The Silicon Curtain: The Gloves Come Off With China

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”.


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  1. Sound of the Suburbs

    How stupid can things get!

    Western liberals wanted to lift the Chinese out of poverty.


    We’ve got a new multi-polar world.

    Western liberals had taken their eye off the ball.

    1. upstater

      Glad to have clarification the the role of the west is to maintain poverty throughout the world.

      I had thought colonialism and imperialism were welfare programs.

    2. MyLessThanPrimeBeef

      It’s not just ‘whoops, we’ve got a new mutli-polar world.’

      It’s also (for those who are suffering), ‘whoops, we have spreading poverty at home now.’

    3. Rajesh K

      “Western liberals wanted to lift the Chinese out of poverty.” That’s just a pretext. They just wanted to get rich and as usual required a good story.

      I believe NakedCapitalism at one time also hosted an article that expound the role of Democrats in dismantling some important financial regulations back in the 1970s.

      1. MyLessThanPrimeBeef

        Since the 1970s, many have lifted themselves out of poverty, around the world, while the number of the poor here in the US have gotten more numerous.

        Pretext or not, the debt laden American consumers have helped spread money overseas.

    4. drumlin woodchuckles

      Western liberals wanted to lift the Chinese out of poverty by driving the Americans into poverty. How has that been working for us?

  2. Disturbed Voter

    Control of the network is strategic. The purpose of the Internet is to provide infrastructure for fighting WW III. All networking gear has back doors at the hardware level, to allow wire tapping. To allow another nation control of this (as opposed to GCHQ/NSA) is suicide. Unless the Illuminati story is true, with the Rothschilds moving all the gold to China, so they can set up shop there, having abandoned the Anglophone sphere.

    How did we get here? We opened China so we could wiretap them. But they are sophisticated enough now to turn tables. The West was gracious enough to let the Chinese join the Russian Roulette game, fixed in the West’s favor. Now it is the West’s turn, and they realize that China has made sure the one bullet is lined up.

    1. drumlin woodchuckles

      No, “we” did not open China so we could wiretap them. In fact, “we” did not open China at all. It is the International Free Trade Conspirators who opened China, and they did it to exterminate American industry in order to exterminate American jobs and American labor unions. Deliberately, on purpose, and with malice aforethought.

  3. GlassHammer

    “Increased US leverage should make Chinese concessions more not less likely.”

    Why is that self evident?

    It sounds like wishful thinking to me.

    1. Yves Smith Post author

      See Marshall Auerback, who specialized in Asia as an analyst. China has more to lose from tariffs and other interventions than the US, particularly now that stimulus is becoming increasingly unproductive. Michael Pettis, who has for at least a decade telling China bears a China crash isn’t coming any time soon, has just given an on the ground report about how bad things are across the economy.

      And in the FT today, one of the lead stories is on China offering concessions on investment to the US.

    2. fajensen

      I Agree. It assumes that the Chinese leadership sees some kind of deal with the US as more important than not being seen as subservient to US interests and pressures in front of their “home audience”.

      It could be the case that the “home audience” is a more immediate and real threat to the Chinese leadership than anything the US can come up with trade-wise, and it could even be the case that if there is a crash coming in China, then it is convenient for the leaders that it was obviously caused by ‘US interference’.

      1. Susan the Other

        I think this is the most likely thing too. That it is China who is most afraid of Chinese “revenge.” I don’t buy our sweet innocence either – that we off-shored our economy, destroyed our trade unions and made a hard right turn into neoliberal nonsense just so we could get all those “benefits” for the American consumer. Please. Our economy was toppling and we were on the cusp of actual decision-making (by dire necessity) when the Clinton administration got the hot idea to send it all to China. Why should the Chinese trust the inscrutable round-eyes? Blink blink. Let alone the 5-eyes. And there was this too – that if we let China have some of our technology we would be able to understand their technology so this subtle espionage went both ways. There is no question now that China needs to promote its own food production and other consumer basics – just like we need too protect our electronics. And all the dreaming and scheming of our high-tech companies looking to sell a billion devices a year to the Chinese were a little fanciful. I don’t understand the tidbit about China colonizing small Pacific islands (unless as navy bases) because nobody in their right mind wants to invest in a small Pacific island, soon to be 3-feet under. China is as paranoid as we are.

      2. Harry

        So the Chinese want a face saving capitulation? Sounds like a job for a PR professional.

