Yves here. Even though the US has been restricting the use of Chinese technology since 2012, and Obama’s failed Trans-Pacific Partnership was an effort to isolate China, the Trump Administration has dialed up the power struggle with China to pretty close to open conflict. The criminal suits against Huawei unsealed this week look more like yet another provocation of a too-easily provoked China than significant measures, but the Trump Administration may also like the appearance of the US continuing to be on the offensive.
It is worth noting that the Trump Administration, whose leadership ranks are largely populated by opportunists and ideologues who are normally kept well away from decision-making, along with some billionaires who fail to recognize that they’ve been promoted to their level of incompetence, has a skilled team on its China campaign. Even card-carrying Trump opponent George Soros praised the Trump initiative and was concerned it might not go far enough.
But if you accept that the US has to wean itself of reliance on Chinese technology, particularly advanced technology, because spying, that means the US would have to launch a massive effort to rebuild skills and bring production of key components back to the US. This would take even more effort than in the Sputnik era, where the US was still the world’s dominant manufacturer. But the US is allergic to industrial policy (except by default, to preferred sectors like arms makers, housing, health care and higher education).
As Lambert pointed out by e-mail:
We’ve already lost Asia. Plus our national champion, Apple (a) overpriced the latest iPhone at $1000 when (b) the new phone has no compelling features vis a vis competing products that are cheaper, (c) the market is becoming saturated (no more week-long lines outside Apple stores), and Apple (d) bet the company on (1) Chinese consumers and (2) a Chinese supply chain in the midst of (e) The Blob deciding China is a strategic competitor when (f) hysteresis means we can’t simply shift production back on-shore, at least (g) without a national industrial policy that’s something other than selling bespoke weapons systems to ourselves and to foreigners.
So as of now, Apple is fucked, and the United States is fucked. To unfuck ourselves, it will take mobilization of a World War II-level scale and scope. Better talk to all the old machinists before they die (which is like Y2K, when all the old COBOL greybeards came in from the golf course, except harder culturally, because who wants to talk to filthy proles). No, military Keynesianism won’t do it, because it will just reinforce everything that’s wrong in the first place.
I’m featuring the MacroBusiness post below, which originally had the headline, The mask falls from Chinese tyranny. It gives an idea of the degree of unhappiness in Australia over the way Australian officials have enabled China throwing its weight around domestically, as well as, Chinese purchases of real estate distorting the already-bubbly Australian housing market. I lived in Sydney just before this sea change occurred, which started shortly after China was admitted to the WTO. Australia then was tough on immigration and had slow population growth. It was negotiating its first LNG deal with China around the time I had to return to the US.
The other reason for featuring this post is its use of the phrase “Silicon Curtain,” which may be an original coinage. It is cringe-making to see Niall Ferguson quoted approvingly, particularly since the author misses the contradiction of depicting Trump as under-rated, and then having Ferguson depict him as a populist who isn’t having much impact.
By David Llewellyn-Smith, founding publisher and former editor-in-chief of The Diplomat magazine, now the Asia Pacific’s leading geo-politics website. Originally published at MacroBusiness
It is my view that history is going to remember Donald Trump quite well. Sure, he’s obnoxious and unorthodox but grand narratives don’t recall the social details that obsesses our day-to-day chronicles. History is focused on the structure of power and on that front the Trump Administration has changed the world’s course in one very significant and enduring way: it has ripped the smiling mask from the Chinese tyranny and it is now obvious to all.
The AFR leads us off today:
Huawei’s local chairman John Lord said the telecommunications giant had been swept up in a wave of anti-China sentiment after the US filed criminal charges accusing it of stealing American technology and evading sanctions against Iran.
US officials said the investigations into Huawei had been going on for years and as part of those, the FBI uncovered evidence of a bonus scheme at the company that rewarded employees for stealing information from other companies around the world.
In a move that heightens tensions between the US and China ahead of important trade talks later this week, and ratchets up Washington’s global campaign against Huawei over security concerns, the Department of Justice unveiled the explosive charges on Tuesday (AEDT).
I humbly suggest that Mr Lord is on wrong side of history here. Domain has a better feel for where this is going:
Meng Wanzhou was a director of Huawei’s Australian subsidiary between October 2005 and August 2011, according to corporate records.
…There is no suggestion in the Department of Justice’s case against Ms Meng that she was involved in any criminal activity in Australia.
…Ms Meng was allegedly engaged in this criminal activity for four of the years she was an Australian Huawei director. As a director, she was responsible for Huawei’s corporate governance and strategy, as well as overseeing its early efforts to take part in Australia’s NBN roll-out.
