”
  • May 21 (the Monday following Liu’s visit): In a tweet written in the style of a New York Times headline, Trump started Monday morning saying: “On China, Barriers and Tariffs to come down for first time.” AP reported that while administration officials were saying U.S. farmers would benefit, intellectual property issues were not resolved.
  • May 22: WSJ reported that the outlines of a deal had been reached to save ZTEfrom corporate death after U.S. sanctions enforcement action resulted in a ban on U.S. components. (See Transpacifica’s last edition.) “If completed, the Trump administration would remove the ban on U.S. companies selling components and software to ZTE, a penalty that has threatened to put the company out of business. Instead, ZTE would be forced to make big changes in management, board seats and possibly pay significant fines, [WSJ‘s sources] said.” Trump, however, denied any deal.
  • May 22: The Chinese government announced decrease in car import duties from 25 percent to 15 percent, effective July 1.
  • May 24: Reuters reported Ross said of a potential ZTE deal: “If we do decide to go forward with an alternative, what it literally would involve would be implanting people of our choosing into the company to constitute a compliance unit.”
  • May 25: Three days after denying a deal to keep ZTE in business, Trump tweeted: “Senator Schumer and Obama Administration let phone company ZTE flourish with no security checks. I closed it down then let it reopen with high level security guarantees, change of management and board, must purchase U.S. parts and pay a $1.3 Billion fine. Dems do nothing….” Trump’s “security guarantees” were not fleshed out very well, but the U.S. implants seemed to be part of the concept.
  • May 27: The Hill reports “More than 60 Dem lawmakers demand ethics investigation into Trump’s relationship with China.” “Rep. David Cicilline (D-R.I.) posted a letter to David Apol, acting head of the federal government’s ethics office, to Twitter on Sunday, stating that the request was prompted by Trump ‘advocating’ for ZTE just days after the Chinese government gave one of the president’s business endeavors a $500 million loan.”
  • May 27: Elements of a trade deal were reportedly being discussed, and Ross was reportedly to hammer things out during a trip to China this week.
  • May 28: NYT reported that Ivanka Trump got seven new Chinese trademarksaround the same time as the ZTE deal was being developed. The story, by Sui-Lee Wee, quips: “Coincidence? Well, probably.
  • May 28: U.S. and Chinese representatives traded accusations over intellectual property at the WTO.
  • May 28: Xi Jinping gave a speech, widely covered by official media, on building China into a world leader in science and technology. This paralleled Xi’s April speech on “indigenous innovation” and “core technologies”—national priorities from which there is no sign the Chinese government will retreat in the face of U.S. pressure.
  • May 29: The “trade war” may no longer be “on hold.” The White House posted a document announcing “investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology” would be announced by the end of June, and that “the United States will impose a 25 percent tariff on $50 billion of goods imported from China containing industrially significant technology,” with the list of imports to be announced by June 15.
  • May 29: China’s Ministry of Commerce responded to the White House announcement, per NYT translation: “‘We feel surprised by the tactical statement issued by the White House, and yet it was also unsurprising,’ an unnamed spokesperson for the Chinese Ministry of Commerce said in the statement released by Xinhua, the official news agency. “This is clearly contrary to the consensus that China and the U.S. reached not long ago in Washington. No matter what measures the U.S. side unveils, China has the confidence, the capacity and the experience to defend the interests of the Chinese people and core national interests. China urges the United States to move toward each other in the spirit of the joint announcement.'”
Taking the above as backdrop, Ross’ trip to Beijing seems unlikely to result in a breakthrough. Given well-known fault lines within the Trump team, it is not even clear whether the White House announcement was in strategic alignment with preparation for Ross’ trip. Perhaps the announcement is designed to give Ross some extra leverage, but it seems just as plausible it was designed to undermine talks and skid toward the tariffs and disruptive measures that seem consistently the preferred outcome for several members of the administration and—depending on his mood at Twitter time—the president himself.

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.

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.