        Assuming the Trump admin wants a deal (how are stocks trading?) then the game switches to toturing individual Chinese companies one by one. But the bigger question is what China does about Mei. What kind of govt cant protect its corporate’s senior officers?

      3. MyLessThanPrimeBeef

        A out-of-control crash is the worst nightmare, going by Chinese history, if it means hunger, poverty, etc.

        It’s what brought the CCP to power in 1949.

        The opposite led to the acceptance of new emperors – like the Xianbei rulers in northern China of the Northern and Southern dynasties, the half-Xianbei rulers of Sui and Tang as well the Khitan rulers of, again, northen China, and the Manchu emperors of the last dynasty, the Qing dyansty.

        You feed the people and no one will complain about having to wear the Manchu queue….until you lose a reall war with the Japanese or other foreign devils.

  4. Mark

    The US calling China out for spying and asserting their influence, the pot calling the kettle black? From an European non five eyes perspective I’d like to see both in the snake pit so that the rest of the world can go on with the important stuff.

    1. Harry

      The pot does indeed reserve the right to call the kettle black. In addition the pot has 10 carrier groups. How many does the kettle have?

      1. a different chris

        How do you attack China with aircraft carriers? Sitting ducks with nearly non-functional planes on them is what we got. Yeah team.

        1. Harry

          Curiously i had an online debate with someone where i took your position. I still think its right. But apparently the US navy begs to differ. Either way it doesnt matter. The US believes it has might on its side. Which is precisely why paleo-consevatives like Bolton believe the only constraint on US policy is US public opinion. And thats why the Pot can currently call the Kettle black. Tony Blair probably understands China clinging to the figleaf of Foreign policy norms and multilateralism. I have seen arguments that that was why Blair went along for the ride in iraq.

      2. John k

        Carriers won’t survive the first minute of a hot war with Iran, much less China. No missile protection.

    2. MyLessThanPrimeBeef

      Why only those two?

      Why not all Five Eyes?

      In fact, let those who are neither a pot nor a kettle cast the cast the first snake into the pit.

  5. La Peruse

    No Australian government since the Hawke/Keating government (1983-96) has had an overarching strategic policy that they have tried to sell to the Australian public (as in, engage the general public in a national conversation). Since 1996 its been all culture wars, tax cuts, free market sell to the highest bidder, bugger the consequences, and more lately climate change acquiescence or denial. And don’t forget the immigration, mainly from China and India, because jobs and growth. Where there has been a hint of policy, it has been ‘furthering economic and cultural ties with Asia’ as per the Keating government, though in practice it has been blindly following the US down any fashionable rathole of the moment. The latter is why Huawei cannot build our 5G network. Nothing strategic to it..

  6. Jon Paul

    Wasn’t there a former CEO of Intel who wrote a missive about how the US has lost the industrial know-how to take a prototype and scale up to a full production process? I’m fairly sure I read it more than a decade ago.

    1. John Wright

      You may be remembering the late Andrew Grove.

      Another senior executive who has promoted the need for USA manufacturing is Ralph Gomory of IBM

      One can read a 2011 roundtable featuring Grove and Gomory at

      This has what could be viewed as a Trumpian proposal from Grove (apparently in 2010):

      “Andy Grove was, successively, the director of engineering, president, CEO, and Chairman of Intel Corporation. In an article last year, Grove proposed levying tariffs on goods produced offshore and dedicating the funds to help companies scale up production in the United States.”

      1. lordkoos

        That would be considered “Trumpian” if Trump actually did anything other that talk. For all the crap we hear about about “national security” from our government since 9/11, the USA’s loss of manufacturing capability is a glaring lack of real security. One of the reasons we were able to beat Germany in WWII is that we were able to ramp up industrial production and out-manufacture them. Today if there were a conventional war, the Chinese would bury us.

        1. John Wright

          Agreed, nothing significant is being done.

          As has been mentioned, the rest of the world must be concerned that the lack of manufacturing capacity in the USA, making the requirement that any serious war be of short duration, would lead the USA to the nuclear option in a longer full scale war with an able opponent.

          And if the USA were observed building up buffer stocks of critical supplies and manufactured goods, the world might interpret this as a sign that a USA initiated war is on the horizon.

          Relative World Peace depends on the USA fighting in small countries that don’t have capable militaries.

          But the voices for non-intervention overseas, or bringing back manufacturing, are few in the political sphere.