And the FT shows how scrutiny of all Chinese tech dealings is spreading swiftly:
There was little fanfare when the private Chinese company NavTech bought Silex Microsystems in 2015, acquiring the Swedish company’s mastery of manufacturing accelerometers, gyroscopes and other microscopic sensors.
…But the acquisition of Silex, through a chain of investment holding companies, involved Chinese state-controlled funds. The new plant is located in a state-run industrial park, and has been backed by a state-run semiconductors fund, the Beijing Integrated Circuits fund.
It is a prime example of how China has sought out and purchased key technologies as it seeks to become a world-class producer of computer chips. Competence in MEMS is one part of Beijing’s efforts to reduce its imports of critical components, a strategy known as “Made in China 2025” that has seen the government deploy hundreds of billions of dollars.
There is a risk that these acquisitions circumvent the Swedish export control regime. As a result, Sweden may inadvertently assist the Chinese military in modernising its capabilities
From an investment standpoint this spreading suspicion now acts as a titanic normative barrier to Chinese tech firms doing business everywhere. It is a Silicon Curtain, driven by Western security agencies, that will mean that less formal tariffs or other behind the border restrictions will be needed to inhibit the spread of Chinese technologies. It is therefore a huge positive for incumbent leading global chipmakers.
Whether it also inhibits any trade deal with the US is difficult to tell. Increased US leverage should make Chinese concessions more not less likely.
That is if it can keep its head. And this is where the ultimate fallout for China may come, in geopolitics, as its behaviour towards Western citizens turns vengeful. At The Australian:
US intelligence agencies today delivered a blistering warning about China’s efforts to undermine western democracy through military brinkmanship and cyberwar, including the bullying of Pacific island nations in Australia’s backyard.
…“China is deepening its authoritarian turn under President Xi Jinping,” Mr Coats warned. “China’s leaders will try to extend the country’s global economic, political and military reach while using China’s military capabilities … to diminish US influence.”
He issued a stern warning about China’s behaviour in the South Pacific where Beijing is using infrastructure investments as a means to gaining strategic and economic influence over small island nations.
“China is currying favour with numerous Pacific Island nations through bribery, infrastructure, investments and diplomatic engagement,’ Coats said in his statement.
As John Lee points out also at The Australian such naked power projection is destructive only to China:
…at the urging of intelligence officials, Five Eyes countries are leading the way when it comes to reducing dependence on Chinese firms in critical areas of the economy. For example, Australia has formally banned Huawei from its 5G rollout while Washington announced it will file criminal charges against Huawei for violating US sanctions against Iran and stealing trade secrets. This increases the likelihood of a total ban on equipment made by these firms such as Huawei. Britain and Canada have not made any decision but have expressed security concerns with Chinese firms.
Of course, credible intelligence pointing to what is at stake is just one element behind any policy decision. The decisive factor is adequate political will to absorb diplomatic and possibly economic costs of Chinese displeasure. Washington and Canberra have been the most forward leaning. But the three other Five Eyes governments have been far more reluctant to explicitly accept that China is already working against their interests.
This is why Beijing is shooting itself in the foot. Its exercise of arbitrary power over foreign citizens in China is causing the Communist Party to lose the battle for political hearts and minds. Previously the Trudeau government was accused by conservative opponents of being too lax in dealings with China. This even included accusations that Ottawa had become naive when it came to national security matters and technological co-operation with China. Last year Trudeau was reportedly briefed twice by intelligence officials about the dangers of allowing Huawei to help build the 5G network. Given recent events, it becomes politically difficult for Trudeau to make any argument for a softer approach towards China. Indeed, the Canadian leader took the dramatic step of sacking his ambassador to China, John McCallum, after McCallum said the arrest of Huawei’s Meng was unwarranted.
Quite right. One can only wonder at the drivers of the emotional response we are seeing from China. Perhaps it is the nature of the top down party structure as enraged elites seek to protect their own. Or, it is hubris born of several decades of success. What is certain is that it is only doing harm to itself.
Let’s give the last word to historian Niall Ferguson who sums up the historical choice before Australians perfectly declaring us “mad” to choose China whatever the cost, also at the AFR:
Professor Ferguson, a senior fellow at the Hoover Institution and a keynote speaker at The Australian Financial Review Business Summit in March, said while “we can all agonise about President Trump’s deficiencies, he is, like everything in American politics, a temporary phenomenon”.
“The underlying institutions like the constitution and the legal system are holding up extremely well to the populist challenge and those people who hysterically predicted American tyranny in 2016 and 2017 are looking a little silly now.
…”It seems eminently reasonable for the United States and allies to want to check the rise of China,” and reverse the policy of the Clinton, Bush and Obama years of accepting China’s rise on the grounds that “the benefits to American consumers exceeded the strategic cost”.