U.S.–China Week: Chinese banks and NK assets, ‘Javanka’ trip cancelled, Apple sued by Chinese app developers, Guo Wengui and asylum (2017.09.11)

>Welcome to Issue 112 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].

NORTH KOREA 
Major Chinese banks ban new North Korean accounts as UN Security Council to vote on ‘watered-down’ U.S. resolution

FT reported that “branches of [China’s big five banks] in China’s north-eastern border towns, where trade with North Korea is concentrated, said they had been instructed to stop opening new bank accounts for North Korean individuals or companies. Branches of three of the banks said they were in the process of cleaning out existing accounts, while the remainder did not comment on procedures for existing accounts. Although some bank branches said they had received notice of the freeze on North Korean accounts last month, others said they had been told as early as January.” Still, sources told FT many transactions use accounts belonging to Chinese nationals living in North Korea. The UN Security Council (UNSC) meanwhile was reportedly expected to vote today on new sanctions on North Korea in a resolution based on a U.S. draft but “weakened, apparently to placate Russia and China,” Reuters reported. “It no longer proposes blacklisting Kim and relaxes sanctions earlier proposed on oil and gas, a draft reviewed by Reuters shows. It still proposes a ban on textile exports.” Earlier, Reuters reported the UNSC was considering a U.S. proposal to freeze assets and ban travel for North Korean leader Kim Jong-un, as well as to impose an oil embargo on North Korea. President Donald Trump, in a press conference, said, “Military action would certainly be an option. Is it inevitable? Nothing’s inevitable.” As expected last week, Trump and President Xi Jinping held a phone call in which a White House readout said North Korea’s nuclear test was the topic.

THE PRESIDENT’S MEN
Tillerson said to be quietly working with China on Korean situation; Rumored ‘Javanka’ Beijing trip ‘cancelled’

  • In an unsourced “opinion” piece thick with phrases like “appears to” and “seems to,” WaPo‘s David Ignatius wrote that Secretary of State Rex Tillerson has made quiet efforts with Chinese counterparts, aiming to build a cooperative approach to the North Korea situation. “Tillerson wants China standing behind Kim at the negotiating table, with its hands figuratively at Kim’s throat,” Ignatius wrote. One of the article’s most remarkable claims was that: “The Sino-American strategic dialogue about North Korea has been far more extensive than either country acknowledges. They’ve discussed joint efforts to stabilize the Korean Peninsula, including Chinese actions to secure nuclear weapons if the regime collapses.” / ANALYSIS: Contingencies for a North Korean collapse are a long-acknowledged barrier in U.S.–China talks over the Korean Peninsula, so if they have happened it would be both a big deal and no surprise that they’d been kept quiet. Yet Ignatius offers no sourcing or details of who was allegedly at the table in such “Sino-American” dialogue, and Tillerson’s credibility as representative of the U.S. government is questionable at best under a president who remains vocally fickle.
  • A rumored visit to Beijing by Trump son-in-law Jared Kushner and daughter Ivanka Trump (“Javanka”), both White House advisers, was cancelled, The Guardian reported. Trump administration officials reportedly said that since no visit had been scheduled, no visit was cancelled—a line Bill Bishop called “BS… They were definitely talking about it.” NYT reported that Kushner’s “involvement in China has waned; he did not accept an invitation from the Chinese to go to Beijing this month for a visit that some expected would be in preparation for Mr. Trump’s state visit in November.” / ANALYSIS: If Chinese officials believed they had a consistent line to Trump through “Javanka,” they were no doubt disappointed. I suspect the Chinese government approach to the Trump administration is more diversified than a focus on Tillerson or Kushner would suggest. This doesn’t mean, however, that Chinese officials would not prefer to work with a “point person” for China ties as discussed in the NYT piece. On the U.S. side, a “diversified” approach toward policy in the Asia-Pacific is a charitable way to put it.