          I expect “business as usual”.

  7. Olivier

    “It is my view that history is going to remember Donald Trump quite well.” Agreed! He hasn’t been half as awful as his enemies claim, which will work in his favor.

  8. Alex V

    The criminal charges of IP theft are quite curious, seeing as Huawei settled a civil case related to the same behavior in 2017:

    Feels very much like a prosecutor opportunistically piling on due to the current controversy, not due to new allegations or facts coming to light. Civil and criminal cases are of course separate matters, but why no indictment the first time around?

    Regarding re-industrializing America, another factor to consider is that the global economy already has over-capacity of high-tech manufacturing, and consumers are tapped out… Who would buy all of this production? I guess the expectation from the powers that be is that the Chinese would push everyone into precarious sharing economy service jobs?

    1. Left in Wisconsin

      1. Capacity is a function of buying power. Raise the buying power, you increase the needed capacity.
      2. Low-cost producers don’t care about excess capacity because it is not their capacity that is excess. And they can add capacity at will, because all of their capacity will be utilized before any of the higher-cost capacity is utilized.

      There has been excess global capacity in steel since the 1970s and in autos since the 1980s. That did not stop the Japanese, then the Koreans, then the Chinese from adding considerable new capacity in those industries (some of which went to additional consumption.) “Excess capacity” is a relative phenomenon, not an absolute.

  9. Alex V

    The Silex Microsystems example as an export control risk is also interesting, as they’re a pure-play MEMS foundry, they don’t do any of their own design work. I suppose they could manufacture stolen designs. In any case EU dual use export control regulations have no mention of MEMS devices or production technology, so would be curious where this concern comes from.

  10. a different chris

    This cracked me up:

    where Beijing is using infrastructure investments as a means to gaining strategic and economic influence over small island nations…..bribery, infrastructure, investments and diplomatic engagement,’

    Ok, except for “bribery”* — what exactly is wrong with that approach? Has this guy ever had a date in his life? I build you a decent sewer system and I think you like me better than the bozo that lectures me on how to spend my money, yes? Especially if the guy wants me to spend my money on his not-quite-working fighter jet whilst my and my neighbor’s poop is collecting in our yards

    *and even that… anybody have kids? Every once in a while it’s just what you have to do…

  11. TG

    The US government never opened trade to China in order to ‘benefit the US consumer.’ They did it to benefit US-based multinationals that were making a fortune shipping US industries to China. It was all good as long as it was US-based companies in China making money, the American public and society in general be damned. Now the Chinese want Chinese-based companies to take over.

    American companies routinely ship sensitive technology to China. The deal with ‘spying’ is not that China gets this technology, but that the right wealthy Americans don’t get to personally profit by moving it there.

    Instead of the Anglo elite being in charge, the Chinese elite want to be in charge. That’s the struggle.

    1. The Rev Kev

      I read an article criticizing the shipping of American industries to China a very long time ago and I am sure I read that tax laws were changed to make it more financially lucrative to do so rather than stay in the US.

  12. Ptb

    This is way more than “industrial policy”, which would be limited to subsidizing domestic players in the industry (btw, correct me if I’m wrong but I don’t think there are currently any major domestic telecom equipment makers – Cisco and Nortel threw in the towel some time ago).

    Anyway, factoring out the “exceptionalist” outrage, the story looks like this, to me:

    US natsec realizes China is poised to dominate telecom, sh☆☆s itself, insists China stop selling such tech to third parties, threatening to use the massively powerful and equally blunt tools in their arsenal.

    That’s it. The rest is consequences. So we revive our telecom industry, do rediscover industrial policy, put Americans to work. And “open the market” to non Chinese suppliers. The corollary being close as much as possible of the world market to China. Vilifying them (not without justification, nor without hypocrisy). And with that last part of the process, kicking off a cold war.

    What’s not to like?

    A lot. Starting with domestic politics – the cold war mentality – propaganda, and a permanent get-out-of-jail-free card for nationalists – that will accompany this.

    Defeating China is not on the table. Industrial policy is. IMO the high-confrontational path is so not worth it.

    1. Yves Smith Post author

      I’ve called it “industrial policy by default” and I actually beg to differ. The subsidies to various sectors in the form of tax breaks, overt subsidies, direct government purchases, intellectual property protection, cheap/free use of government funded research, and regulatory relief, are intended to push the activities of various preferred sectors in various directions. The fact that it isn’t part of a grand plan doesn’t make it not industrial policy. It just makes it very poorly designed and covert industrial policy.

