U.S.–China Week: Trump’s tech and IP trade investigation, Bannon out after China interview, North Korea (2017.08.21)

Welcome to Issue 109 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 opens ‘Section 301’ investigation into China’s technology transfer, IP, innovation policies

Within a week after President Donald Trump ordered a review of whether to investigate Chinese trade and investment practices under Section 301 of the 1974 Trade Act, U.S. Trade Representative Robert Lighthizer announced that the review was followed by a decision to open an investigation. The 10-page official documenton the initiation of the investigation defines its scope as “to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are actionable” and announced a comment period lasting through Sept. 28 and a public hearing Oct. 10. In announcing an investigation, USTR directly called out: “China’s ‘Made in China 2025’ industrial plan,” “joint venture requirements,” “vague and unwritten rules,” “unfair[]” reported government instructions or support for strategic investments or acquisitions, and other grievances.

Former Congressman and WTO judge James Bacchus wrote in a WSJ op-ed: “Before taking unilateral action in violation of international law, the Trump administration should bring cases against China at the [WTO]. It stands a good chance of winning precedent-setting judgments, which the WTO would enforce through economic sanctions. … Some in the Trump administration evidently assume that protectionist Chinese actions aren’t covered by WTO rules, but a lot of them are. …If the U.S. insists on acting unilaterally under the Trade Act, the Chinese are correct that this would break WTO rules. … Before the U.S. damages the trading system by acting unilaterally, White House lawyers should read the fine print of the rule book.” China’s government reacted in a predictably negative way, with a Ministry of Commerce statement promising to “resolutely defend China’s lawful interests” (Xinhua Chinese).

ANALYSIS: The framing for the USTR investigation, which clearly was decided well before Trump’s order to consider investigating, leaves the U.S. government with a wide range of potential choices. In essence, the Trump administration has just threatened to take unspecified actions against Chinese practices—actions that are unilateral, use the president’s discretion, and may substitute for measures that could be taken at the WTO. Still, there appears to be a political consensus that WTO tools alone are not commensurate with the economic challenge from China’s allegedly unfair competitive practices. Even WTO champions recognize the need to update the international trade regime—though their preferred course for doing so was frustrated with the abandoning of the Trans-Pacific Partnership.

Though the investigation resonates with some of Trump’s political rhetoric about unfair competition from China, it notably does not target industries closely connected with factory, mining, or mill jobs. (See next item for a suggestion that those actions could be next.) One question is how this move interacts with a broad, bipartisan consensus that more “reciprocity” is called for in China trade and investment relations. Is a 301 investigation a reciprocal move reflecting Chinese practices that also lay outside the WTO framework, or might it turn out to be one move in a tit-for-tat downward spiral with unknown limits? In both a reciprocity model and tit-for-tat interactions, the result of the two sides’ moves will depend on how their leverage lines up with their objectives.

THE PRESIDENT’S MEN
Trump adviser Bannon leaves White House after remarkable China-focused phone call to liberal magazine

Steve Bannon—one of the most darkly controversial figures in Trump’s orbit who is famous for provocative media strategy, economic populism, and at minimum a symbiosis with white nationalism—was reportedly forced out of his position as chief White House strategist. Though Bannon’s exit coincided with immense blowback from the president’s own failure to clearly condemn white nationalists and others on the radical right, it is likely (perhaps also) related to Bannon’s phone call to American Prospect cofounder Robert Kuttner in which he undermined the administration’s position on North Korea and outlined his vision of China policy. Though some suspect Bannon thought he was off the record, Kuttner reported the conversation, saying “the question of whether the phone call was on or off the record never came up.”

“We’re at economic war with China,” Bannon said, according to the report. He argued for stronger measures against China economically and against withholding pressure on China in hopes of greater cooperation on the North Korean nuclear and missile program. The quote that most obviously broke with administration policy was: “There’s no military solution [to North Korea’s nuclear threats], forget it. Until somebody solves the part of the equation that shows me that ten million people in Seoul don’t die in the first 30 minutes from conventional weapons, I don’t know what you’re talking about, there’s no military solution here, they got us.” Kuttner reported that Bannon’s plan to “be maniacally focused on [the economic war with China]” included a 301 investigation on technology transfer, followed by further 301 actions on steel and aluminum dumping. Bannon said other members of the administration were “wetting themselves” over the 301 investigation. Not only were other officials unhappy, he claimed, but he said he was changing Asia officials at the Pentagon and was ousting Acting Assistant Secretary of State for East Asian and Pacific Affairs Susan Thornton, a diplomat who has been acting in that position since her Obama-era predecessor under whom she worked departed.

