Donald Trump’s trade war is now a tech world warNiall Ferguson
The US and China may make a sweet deal, but relations will keep souring
Are the United States of America and the People’s Republic of China heading for a new Cold War? And if they are, what should we call it? These may seem strange questions to ask only three days after President Donald Trump appeared to raise hopes of an end to the trade war that he started against China last year — or at least a continued ceasefire.
On Thursday Trump met Liu He, the vice-premier whose thankless task it has been to lead the Chinese side in the past year’s trade negotiations. Liu must have been relieved by what the president had to say to reporters. “We never really had a trade deal with China, and now we’re going to have a great trade deal with China,” Trump declared.
Agreeing to meet his Chinese counterpart, Xi Jinping, later this month, Trump went on: “I believe that a lot of the biggest points are going to be agreed to by me and him . . . This isn’t going to be a small deal with China.”
To Liu, who had just spent two days locked in a room with Robert Lighthizer, the formidably hard-nosed US trade representative, those were mellifluous words. The US president followed up with a string of tweets that must also have gone down well in Beijing. “China’s representatives and I are trying to do a complete deal, leaving nothing unresolved on the table,” he gushed. “All of the many problems are being discussed and will be hopefully resolved.”
Well, maybe. It is certainly conventional wisdom in Washington that the president wants a trade deal with China. The gyrations of the US stock market in the final quarter of 2018 gave him a nasty fright, and such a deal is widely seen as a way to soothe the nerves of investors.
On the other hand, last week’s surprisingly dove-ish decision of the Federal Reserve to postpone further interest rate rises has already given Wall Street all the soothing it needed. And if you listened to Lighthizer last week — more importantly, if you compared what he wants and what Liu offered — you were left wondering how a trade deal could possibly be within reach.
Lighthizer wants radical changes in Chinese economic policy, including an end to the subsidies and other devices that Beijing is using to accelerate its technological progress — the programme known as “Made in China 2025”. Last week in Washington the Chinese offered . . . to buy 5m tonnes a day of soya beans. Lighthizer looked as if he had just swallowed a bowlful.
The president enjoys teasing those with whom he negotiates, and he was at it again last week. “Can you get it down on paper by March 1?” he said to reporters. “I don’t know. I can tell you on March 1 the tariff on China goes to 25%.” That’s true: in the absence of a deal, the tariff imposed on $200bn (£153bn) of Chinese imports will rise from 10% to an eye-watering 25%. The most the Chinese may actually get when Trump meets Xi is another postponement of that hike, similar to the one they agreed at their steak dinner in Buenos Aires on December 1.
In any case the trade war is no longer the war that matters. In the words of the Hong Kong property developer and human dynamo Ronnie Chan: “Trade is insignificant. Anybody who worries too much about trade . . . is not a serious observer of US–China relations . . . The bigger issue is technology.”
Amen. The lead tech war story last week was the indictment of the Chinese telecoms equipment company Huawei for stealing US technology and violating sanctions. Coming soon: an executive order effectively banning American companies from using Chinese-made equipment in critical networks.
The Trump administration is leaning hard on allies (including the UK, Germany and Poland) to ban Huawei from building their 5G mobile networks. Australia and New Zealand have already done this.
It’s not just the White House that is waging the tech war. Last year, as part of the National Defence Authorisation Act, Congress passed the Export Control Reform Act and the Foreign Investment Risk Review Modernisation Act, both designed to make it more difficult for Chinese companies to get their hands on US technology. A pending review from the Department of Commerce will almost certainly impose new restrictions on US semiconductor exports to China, too.
I would bet Intel will soon be barred from selling chips to the Chinese surveillance companies Hikvision and Dahua, which have huge government contracts relating to the the detention of ethnic Uighurs in Xinjiang.
Is anyone in Washington against this? Nope. One of the marvels of our age is the speed with which Trump’s once so deplorable China-bashing has become a consensus position, with a formidable coalition of interests now on board the Bash Beijing bandwagon. They may still feel a bit squeamish about his tariffs, but suddenly every foreign policy wonk, national security nerd and cyber-war punk agrees with the president: China is the new threat to America.
It’s as if the entire policy community simultaneously woke up to the strategic implications of China’s technological advance. In other words, even if Trump does call off the trade war, the tech war will go on. Too many people are now invested in it.
This will have big implications, not least for Silicon Valley. Do the tech companies now abandon their long-cherished dreams of breaking into the China market? Do they kick out all the highly qualified Chinese staff they have employed for so long, in case they’re actually spies? (Since July the FBI has arrested two Chinese employees at Apple for suspected espionage.) And what about the universities?
There were about 340,000 Chinese students in American colleges last year — nearly a third of all the foreign students in the country. Stephen Miller, a White House aide who delights in giving the president wicked advice, recommends their expulsion. This was not an issue during the last Cold War, when only a tiny number of Soviet citizens were in the United States.
In short, we can’t call this Cold War 2.0. The 40-year struggle between America and the Soviet Union was both ideological and thermonuclear. In terms of trade the Soviets were inconsequential; in terms of technology they never got close.
So what do we call this new geopolitical rivalry? Six years ago my friend Noah Feldman, of Harvard Law School, suggested “Cool War”. It didn’t catch on, probably because there’s nothing remotely cool about Donald Trump.
Back when China and America were the best of friends — or at least when their economic relationship seemed almost symbiotic — Moritz Schularick and I came up with the idea of “Chimerica”, which unlike the rival “G2” had the advantage of being a pun on the word “chimera”, signalling that we didn’t think it could last.
Well, Chimerica now looks well and truly dead. But what is taking its place — Cold Wok? Sweet and Sour War? The hunt for a catchphrase continues. Actually, I’m not sure why I bother. In the end, it too will probably be Made in China.