CYBERSPACE + TECHNOLOGY

  • Facebook is hunting for office space in Shanghai, NYT reported, in part to help manage its hardware development efforts. The company also hired William Shuai away from LinkedIn to help manage government relations, WSJ reported. Before LinkedIn, which is relatively successful in China for a foreign social media platform (perhaps as a function of controversial decisions the company made regarding censorship), Shuai worked at Baidu and the government’s National Development and Reform Commission.
  • Apple is being sued in two collective action antitrust lawsuits brought by China-based firms on behalf of developers unhappy with Apple removal of apps from its App Store, FT reported. The research firm ASO 100 reportedly said more than 1 million Chinese apps were removed from the store this year—a number Apple disputes despite not offering its own number.
  • Sina-backed Chinese startup Tusimple “plans to test a fleet of self-driving trucks in Arizona and Shanghai next year,” Bloomberg reported.
  • Google and Xiaomi plan to partner with a new device for the India market under the Android One brand, Bloomberg reported.

THE LONG ARM
Chinese billionaire Guo Wengui applies for political asylum in the United States

NYT reported: “The billionaire, Guo Wengui, who is in the United States on a tourist visa that expires later this year, is seeking asylum status because his public charges against Chinese officials have made him ‘a political opponent of the Chinese regime,’ Thomas Ragland, a Washington-based lawyer representing him, said in a telephone interview late Wednesday. Asylum — even a pending asylum application — would give Mr. Guo more protection because he could stay in the United States while the application was being considered, a process that can take years, Mr. Ragland said. ‘Asylum offers a level of protection that is different from having a visa status,’ Mr. Ragland said. ‘Visas can be canceled or revoked.'” China’s government considers Guo a fugitive, reportedly resulting in an Interpol “red notice” for him back in April.

#USChinaWeek1967
‘The Joy of Chinese Cooking’

“When it was announced in Paris some months ago that the 23-year-old great-granddaughter of Georges Auguste Escoffler was producing a book on Chinese cooking, there was scarcely an eyebrow raised. If the descendent of the world’s most celebrated French chef was concerning herself with ‘the best in Chinese food,’ she was merely following a trend that is to all appearances international. Chinese cookbook sales may someday surpass the sales of the sayings of Chairman Mao in this country. New Yorkers, who once contented themselves with menus largely dedicated to chop suey and chow mein, now flock to Chinatown restaurants and casually commandeer such exotics as shredded chicken and abalone, vegetables with tree ears and sea slugs. They speak knowingly of the shades of difference between various schools of Chinese cooking—including Cantonese, Mandarin, Szechuan and Shanghai—and the wok, the traditional cooling utensil of Chinese cooks, is no longer a novelty in American kitchens. … There are scores of reasons for this upsurge of interest in Chinese cooking. It has always been, of course, one of the ultimate cuisines of the world, matched, perhaps, only by that of the French. Chinese culture is, of course, the oldest continuous civilization in the world, dating back 4,000 years, and the art of Chinese cooking is said to be equally long-lived. … Chinese cooking is not so difficult as many people seem to believe. One New Yorker recently said, ‘In order to make some of those recipes, you have to have the whole damn family chopping for hours.’ It simply isn’t true.”

(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).

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 threatens China over NK trade, FON schedule, Google’s AI hiring in Beijing (2017.09.05)

Welcome to Issue 111 of U.S.–China Week, coming to you on Tuesday this week due to the U.S. Labor Day holiday.

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].

NORTH KOREA
U.S. threatens trade with China, reportedly urges oil embargo after North Korea tests strongest nuclear weapon yet

North Korea conducted its 6th and most powerful nuclear test, and reports said it may be preparing for an intercontinental ballistic missile test. Following the nuclear test, President Donald Trump said on Twitter that the United States is considering “stopping all trade with any country doing business with North Korea.” A Foreign Ministry spokesperson called the tweet “unacceptable,” a comment apparently missing from published transcripts. Ambassador to the United Nations Nikki Haley said “the time has come to exhaust all of our diplomatic means, before it’s too late” and rejected China’s “freeze-for-freeze” proposal (reiterated after the test) as “insulting.” NYT reported that Trump and President Xi Jinping would likely speak about a U.S. proposal to cutoff of oil to North Korea on a call the U.S. government sought to arrange. / Lyle Goldstein offers a summary of recent Chinese scholarly opinion on the Korean Peninsula dilemma. / In non-Korea nuclear cooperationnews, Science Magazine reported on U.S.–China technical cooperation on removing highly enriched uranium from a reactor in Ghana.