ANALYSIS: The big question for U.S.–China relations is what Bannon’s departure means for U.S. policy toward Asia. Josh Rogin stated well a common view that the part of the administration that wants to act strongly against China on economic issues has lost a high-level champion in the White House, and that more cautious remaining figures could gain strength. An FT report argued the opposite side. While terms like “economic war” might lose currency among White House decision makers, it will be hard to tell what difference Bannon’s departure really makes, and the answer may hinge on whether his professed influence was really ever so great. Even an influential adviser would have trouble assembling on their own the type of action Bannon claimed as his own agenda. Bannon’s voice is surely unusually loud, but it may well have been more a reflection than a driver of the administrations tendencies.

KOREAN PENINSULA
Top U.S. general in China for mil-mil cooperation; U.S.-South Korea war games; Tweaking China’s “freeze-for-freeze”

  • Chairman of the Joint Chiefs of Staff Gen. Joseph Dunford reportedly met with People’s Liberation Army officers at the Northern Theater Command in Liaoning near the border with North Korea on a trip that also included stops in Japan and South Korea.
  • A 10-day U.S.–South Korean “computer simulated” joint exercise began Monday.
  • A provocative idea from my Yale colleague Rob Williams, who argues at Lawfare that the U.S. government should take China’s support for a “freeze-for-freeze” deal seriously, but not without adjustment. In the conventional form of the deal, “North Korea would suspend its nuclear and missile testing in return for a suspension of U.S.-South Korean joint military exercises.” Instead, the U.S. government might consider a “freeze-plus-pressure” maneuver in which the United States and South Korea would promise not to hold the next scheduled joint exercises if both North Korean adherence to a freeze and measurably stronger Chinese pressure start now.

#USChinaWeek1967
‘Romney Bids U.S. Encourage China: Calls for Flexible Position on Her U.N. Admission’

“ANN ARBOR, Mich., Aug. 18[, 1967] — Gov. George Romney told the International Congress of Orientalists tonight that ‘it would be in the common interest for mainland China to enter into the community of nations and accept the responsibilities which that entails.’ In a speech at The University of Michigan, he said that ‘the possibility of such a change may appear remote, but we should spare no reasonable effort to encourage it. Mr. Romney recommended the following courses of action: ‘Unyielding support for continued United Nations membership for Nationalist China’; ‘Strong international encouragement’ for Communist China to end her isolation; ‘Clear recognition that Communist China must accept the responsibilities of membership in a spirit consistent with the principles of the Charter before admission.'”

(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).

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].

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.

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].

  • 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).

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].

U.S.–China Week: No new deals after 100-day econ. talks close (2017.07.24)

Welcome to Issue 107 of U.S.–China Week, sent from Shanghai, with Shenzhen and Hong Kong on the agenda for this week. Due to vacation, publication will pause for two weeks, returning August 14.

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].

TOUGH TALKS
First ‘Comprehensive Economic Dialogue’ ends in disagreement, no joint document or presser

The first meeting of the Comprehensive Economic Dialogue, a Trump-era rebrand of the economic track of the defunct Strategic and Economic Dialogue, took place over one day in Washington last week. The Chinese delegation was led by Vice Premier Wang Yang, with Vice Finance Minister Zhu Guangyao also reportedly in attendance, and the U.S. delegation included (according to AP) Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, Federal Reserve Chair Janet Yellen, U.S. Trade Representative Robert Lighthizer, and presidential son-in-law and White House adviser Jared Kushner. Mnuchin also acknowledged White House adviser Gary Cohn and Transportation Secretary Elaine Chao during his opening remarks.