      1. Left in Wisconsin

        Starting in the late 1970s, there was a concerted effort led by economists to equate “industrial policy” with “protectionism,” what ptb calls “subsidizing domestic players.” But the industrial policy proposals of the 1970s and 1980s were wide-ranging, though the US gov generally found it easier to just increase trade barriers (steel in the early 70s, the Japanese “voluntary restraint agreement” in autos in the 1980s).

  13. Mike Smitka

    A couple things caught my attention.

    One, “China loses more” implies “but the US also loses”. This is the standard insight from trade theory, that with trade, both parties gain. That one party under some standard gains “more” than the other doesn’t mean that somehow one country is getting ripped off and trade should be avoided. As the post elsewhere implicitly notes, this is not a good approach to bargaining, hurting yourself in the hopes that the other side hurts themselves more. Plus we don’t know China’s “objective function.”

    Second, technology in semiconductors lies in some combination of capital equipment and knowing how to get that equipment working efficiently in a production setting [and then keeping it running], that is, having an experienced team of people. Back a couple decades ago (maybe 25 years ago?), the Sloan Foundation sponsored (which helped get others to pay for) a series of industry studies projects, including the MIT Intl Motor Vehicle Program (in which I was involved for a couple years) and a semiconductor program. The initial semi plant studies found that even within companies, transferring management skills was hard: all plants exhibited similar learning curve declines in costs = improvements in yield. But not all plants started at the same level. In the context of RAM memory (thought to be the big deal way back when, Intel was an also-ran), that meant that some plants never made money, because they were always behind the curve. Today’s fabs are far more complex, so I suspect the challenge of getting a plant to actually operate is much greater. All this means that “blueprints” don’t give you the technology. Nor does buying a firm, unless you get the core team to stay, and be willing to spend time in China as a team to get things up and running and teach others how to keep it running. [The two surely are different skill sets involving different teams.]

    Infringing on copyrights and trademarks? That’s one thing. Stealing technology? Industrial espionage could steal a chip design, but can’t steal the know-how for how to actually make it.

    1. tegnost

      so…american exceptionalism then? In your time at mit, did you ever see a student with chinese heritage? Have you been to westwood (ucla)? No. no never saw any chinese students there…Also, one needn’t steal all your info at one time, a lttle bit from this company, a little bit from that company, and pretty soon you’ve got a lot. That said the disaster capitalists may roll over them with their bond bombs because Kaos is us (h/t maxwell smart). But it won’t be because we have some kind special trait that other humans don’t have.

    2. drumlin woodchuckles

      The stated notion that ” with trade, both parties gain” is not trade theory, it is trade hasbara. America has lost millions of jobs and thousands of viable communities, entire industries, etc. from trade. What has America gained in return?

  14. L

    He was doing good until he quoted Niall Furgeson. Furgeson’s credibility and historical accuracy are somewhat dubious as is his big claim to liberals being a threat to freedom.

    But aside from that I think that the author is sort omitting one other explanation. China’s actions in making public demands are hubris (as are many of Trump’s), they are also elites protecting their own (as is a bunch of our policies), but they are also borne of a lack of communication. By its nature the communist party is a unipolar structure where you only rise by speaking the language of those above you. That means that career apparatchiks aren’t exactly equipped to talk to anyone who isn’t them. This is true both within China and internationally. (And yes is quite true of party hacks here too).

    As Xi has grown in power they have become ever more ideologically committed to the idea that the party is the center of all things and of the world. Thus their key weakness is structural and ideological. The open question really is whether those weaknesses are ours too.

  15. Carolinian

    Isn’t the Chinese “threat” more a matter of “the Capitalists will sell us the rope with which we will hang them”? After all the USG could have prevented all that technology transfer and I believe from our country at least they once did (setting aside inevitable piracy). While China certainly does have nuclear weapons, it’s unclear why any ordinary American or even Australian should regard them as a military threat. And as an economic threat, that’s already happened with the full complicity of our Wall St geniuses. Barn door meet escaped livestock.

    Surely all this “strategic” belligerence is in defense of the most influential industry we still have left: the MIC.

    1. Left in Wisconsin

      I would add, does anyone really think Walmart would allow the US gov to go to war against China?