ANALYSIS: At first glance, it would seem North Korea’s nuclear test changes no fundamentals given the ossified positions of the key players here, except to increase the intensity on several friction points. This is true to some extent, but the Trump factor means U.S. disagreements with China and alliances with South Korea and Japan are not actually so stable. Indeed, Trump and his administration’s erratic behavior and inconsistent statements threaten to push those ossified positions to a breaking point where war is far less unlikely. If the U.S. government wishes to pressure China to behave more harshly toward Kim Jong-un’s regime, it undermines itself by threatening to halt all trade while meanwhile floating a more specific oil embargo. If the U.S. government wishes to demonstrate international resolve to eventually eliminate North Korea’s nuclear weapons capability, it undermines itself with reports that Trump is preparing to pull out of the U.S.–Korea Free Trade Agreement.

SOUTH CHINA SEA
U.S. said to establish schedule for ‘freedom of navigation’ operations in South China Sea

WSJ reported: “The Pentagon for the first time has set a schedule of naval patrols in the South China Sea … The U.S. Pacific Command has developed a plan to conduct so-called freedom-of-navigation operations two to three times over the next few months, according to several U.S. officials. … [Setting a schedule] may help blunt Beijing’s argument that the patrols amount to a destabilizing provocation each time they occur, U.S. officials said. … In keeping with policies against announcing military operations before they occur, officials declined to disclose where and when they would occur.” Meanwhile…

  • Tuan Pham, a U.S. Navy officer writing in his own name, has a good two-part series (12) at The Diplomat arguing in part: “America has had several setbacks, but has not lost the SCS yet. The SCS is a fluid environment that makes any recalibrations transitory. The strategic shift in China’s favor – change in Philippine foreign policy, Manila and Washington’s failure to capitalize on the arbitral tribunal ruling, ASEAN under Manila’s chairmanship, warming relations between Beijing and Bangkok, closer Chinese ties with Laos and Cambodia, Trans-Pacific Partnership withdrawal, inclusion of the RMB in the International Monetary Fund’s Special Drawing Rights basket, and rise of the Chinese economy to second largest in the world – is not permanent.” Part two examines “ways and means the United States can regain the strategic initiative, recover the high ground of regional influence, and stave off losing in the SCS.”

ANALYSIS: Establishing a schedule for U.S. military demonstrations of U.S. opinions regarding international maritime law in the South China Sea does little to change the situation there. The implied (though not fully reported and not certain) difference would be to remove the National Security Council and the interagency process from decisions about moving forward with one or another operation. The upside of this is to emphasize that the Freedom of Navigation Program is separate from other diplomatic or political tides; the downside is that unless the Department of Defense includes political sensitivities in its scheduling, an operation could occur at a time when it might undermine other priorities. Regardless, FON operations do little or nothing to alter the evolving power balance in the South China Sea, and they are arguably targeted at maintaining a “status quo” that has long since passed into history.

TRADE + INVESTMENT
Trump ‘rejected’ Ross-supported deal on steel capacity before economic meet; USTR investigation could feed ‘tariff’ craving

FT reported that Trump dismissed a Chinese offer to lower steel output: “One week after the July G20 summit in Hamburg, at which Mr Trump criticised China for flooding the world market with cheap steel, Beijing proposed cutting steel overcapacity by 150m tonnes by 2022. But Mr Trump twice rejected the deal, according to several people familiar with the internal debate. The offer came the week before US and Chinese officials held a high-level economic dialogue that had been set up by Mr Trump and Chinese president Xi Jinping in April. Wilbur Ross, US commerce secretary, endorsed the deal and brought it to Mr Trump, but the president rejected the proposal.” Trump’s veto reportedly came amidst his hopes to impose tariffs, paralleling last issue‘s opening rumors, and left Ross to return to Vice Premier Wang Yang with a no-go. This reportedly contributed to the lack of a press conference or joint outcomes from the Comprehensive Economic Dialogue.