WaPo reported that, in the end, planned news conferences were cancelled, providing a quiet end to any anticipation that further outcomes would emerge from the “100-day” accelerated trade negotiation plan. “The United States unsuccessfully pressed China to make a substantial commitment to cut its steel production,” WaPo reportedWSJ‘s account said the U.S. side “tried, unsuccessfully, to use the threat of new steel tariffs to force the Chinese to commit” to specific capacity cuts. It also reported that negotiators had hoped to “announce some kind of accords on Chinese regulation of data at multinational companies…easing restrictions on foreign auto makers, curbing Chinese agricultural subsidies,” as well as steel. Ross and Mnuchin’s statementfollowing the meeting indicated no such substantive outcomes, but did mention two more names of Americans present: Agriculture Secretary Sonny Perdue and Ambassador to China Terry Branstad. The only moderately concrete reported outcome was that the U.S. statement said China “acknowledged our shared objective to reduce the trade deficit,” and a Foreign Ministry spokesperson said, “The two sides also agreed to cooperate constructively on narrowing trade deficits.” The Xinhua readout of the meeting cast the talks in typically positive terms, but was vague in describing results, saying “some consensus” was reached in several economic areas.

ANALYSIS: The dominant U.S. media meme on these talks was that the “honeymoon” is over between Trump and China. It’s frankly strange to view the banalities of a rearranged dialogue structure and a few pre-baked trade announcements over the last 100 days as a honeymoon. The most honeymoon-like element of the early Trump administration’s China relationship was the misplaced strategy of asking nicely and expecting China’s government to upend years of strategic thinking to impose sufficient economic pressure on North Korea to produce a significant change there. As before, Chinese strategists are certainly unhappy with the Korean Peninsula situation, but they also view pressure that might result in regime collapse or lashing out as unwise. Perhaps Trump was on a honeymoon, with unrealistic expectations, but China was at best treading water nervously, awaiting the moment Trump would realize moderately increased pressure wouldn’t change the situation.

As for trade and economics, the outcome statements from the two governments give the impression of a Chinese bureaucracy striving for normal appearances (with a laundry list of sectors discussed and repeated acknowledgement of previous meetings) while the U.S. team saw no need to meet their counterparts halfway. For those favoring a new, tougher stance against Chinese industrial policy, the apparent stalemate out of this meeting—denying the Chinese side the appearance of agreement without substantive change—could signal the potential establishment of a new approach for negotiation. A shock to the bilateral economic diplomacy system may not be all bad. But U.S. observers should look for clarity and appropriate purpose before praising any shake-up. The S&ED was already criticized for having too many cooks in the kitchen. Bringing five cabinet members, two politically complicated White House advisers, and the Fed chair to the meeting hardly ensures clarity of purpose. And if this week’s meeting really fell on the overcapacious sword of China’s steel production, this was a misguided test issue. No amount of steel adjustment will bring jobs back to broad swathes of the United States; a hypothetical disappearing trade deficit will not modernize the U.S. education system; and beef exports negotiated in the last administration won’t help more than a few communities. In other words, even if the Trump team achieves what they say they’re after, their constituents won’t be markedly better off.

SECURITY + INVESTMENT
It’s not just government barriers stopping U.S. tech in China; CFIUS said to have recommended against nine deals this year

  • “The big internet companies just don’t have much of a hope here,” James McGregor told NYT in a story about the barriers to success, both government and market, foreign tech companies find in China. The story is valuable for highlighting that it’s not just regulatory burden and censorship getting in U.S. companies’ way, though those certainly matter. As Mark Natkin said, “It may not be so much that LinkedIn is having trouble in China because they’re a foreign company. It’s more that they’re having trouble in China because this is not the model people want to use here.”
  • U.S. regulators, meanwhile, are reportedly increasing scrutiny of Chinese investments in U.S. companies. The interagency Committee on Foreign Investment in the United States (CFIUS) has recommended blocking “at least nine acquisitions of U.S. companies by foreign [not just Chinese] buyers so far this year,” Reuters reported. Meanwhile, a Ministry of Science and Technology-linked State Council document (about which I and colleagues have forthcoming analysis) laid out goals to make China a leader in a wide variety of artificial intelligence-linked technologies over the coming years. The strategy is sure to add fuel to U.S. concerns that Chinese tech ambitions are state-backed and potentially linked to national security.

