Despite progress in trade war, U.S. and China drifting apart
If President Donald Trump’s trade deal with Beijing works as planned, Chinese purchases from U.S. manufacturers and farmers will more than double over the next two years and American investors will finally be welcome to own some of China’s financial services companies.
Yet while the “Phase One” deal suggests that the U.S. and China are drawing closer, the two countries actually are edging toward a partial economic divorce.
Away from the trade talks, the Commerce Department is poised to issue new regulations to prohibit exports of advanced technologies such as artificial intelligence to China. An interagency panel chaired by the Treasury Department is intensifying scrutiny of Chinese investments in cuttingedge U.S. companies. And the Justice Department last month announced its latest indictment of a Chinese national accused of pilfering U.S. trade secrets.
“Selective decoupling is really the unstated policy that’s driving all of this,” said David Hanke, a partner at Arent Fox who worked on China-related issues while a staffer on the Senate Intelligence Committee.
China likewise is taking steps to extricate itself from a relationship of mutual dependence with the U.S. After Chinese telecom giant ZTE was nearly put out of business by U.S. sanctions last year, Chinese President Xi Jinping re-emphasized efforts to reduce China’s reliance upon American hightech suppliers. He also is pushing a state-backed campaign for Chinese companies to dominate 10 futuristic industries including artificial intelligence and new energy vehicles, with specific sector-by-sector marketshare goals.
Indeed, tomorrow’s technology is the crux of the slow-motion split. After 40 years of ever-closer economic ties, including collaborating on internet, computing and telecommunications breakthroughs, officials in Beijing and Washington increasingly see a potential enemy where they once saw a partner.
U.S. officials worry that depending upon Chinese components could leave critical military, communications and public transit systems vulnerable to sabotage or spying. The administration already has strictly limited the ability of China’s Huawei to buy American parts, barred U.S. government agencies from buying the company’s equipment and sought to persuade U.S. allies to keep the telecom giant out of their most advanced 5G networks.
Last month, Commerce Secretary Wilbur Ross recommended evaluating on a case-by-case basis whether proposed purchases of any foreign information, communications and technology gear were in the national interest. A defense spending bill Trump signed this month includes provisions aimed at avoiding suspect foreign telecommunications equipment, which analysts say are aimed mostly at China.
“Trump has set in motion an anti-China train that will not be derailed just because the trade war has been temporarily settled,” Andrew Collier, managing director of Orient Capital Research, said via email.
Aftershocks from the trade conflict are encouraging multinational corporations to shift portions of their supply chains from China to other low-cost countries, including Vietnam and Malaysia. Continuing uncertainty about future tariff rates may chill business investment “at the expense of global economic growth,” wrote Collier, a Hong Kong-based adviser to institutional investors.
The tougher stance toward China enjoys bipartisan support on Capitol Hill.
Yet moves to decouple the two countries’ technology sectors are being resisted by U.S. industry and its Washington allies. The Commerce Department was expected to make public its export control regulations in August, but officials have been stalling, according to Derek Scissors, a China expert at the American Enterprise Institute, who supports tighter controls.
The department last year began work on draft regulations designed to limit exports to China of 14 technologies, such as robotics, biotechnology and quantum computing. Now, nongovernment analysts who are tracking the regulations say the first installment, which is expected soon, will focus on just a handful.
“Commerce’s export control draft is so bad. They’re going to get attacked for it,” Scissors said. “It’s a blatant undermining of the will of Congress. They’re not doing what they’re supposed to.”
A department spokesman said only that the rulemaking process was “ongoing.”
At the Justice Department, investigators and prosecutors are in the second year of a “China initiative” designed to thwart Beijing’s efforts to steal U.S. technology secrets. John Demers, the assistant attorney general for national security, describes China’s approach as “rob, replicate and replace.”
This year alone, U.S. attorneys have charged Chinese nationals with stealing turbine technologies from
General Electric and medical trade secrets for the treatment of pediatric diseases from an Ohio hospital’s research institute.
Even as various federal departments toughen their approach, the administration has yet to articulate a consistent strategy toward China. The president has oscillated between accusing China of the “rape” of the U.S. economy and proclaiming China’s Xi a blameless “good friend.”
A months-long State Department project to produce a statement meant to unite the competing threads of administration thinking on China has yet to bear fruit, leaving room for the Treasury Department to promote investment with a country that the Pentagon regards as an adversary.
Details of the president’s initial trade deal with China, announced Dec. 13, remain unclear. Robert Lighthizer, the president’s chief negotiator, says the agreement will mean a sharp increase in Chinese orders for U.S. farm, energy and manufactured goods of $200 billion over two years.