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

Welcome to Transpacifica Issue 5, and greetings from Beijing.

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

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

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

As always: Please encourage friends and colleagues to subscribe to the Transpacifica newsletter; here is the web version of this message, ideal for sharing on social media; and you can follow me on Twitter at @gwbstr. Please send your comments, quibbles, and suggestions to [email protected].

No Deal After Ross Visits Beijing; Tariff Targets Due Friday

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

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

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

Commerce Stays ZTE Execution, but Lawmakers Seek to Reinstate

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

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

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

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

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

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

About Transpacifica

The Transpacifica newsletter is produced by me, Graham Webster, a senior fellow with Yale Law School’s Paul Tsai China Center and fellow with New America, where I am coordinating editor of the DigiChina project, working from a home base in Oakland, California. The opinions expressed here are my own, and I reserve the right to change my mind. For three years and 131 issues after its founding in February 2015, this newsletter was known as U.S.-China Week. It now appears biweekly, delivered by free e-mail subscription.

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