  16. The Rev Kev

    I had forgotten how much I despise Niall Ferguson’s work. Saying we should dump China? Our biggest trade partner? We already dumped all trade with Russia and now we are expected to dump all trade with China? Yeah, we’ll get back to you on that one. Just a heads up here for overseas readers. The newspaper mentioned -“The Australian” – is the local establishment paper. It is like the New York Times or Washington Post”. I avoid it myself and the feeling is mutual.
    Look, I saw this whole circus go through town back in the 80s with Japan. They were the 800 lb gorilla on the block at the time. There was all sorts of moaning and groaning when major Japanese companies purchased American assets. One time, a major Hollywood studio went up for sale and people were ripping their hair out that the Japanese were going to buy it. Finally the head honcho of that Japanese outfit came out and said look, if you do not want us to buy it, then don’t put it up for sale. He had a point. At the time Japanese were buying up property too in Oz and one house was brought up by a Japanese guy next to my grandmothers whereupon the wife was dumped in it. She must have been very lonely in a strange country and no English. Now it is the Chinese that are the threat – because we helped make them that.
    And stealing from the west? Really? Anybody heard of the old Echelon network from the 90s? The US would listen to every conversation and use it for trade advantage. They would call in Boeing and say, look Airbus has made a final offer to country X so you can now underbid them. It goes further. Only a few years ago a German firm was complaining that their computers were being compromised and trade secrets were being copied out. And it was not the Russians or the Chinese that they were blaming but countries like the UK and the US. What? You don’t think they steal technology too?
    Personally I would love for all this technology to be made in the west but as both Yves and Lambert have pointed out, that boat has long sailed and here we are sitting on an abandoned dock. What happens now? I have no idea but I think that deliberately making China a target may not have been the wisest of courses.

    1. Susan the Other

      This is pretty much how I remember the world we came from too. Here in the US back in the 90s I remember hearing that Echelon was a European spying system. It does not surprise me to hear you say it was ours. Funny how every country crashes under our tutelage. And now China is on the verge of it too and they are looking at exactly the same solutions that Japan used – direct government spending. It’s going to be our fate that the very thing we are trying to prevent as free marketeers is the thing we are creating. Poetic justice. And the other dreaded thing we cannot speak about is protectionism, which is the thing that a will ultimately make trade work without destroying local economies (Wolfgang Streeck recently – my computer won’t let me spell his name right.) Did you happen to see an Independent Lens production on Elvis, “The King” which aired Monday here? An “abandoned dock” indeed.

    2. MyLessThanPrimeBeef

      The boat has long sailed…What happens now?

      In the 80’s, China couldn’t make many things. Had never been able to.

      So it was worse than ‘the boat has sailed,’ for China. The boat had never been there.

      But it was not too late.

      Learn from your competitor or opponent.

      It is never or not too late.

      Don’t know if it is really Lao Zi, but the saying goes like this: A journey of 1,000 miles (or li) begins with one single step.

  17. Ignacio

    So Huawei violated sanctions against Iran… oh, bad guys!
    So Huawei spies other corps… oh no! that wouldn’t happen in any OECD country

    Yep, the mask has fallen

    1. Ignacio

      And all this uh ah chinese are bad suggests that Trump is already succeeding in imposing his yin-yang view of the world. No wonder why he cites Ferguson approvingly. Ferguson is 100% with Trump in declaring China as bad actor. All this western uh! oh! on the ugly (chinese) guys buying my darling techie thing, or properties in CA and Australia and at the same time accepting the dirty money (dirty because chinese) with happy face is for me nothing but typical hypocrisy. Money, as known from the Roman empire “non olet” (doesn’t smell), as a Roman mandarin told his son while approaching his hand filled with coins obtained from public toilet fees).

    2. Yves Smith Post author

      No, the US has been very serious about Iran sanctions. You forgot that $8.9 billion fine Paribas paid, or that it forced the firing of IIRC 13 Standard Chartered execs, which is unheard of for bank regulators?

      You can say they are a bad idea, but you can’t present the US as picking on Huawei and ignoring others.

      1. Alex V

        The extent of prosecution is a wee bit selective though. Chase got fined for violating samctions on Iran but Jamie Dimon was curiously never arrested. Wouldn’t even need to extradite him. The only political cost would have been in donations. Voters would have cheered, as I’m suspecting they are about Meng’s case.