#USChinaWeek1967
‘Ex-Aide Asserts U.S. Weighed China Shift’

“CAMBRIDGE, Mass., July 17[, 1967] (AP) — A former White House aide said today that a high-level Government consensus to shift the United States attitude toward United Nations membership for Communist China was stalled by timing and Secretary of State Dean Rusk. James Thomson Jr., a professor at Harvard who was a special assistant to McGeorge Bundy when Mr. Bundy was an assistant to the President, said Mr. Rusk ‘desired to wait and see and then decided to talk to Taiwan himself, and then felt time was too short.’ Mr. Thomson said a 1965 United Nations vote on Chinese representation, which went 47 to 47 with 20 abstentions, generated Adminsitration discussions. He said the specific direction of a new China policy ‘was not altogether clear, but perhaps it was for the dual representation arrangement or some sort of successor state.’ The State Department refused to comment on Mr. Thomson’s remarks. Mr. Thomson, talking at a three-day conference on China policy, indicated that a key problem was how to broach the new policy to President Chiang Kai-shek of Nationalist China. Mr. Thomson said that, by the time Mr. Rusk talked with Taiwan officials, it was summer of 1966. By September, Red Guard violence indicated it was ‘not the time to move on with the two-China issue.'”

(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).

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].

U.S.–China Week: Econ dialogue, human rights resurfaces, North Korea approaches, Apple’s Chinese data center (2017.07.17)

Welcome to Issue 106 of U.S.–China Week. Coming to you from Beijing this week amidst a busy travel schedule, this issue covers in brief some major events since the last edition two weeks ago. Publication will remain irregular for the next month. In other publications this week, Paul Triolo, Rogier Creemers, and I produced an analysis on China’s new draft regulations for “critical information infrastructure” protection in the context of the Cybersecurity Law, available at New America’s Cybersecurity Initiative. We also jointly translated the draft regulations.

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].

