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

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

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

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

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

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

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

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

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

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

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

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

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

Keep watching…

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

About Transpacifica

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

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