  18. Synoia

    No mention that tne US demolished its Telecom leadership in an act of legal vandalism when it destroyed Bell Labs witht the beakup of ATT.

    If one waants 5G, Hawuei is the Market Leader. Ericsson, Swedish, and Alcatel Lucent, French, are also rans.

    Nortel was demolished by really bad management decisions which distroyed its culture.

    To repeat: The US has no pony, no vendor, in the 5G race, and cannot catch up in this technology cycle. The cycles are about 20 years, because of the economics of Telecom capital investment cycles.

    The US is out of the Telecom market. That’s the price, the trophy, of US Governance and industrial policy.

    1. Yves Smith Post author

      Who wants 5G? Its apparent rationale is for IoT to run on the Internet. A bad to begin with idea made even less secure. I hope we stick with this Huawei stuff if nothing else to delay 5G implementation in the US. The last thing I want is to be forced to have smart devices because I can’t buy anything else.

      1. Dwight

        I see marginal benefits and high health and environment risks from 5G towers everywhere. Our broken polities seem to have no way of stopping this corporate onslaught through proper risk assessment, so I agree with you that the Huawei mess could be a blessing in disguise.

        Intel did a big advertising display in the DC Metro a few months back that was horrifying to me. Agriculture, medicine, baseball, and golf, made better by the wonders of 5G. Hello cancer, goodbye what remains of nature.

        1. cbu

          5G radiation cannot penetrate beyond the very out layer of skin. It’s health effects cannot be determined without some form of clinical trial. On the other hand, the hype is that 5G will bring a fourth Industrial Revolution.

      2. ptb

        “… if only to delay 5G implementation in the US”
        we still don’t have decent 4G in a lot of places, and the pricing is absurd.

      3. drumlin woodchuckles

        Interesting point. This Huawei unpleasantness could be a blessing in disguise. Perhaps 5G can be kept out of America long enough for officeseekers to begin to discuss in public the Internet of Spythings and the possible health-effects from soaking in the 5G waves from all those 5G towers.

        Maybe we will end up deciding to ban 5G from ever entering this country. Let China expose its subjects to massive 5G wave soaking and see what happens to Chinese public health over the next few decades. Let China be the “experimental” population and let America be the “control” population.

      4. TheMog

        One other aspect of 5G is that with the promised increases in bandwidth (nobody’s talking about the latency though), it might turn into yet another excuse to skip investing in and/or adding proper competition to the existing cable/phone company duopoly. The fact that certain people are already touting it as “competition to your local cable monopoly, but this time for real!” like they did with 4G suggests that it’ll be yet another excuse for not doing anything about the crappy state of (wired) broadband in the US.

        And speaking of the state of broadband, we recently moved from Northern Nevada (where Internet outside towns is a crap shoot at best) to about 1 3/4h outside the nation’s capital. Out here we had to verify for _every_ we looked at if we could even get Internet, let alone decent Internet.

        But that’ll obviously improve massively if only we roll out 5G at great cost to the consumer, because then we have another two or three oligopolists to choose from who can’t even be bothered to improve 4G coverage across the country.

  19. Matthew G. Saroff

    Rule number 1 of Niall Ferguson is, “Niall Ferguson is wrong.”
    Rule number 2 is, “See rule 1.”

    1. Musicismath

      A lot of the stuff in Pity of War still stands up. He’s still cited a lot in the scholarship on WWI prisoners of war (and prisoner killing), for instance.

  20. RBHoughton

    Excuse me, I have not had time this morning to read all the comments above and hope I am not reciting an already published view. So, here goes:

    Good ideas constantly percolate out of human minds regardless of ethnicity or education. There is no way of preventing one part of humanity from learning what another part knows. The suggestion here that Spooks Inc will prevent technology transfer is silly. We have been here so often now. It started when Britain sought to prevent the designs of mechanised weaving and spinning machines from leaving the country two centuries ago. The skilled operators simple emigrated and made the stuff abroad. Today its even more futile with the internet providing details of everything that ever been made.

    The thing is our attempt to reward investors with years of non-competition is founded on the wrong principles. Its not only expensive, its ineffective. Every country today is copying every other country. We all watch each other like hawks. Even if there is respect given to an investor’s profits, his invention is well known. We need to found our policies in reality.

    1. Spring Texan

      Yes. Beyond some very limited applications, “intellectual property” is theft.

      Dean Baker is good on this and patent protections – for pharmaceuticals, software, etc.

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