RECENT DEVELOPMENTS

  • The first Comprehensive Economic Dialogue meeting is to be held Wednesday in Washington, Xinhua reported. The 100-day timeframe for initial economic progress promised when President Xi Jinping visited President Donald Trump in Florida expired over the weekend, and while some progress has been claimed, Reuters reported that there is still much to be desired, including U.S. access to China’s market for biotech crops and financial services. Vice Premier Wang Yang, who had been the Chinese co-chair of the economic track of the Strategic and Economic Dialogue, will lead the Chinese delegation, and the U.S. side will be led by Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross.
  • The scholar, activist, and Nobel Peace laureate Liu Xiaobo died of cancer after spending his last years in prison, and the Chinese government’s handling of Liu’s case and his death has produced renewed focus on Chinese human rights issues among U.S. observers and officials.. The White House issued a statement from the press secretary saying Trump was “deeply saddened” by the news. (The same day, Trump praised Xi as a “terrific guy” who “wants to do what’s right for China.”) The secretary of state and the U.S. ambassador to the United Nations each released a statement that praised Liu and turned attention to the continued restrictions imposed on his wife, Liu Xia. The State Department explicitly pushed for China to allow Liu Xia “to depart China, according to her wishes.” Previously, a White House spokesperson noted that U.S. and German experts were invited to examine Liu and had called for his release on “full parole.” This surge of official statements stands in contrast to the Trump administration’s apparent reluctance to raise human rights issues in its relations with authoritarian governments.
  • “There are two ways — quotas and tariffs. Maybe I’ll do both,” Trump told reporters after complaining that other countries were “dumping steel” in the United States. Ross told skeptical lawmakers that he hoped any new actions would bring other countries to the negotiating table and noted previous efforts to pressure China on steel were not successful, WaPo reported. Trump’s comments were followed by a surge in U.S. steel stock prices. Axios reportedTrump’s like course of action would include gaining the support of other governments to target Chinese practices.
  • After North Korea tested a new missile, Secretary of State Rex Tillerson said in a statement: “Testing an ICBM represents a new escalation of the threat to the United States, our allies and partners, the region, and the world. … Any country that hosts North Korean guest workers, provides any economic or military benefits, or fails to fully implement UN Security Council resolutions is aiding and abetting a dangerous regime.” Jake Sullivan, an Obama administration official and top Hillary Clinton adviser, and Victor Cha, a Bush administration official, argued that the U.S. government should press for a deal in which China provides “disbursements to Pyongyang, as well as security assurances, in return for constraints on North Korea’s [nuclear and missile] program.” If not, they write, the U.S. government could turn to widespread “secondary sanctions” on Chinese entities involved with North Korea. Zhu Feng of Nanjing University wrote, “Going forward, China has three options: it can work more closely with the United States on getting tougher on North Korea, continue to drag its feet and avoid rocking the boat, or reinforce its alignment with Russia and use North Korea as a piece in a geopolitical chess game against the United States and South Korea. Of these options, only the first choice aligns with China’s long-term interests to integrate with the international community.” WSJ reported that the Trump administration is preparing unilateral measures, and that Mnuchin said North Korea will be a topic of U.S.–China meetings in Washington this week, presumably including or alongside the Comprehensive Economic Dialogue. After meeting with Xi at the a G20 meeting in Hamburg, Trump said, “As far as North Korea is concerned, we will have, eventually, success.”
  • Scrutiny of Chinese investments in the United States continued as Alibaba affiliate Ant Financial refiled for Committee on Foreign Investment in the United States (CFIUS) approval for its proposed $1.2 billion acquisition of MoneyGram. The deal had not been approved by CFIUS within the 75-day limit following the previous filing. A Chinese think tank scholar meanwhile argued that the U.S. government should not block Chinese semiconductor acquisitions.
  • Apple said it will open its first data center in China in order to comply with the Cybersecurity Law that began to go into effect June 1. NYT reportedthat “Apple said, however, that it would retain the encryption keys for the data stored at its center and that Guizhou-Cloud Big Data would not have access, meaning it would not be able to see what photos or documents were stored in iCloud without Apple’s permission.” WSJ reported, “The [Guizhou data] center will be operated by a company owned by the Guizhou provincial government, and whose chairman was a local government official until last year.”

#USChinaWeek1967
‘Johnson Reviving Bid for Contacts With Red Chinese; Seeks to Convey His Views Through Rumanian Chief and Other Visitors; End of Tension Sought; President Trying to Sound Peking on the Prospects of Nuclear Accord’

“WASHINGTON, July 10[, 1967]—President Johnson appears to be trying to signal to the leaders of Communist China his revived interest in reducing tension between Washington and Peking. The interest, as such, is not new, but it appears to have gained impetus from the President’s success in laying down new lines of communication with Premier Aleksei N. Kosygin of the Soviet Union and other Eastern European leaders. Mr. Johnson has raised the subject of China with a number of recent visitors, including Premier Ion Gheorghe Maurer of Rumania, who visited Peking last week after a call at the White House. The White House is now cautiously but not reluctantly acknowledging the President’s desire to have such visitors convey his views to the Chinese. … By implication, Mr. Johnson’s message to the Chinese leaders also has suggested that the United States should not be viewed as the automatic ally of Moscow against Peking in every situation.”

(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).

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].

U.S.–China Week: A week of irritants, new FONOP rhetoric, Taiwan arms, steel decisions loom (2017.07.03)

Welcome to Issue 105 of U.S.–China Week. This is the last edition of U.S.–China Week published from my home base at Yale Law School in New Haven, Conn. This weekend I will begin a move westward to set up shop in the San Francisco Bay Area, where I am at work developing new projects on China’s technology policies and development. I am grateful to my Yale colleagues for more than five years of camaraderie, collaboration, and support in the field of U.S.–China relations, and I look forward to continuing this work together in China and remotely over the next few months. I also look forward to exciting announcements in the coming weeks, and—fear not!—my expectation is that I will continue to produce U.S.–China Week for the foreseeable future, possibly with significant improvements and new collaborators.

The newsletter will, however, be irregular over the next six weeks or so as I drive west and, before arriving in California, travel to Beijing, Nanjing, Shanghai, Shenzhen, Hong Kong, and possibly Hangzhou. If you’re in one of those places, in the Bay, or in my hometown of Boulder, Colo., I would be delighted to meet up with friends old and new.