ANALYSIS: Steel appears to be on the back-burner for the U.S. government in its efforts to develop China trade policy. For now, those advocating for showy new measures against China may be looking to the U.S. Trade Representative’s investigation into Chinese trade and investment practices in tech and intellectual property. That investigation may conclude as soon as this fall. (The last round of comments listed in the original hearing schedule were to be due Oct. 22, and a decision could be made soon thereafter.) If USTR, as expected, finds China’s practices in violation, the U.S. government turns to “remedies,” which could range widely—potentially satiating those calling for “tariffs.” But that would still leave the steel and aluminum interests waiting. One question to ask about the reported Chinese offer to cut steel overcapacity is whether such cuts do anything above what China already has plans to do for domestic reasons.

TECHNOLOGY
Google hiring for AI positions in Beijing; Apple begins accepting WeChat Pay

  • FT reported that Google is hiring for artificial intelligence and machine learning positions in Beijing: “Google hinted in May, at an AI summit near Shanghai, that it was looking to set up its first China-based AI research team.” Bloomberg noted that Google’s careers site listed several different types of positions, including AI/ML jobs. / ANALYSIS: I don’t believe it’s entirely new for Google to be hiring engineering talent in China despite many of its products being blocked, but the Chinese government’s emphasis on in-country R&D teams among requirements for certain foreign company involvement in China makes the AI/ML listings notable. The State Council’s “Next Generation Artificial Intelligence Development Plan” (which we translated here) also seeks to: “Encourage foreign AI enterprises and research institutes to establish research and development centers in China.”
  • Apple now accepts WeChat Pay, Tencent’s mobile payment platform, for transactions on its App Store and Apple Music. Apple already supported Alibaba’s Alipay beginning in November 2016, Technode reported. / Above Avalon has an in-depth analysis of Apple’s market position in China, including a section probing the narrative that WeChat is Apple’s main rival there.

#USChinaWeek1967
‘Soviet Says Steps by China Help U.S.: Peking Policies Blamed for American Gains in Asia’

“MOSCOW, Aug. 30[, 1967] — The Soviet Government newspaper Izvestia accused the Chinese Communist leadership today of making possible a number of American advances in Southeast Asia. This view, expressed in a long article by an authoritative commentator, Vikenty Matveyev, may indicate a significant shift in emphasis in the mounting Soviet propaganda attacks against Peking. … ‘For nearly 10 years after the Geneva conference, the United States refrained from large-scale armed intervention in Vietnam,’ Mr. Matveyev wrote. ‘It began only when the group of Mao Tse-tung announced for all to hear that it flatly rejected the proposals of the Communist Party of the Soviet Union and other Communist parties for unity of action in the struggle against imperialist aggression and started following its own narrowly nationalist, great-power, anti-Soviet course.’ … Among other American advances charged to China’s responsibility, the Soviet Government organ cited a strengthening of American positions in India and Japan, Indonesia’s take-over by right-wing military men, and the recent formation of a grouping linking Indonesia, the Philippines, Thailand, Malaysia and Singapore.”

(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).

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 wanted ‘tariffs,’ a charge of ‘accommodation’ at State (2017.08.28)

Welcome to Issue 110 of U.S.–China Week. Axios reported that President Donald Trump, in an Oval Office meeting before signing the order that instructed the U.S. Trade Representative to consider launching the Section 301 investigation targeting China, expressed displeasure with the nature of the action he was about take. If the Axios source is to be believed, Trump said: “For the last six months, this same group of geniuses comes in here all the time and I tell them, ‘Tariffs. I want tariffs.’ And what do they do? They bring me [intellectual property]. I can’t put a tariff on IP.” Shortly after, Steve Bannon (who was in the meeting) was fired, and USTR announced an apparently pre-baked decision to investigate Chinese trade and investment practices on intellectual property. That’s all quite juicy, if true, but it’s anyone’s guess what it portends for the future. It would be a mistake, though, to assume that Bannon’s departure is a strong indication that the administration will move away from economic nationalism. Some more commentary and news in brief form follows.

