A U.S.-China summit on the sidelines of the global economic conference in Buenos Aires has produced what amounts to a three-month truce in the trade conflict the two countries have been waging since the early months of the Trump administration. I’ll have a detailed reaction coming out in a major newspaper op-ed piece tomorrow, so I don’t want to steal my own thunder here.
For now, it’s worth spotlighting a recent Bloomberg.com piece on America’s latest efforts to fight China’s intellectual property theft, and the dangerous progress and ambitions it’s been largely fueling. It’s so good, and so important, that it illustrates exactly why the President should have hung tough in his China trade diplomacy – and how much more thoroughly America’s China policies need overhauling before they can adequately serve U.S. national interests than even the Trump administration has been indicating.
Just to review, the Trump administration has imposed several rounds of tariffs on literally hundreds of billions of Chinese products typically headed for the American market, largely in response to China’s newly explicit ambition to achieve worldwide technological supremacy – and in the process become the world’s strongest economy and military power.
This Chinese goal – made clear in a program called Made in China 2025 – is anything but entirely new. Indeed, much of the blueprint has been in effect literally for many years, and certainly once Chinese leaders realized that the United States, Japan, South Korea, Taiwan, and Western Europe seemed happy enough to foster their country’s economic development by supplying in various ways the knowhow to make major tech catch-up a realistic goal. So China has long sought to secure such technology as fast as possible, by whatever means were needed – including those that violated various trade commitments it had made.
In the last few years, however, China’s often startling resulting advances, its reversion to a national economic strategy ever more reliant on government dictates and strong-arming and discriminating against foreign investors, and its mounting belligerence in world affairs, have woken up even many pillars of America’s free trade-happy establishment to the threat they’d been creating. And crucially, the crestfallen included many of the very companies that were handing over their crown jewels to China, along with the politicians and think tank shills they funded.
The Bloomberg article is so valuable because in one fell swoop, it illustrates how deeply involved American companies have been involved – and remain – in strengthening China’s tech capabilities, how consequently vulnerable China remains to American inputs of various kinds, and therefore why there is absolutely no reason for the Trump administration to relieve its tariffs’ pressures on China’s economy without major – and completely verifiable – concessions from Beijing.
In the piece, a team of Bloomberg reporters make all these points with a detailed account of a Chinese (government-supported, of course) entity that sought to produce advanced versions of critical pieces of the semiconductors used in smartphones. The explicit goal: Reduce the Chinese electronics’ industry’s dependence on foreign semiconductors.
That objective per se is highly objectionable – that is, for anyone who takes seriously the supposed main purpose of the global trade system, which is to foster the most efficient possible global division of labor by freeing up trade flows to ensure that the output and provision of various products and services is concentrated in those countries that do these jobs best. But defenders of the global trade status quo never seemed to notice that China demonstrated no interest in passively accepting the verdict of market forces.
In fact, as the Bloomberg team makes clear, American technology companies have been all too ready to aid this Chinese ambition, even with Beijing’s ambitions ringing more and more alarm bells. Specifically, this Chinese entity (as usual, I refuse to call these outfits “companies” or “businesses” because Beijing’s effective control over them sharply distinguishes them from groupings in largely free market economy that actually deserve those labels), was being supplied by U.S. semiconductor manufacturing equipment firms KLA-Tencor, Applied Materials, and Lam Research – along with foreign counterparts like the Netherlands’ ASM Lithography and Taiwan’s United Microelectronics Corp.
But at the end of October, the U.S. government placed the Chinese entity – called Fujian Jinhua Integrated Circuits – on a list of economic actors whose operations are just to pose “significant risk of becoming involved in activities that are contrary to the national interest of the United States.” Several days later, Washington also indicted the entity for stealing the intellectual property of American semiconductor firm Micron Technology of stealing its intellectual property. As a result of the national security finding, American companies are in effect prohibited from supplying Fujian Jinhua. And since Fujian’s non-U.S. suppliers sell it goods that contain American-made parts, the restrictions cover them, too.
The result of the ban announcement? According to the Bloomberg article, Fujian Jinhua’s “dream is now in tatters with consultants from American suppliers gone, the factories silent and workers rattled.” And lest you think this is just one anecdote, recall that a similar American export ban on selling to Chinese telecommunications manufacturer ZTE would have doomed that entity had President Trump not let it off the hook in hopes of currying some valuable favor and negotiating leverage (so far, in vain) with Chinese leader Xi Jinping.
In other words, the United States enjoys decisive leverage over China in the struggle for technological, economic, and military power, and should continue ramping it up to extract whatever concessions it can get from Beijing. In this vein, it’s as shocking as it is disturbing that U.S. tech firms like those mentioned above are still allowed to contribute to China’s technological development months after the Trump administration has literally designated China as a power (along with Russia) that is challenging “American power, influence, and interests, [and] attempting to erode American security and prosperity.” Further, the same national security strategy document declared, more specifically, that “Part of China’s military modernization and economic expansion is due to its access to the U.S. innovation economy, including America’s world-class universities.”
But more important, as I’ve written, since verifiable concessions are so unlikely, this pressure should form one major element of a larger strategy that to disengage America from China economically, and this goal, and the stakes that justify it, should be declared by President Trump soon after his return from Buenos Aires.