In the mean time, there’s plenty of news to review this week. For a longer view of U.S. strategy toward Asia, check out my review of Michael Green’s By More Than Providence at the Los Angeles Review of Books.

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].

TALKING TOUGH
Trump administration takes several steps likely to irritate Chinese officials, but broader signal in question

The Trump administration took several steps likely to irritate Chinese counterparts a week after the first Diplomatic and Security Dialogue meeting in Washington produced minimal apparent results. While opposing several individual measures as indicated below, when a Ministry of Foreign Affairs (MFA) spokesperson was asked whether the “honeymoon” between Trump and Xi was over, he said, “The China–U.S. ‘honeymoon’ idea you mentioned is a media interpretation.” The MFA in general stuck to well-worn formulations about “non-conflict, non-confrontation, win-win cooperation,” as well as enlarging areas of common understanding, deepening cooperation, and managing differences.

  • Human Trafficking: A State Department report ranked China as one of 23 countries of greatest concern for human trafficking. The report’s release eventwas attended by Ivanka Trump. A State Department official explained China’s re-designation in terms of applying the Trafficking Victim Protection Act. Asked if downgrading China was “part of a broader strategy on China,” the official said “the minimum standards that are in the law don’t really allow for consideration of strategic relationships or other factors.” An MFA spokesperson said, “We are firmly opposed to the irresponsible remarks made by the US based on its domestic law about others’ efforts against human trafficking.”
  • Taiwan Arms Sales: The Trump administration “formally notified Congress of seven proposed defense sales for Taiwan. It’s now valued about 1.42 billion,” a State Department spokesperson said. An MFA spokesperson said the “proposed arms sales to Taiwan in particular, run counter to the important consensus at the Mar-a-lago meeting” and added, “On an issue as important as this, wrong actions by the US will affect bilateral cooperation in major areas.” CNN reported that the sale would include advanced missiles and torpedoes. / Related: An MFA spokesperson said China was “strongly concerned about and firmly opposed” to a Senate proposal that would allow U.S. military vessels to dock in Taiwan.
  • Sanctions on Chinese Entities Related to North Korea: The Treasury Department announced that China’s Bank of Dandong “acts as a conduit for illicit North Korean financial activity” and the department “proposed to sever the bank from the U.S. financial system,” meanwhile designating two Chinese individuals and one Chinese company for sanctions related to North Korea. Treasury Secretary Steven Mnuchin said in a statement: “While today’s actions are directed at Chinese individuals and entities, we look forward to continuing to work closely with the Government of China to stop illicit financing involving North Korea. We are in no way targeting China with these actions.” Arguing as Chinese officials generally do that unilateral sanctions on foreign entities are inappropriate, a MFA spokesperson said, “We strongly urge the US to immediately correct its mistake, so as not to impact bilateral cooperation on relevant issues.” / Related: “China National Petroleum Corp has suspended sales of fuel to North Korea over concerns the state-owned oil company won’t get paid,” Reuters reported.
  • Steel: Though no decision has been announced, Axios and others reported that White House officials were debating whether to declare that “foreign-made steel threatens U.S. security,” a determination that could lead to tariffs and/or quotas, Bloomberg reportedFT opined that such restrictions would be “economically nonsensical and politically ruinous … Even by [Trump’s] standards, this would be a mindlessly destructive act.”
  • Freedom of Navigation Operation: See next item.