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].

OFFICIAL GOINGS-ON

TECHNOLOGY + CYBERSPACE

  • At Lawfare and in an accompanying Hoover Institution paper, Julian Ku argued that because the Chinese and U.S. governments hold very different views on pertinent international law questions, “I am not sure that pressuring China to ‘accept international law’ on cyber warfare will advance U.S. interests. China could easily use its own reading of international law to attempt to restrict and isolate the U.S among other states and in global public opinion.”
  • A Chinese national was reportedly arrested “after a federal criminal complaint accused him of conspiring with others wielding malicious software known as Sakula … the same rare program involved in U.S. Office of Personnel Management (OPM) hacks detected in 2014 and 2015. The [federal criminal complaint] did not mention the OPM hacks.”

THE A-WORD
Ratner blasts State Dept. ‘accommodationist impulse’ on China, but the problem is much broader

“What we have seen over the last several months is not just a series of random, off the cuff remarks, but instead a State Department deliberately unwilling to criticize China,” wrote Ely Ratner, a former Obama White House adviser now at CFR. He continued: “This has to stop. It has to stop because the State Department is giving Beijing a green light to bully Taiwan, further suppress Hong Kong, and push toward its goal of controlling the South China Sea. It has to stop because the State Department is generating serious concerns throughout the region about the credibility of America’s commitment to Asia and its willingness to push back on Chinese assertiveness.” Ratner wrote that he is unsure why the State Department appears reluctant to talk tougher on China, but he suggested explanations ranging from simple inexperience to Chinese government capture of Trump son-in-law and White House adviser Jared Kushner. Ratner’s proposed remedy was for National Security Advisor H.R. McMaster and Secretary of Defense James Mattis to “weigh in more actively on China issues.”

ANALYSIS: Ratner has a point here, but it is undermined by a focus on the State Department’s rhetoric in specific, rather than the administration’s approach to China more generally. There is indeed real harm to U.S. interests in regional security and respect for human rights when the U.S. government noticeably retreats from its earlier pattern of statements. But the root of the problem lies not with a strange series of statements (or absences thereof) coming from the State Department. Instead, the problem stems from the capricious, conflicting, and self-defeating behavior emanating from the top of the administration, and from the indication that the Trump administration is willing to trade one interest for another, rather than pragmatically advocating for the United States on all fronts. At the risk of being labeled with the “A-word” myself, I also think it’s important to note that when commentators criticize policies as “accommodationist,” they are employing a form of innuendo that connects to 20th century rhetoric about “appeasement.” This kind of name-calling detracts from the overall argument while also ignoring the fact that successful, strong U.S. policy would, yes, accommodate some Chinese government concerns where doing so is in the U.S. interest. I’m not arguing that it is in U.S. interests to pull punches in diplomatic statements, but making “accommodation” a swear word paints pragmatic policy with the same brush as actual ruinous capitulation on crucial issues.

#USChinaWeek1967
‘2 U.S. Navy Jets Downed in China; One Pilot Seized’

“WASHINGTON, Aug. 21[, 1967] — The Pentagon said that two United States Navy jets were shot down today over Communist China after having veered off course. The official Chinese press agency, Hsinhua, said the planes had ‘flagrantly intruded’ into Chinese air space in ‘an act of deliberate war provocation’ and been downed over the Kwangsi Chuang Autonomous Region by the Chinese Air Force. Hsinhua said one of the pilots had been captured. Each plane carried a two-main crew. … The Pentagon said the Navy jets had gone off course after having completed a bombing run near Hanoi in which they encountered heavy fire from antiaircraft guns and ‘several’ surface-to-air missiles. … The loss of the planes over China, coming atop Congressional criticism that a recent decision to bomb closer to the Chinese border might provoke Peking into entering the war, is expected to intensify attacks on the Administration’s bombing policy.'”

(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).

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’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].