ANALYSIS: In my view, the human trafficking designation probably does not indicate a change of views in the administration; the ambassador responsible was fairly convincing in describing the bureaucratic process that led to the designation. The Korea-related sanctions too do not necessarily reflect a change in approach; U.S. efforts to increase pressure on China (to in turn pressure North Korea) through such small-scale measures may reflect an acknowledgement that this pressure-by-proxy hasn’t worked yet, but they are continuous with both Obama and Trump administration approaches. They may even reflect a belief that the Obama administration’s ratchet-up of public and private pressure on commercial espionage was a model to follow. Slightly less status-quo are the Taiwan arms sale and a freedom of navigation effort so closely following the last such voyage. One could have expected a China-friendly administration to hold back on these. Still, the idea that the Trump administration is China-friendly has always been based on the thinnest evidence—basically that the two leaders said some nice things in Florida and Trump didn’t follow through immediately on some more flashy threats. To the extent one can predict anything with a U.S. political system in constant slow-motion crisis, the pending decision on steel will be a much better indicator of the direction of U.S.–China relations. After Trump and Xi spoke by phone, and with their upcoming meeting at the G20 summit in Hamburg, there will be plenty of opportunities to look for new signs, but I think this week’s news underlines the need to watch for real substantive changes instead of subtle atmospherics. That said, see below for a potential sign of tougher responses from China on the South China Sea.

SOUTH CHINA SEA
U.S. ship sails within 12 nautical miles of Chinese outpost in Paracel Islands; MFA claims infringement on sovereignty

The USS Stethem “passed by Triton Island in the Paracel Island chain on Sunday to test claims by not only Beijing but also Vietnam and Taiwan, [a U.S. defense] official confirmed to USNI News.” A Pacific Fleet spokesperson reportedly said, “We conduct routine and regular [Freedom of Navigation Operations], as we have done in the past and will continue to do in the future. Summaries of these operations are released publicly in the annual DoD Freedom of Navigation Report, and not sooner.” Chinese reaction appeared to come at a higher level of alarm compared with the last time a U.S. destroyer was reported to have sailed by Triton Island, in January 2016. Specifically, a MFA spokesperson said (enzh) this week’s U.S. action “seriously infringed upon China’s sovereignty” (严重侵犯中国主权), language not present in the MFA statements (12) at the time of the Wilbur Ross operation in 2016, when protests were couched in terms of “harming China’s sovereignty, security, and maritime interests.” The “seriously infringed upon China’s sovereignty” phrase appears in Chinese statements about matters of high priority, including for instance the Japan’s so-called nationalization of the Senkaku/Diaoyu Islands in 2012, the awarding of the Nobel Peace Prize to Liu Xiaobo, and matters regarding Taiwan. In the present case, the Ministry of National Defense statement echoed the MFA statement in calling the U.S. act illegal and said it “seriously damaged the political atmosphere for the development of China–U.S. military-to-military relations.”

CYBERSPACE + TECH

  • NYT reported that Alibaba affiliate Ant Financial’s attempt to purchase MoneyGram is a key test for the Trump administration’s posture toward Chinese acquisitions of U.S. firms as senators promise new proposals to change the CFIUS process that governs such deals.
  • Adam Segal analyzes the failure of the most recent UN Group of Governmental Experts effort on cyberspace norms, about which U.S. representative Michele Markoff made very frustrated remarks saying “some participants” refused to affirm the applicability of certain parts of international law to how states use ICTs. Segal writes: “Markoff does not call out the obstructionist states by name, but it is safe to assume China and Russia were among them. Beijing has never liked the idea that international law applies to cyberspace, and began walking back the 2013 report almost as soon as the ink was dry.”
  • At Lawfare, Ron Cheng explores the use of financial sanctions and penalties for cybercrime, including their potential application to China-tied cases.

#USChinaWeek1967
‘Chinese Down Straying U.S. Plane Near Hainan’

“WASHINGTON, June 26[, 1967]—An unarmed United States Air Force F-4 Phantom jet was shot down by Chinese aircraft this morning when it inadvertently strayed into Chinese airspace near or directly over Hainan Island, the Defense Department announced. Both crew members of the Phantom parachuted before the twin-engine jet crashed into the South China Sea about 30 miles south of Hainan. They were rescued unhurt by an American Navy helicopter, a Pentagon spokesman said. … The aircraft’s communications were also working only intermittently, the spokesman said, and thus the two pilots apparently could not be warned by American radar operators at land bases that they were heading toward Hainan. The incident today marked the second time an American jet fighter has been shot down by the Chinese for straying into Hainan’s airspace … The previous incident occurred in September of 1965 … The pilot, Capt. Phillip E. Smith of Roodhouse, Ill., parachuted into the sea, but was captured by Chinese vessels and is still being held.”

(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).

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].