Monday, February 4, 2019

The New International Tech War

People, especially people in the stock market, are riveted by the spectacle of a trade war. Apparently, America and China are fighting a trade war. President Trump seemed to have picked the fight. Savvy commentators on trade matters predicted that it would unleash the greatest market catastrophe the world has ever seen. Then again, they say the same thing every time that Trump does anything, so we remain slightly skeptical.

In any event, the trade war has not yet unleashed a market calamity. One might suggest that the Democratic takeover of the House of Representatives correlates well with the late year sell off, but, take that with another grain of salt.

As for the trade war, Niall Ferguson summarizes the state of negotiations, as of last week. A Chinese delegation led by Xi Jinping’s senior advisor on the matter, Vice Premier Liu He, spent several days in Washington negotiating with American representatives, led by Robert Lighthizer.

How did it go? Ferguson summarizes:

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.

According to Ferguson, it’s not really about trade. The war that America should be fighting against China is the tech war:

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.”

Obviously, putting out an arrest warrant for a senior executive of Chinese tech giant, Hua Wei was a shot across the Chinese bow. Whether or not it was smart, it did show America’s worry that if up and coming 5 G networks use Hua Wei technology, American telecommunications will be susceptible to Chinese hacking and surveillance.

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.

Even Congress is getting into the fight:

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 detention of ethnic Uighurs in Xinjiang.

Of course, the effectiveness of such sanctions depends on whether other companies can sell equivalent products. If they can, Congress is yet again involved in virtue signalling.

So, we are fighting a tech war against China. How many cards are we holding? How many cards are the Chinese holding? We do not know. 

At the least, it all shows that Americans are waking up to the fact that Russia does not threaten American power and hegemony… but that China does.

Ferguson notes:

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.

Of course, it isn’t as simple as shutting off technology sales to China. Even though such an eventuality would hurt the business of our own tech companies. The other problem involves personnel. How many employees of Silicon Valley tech giants are Chinese? It’s not a small number. And how many students in America’s graduate STEM programs are Chinese? Again, it’s not a small number.

Would these companies be able to compete solely using American talent?

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.

Right now Robert Lighthizer and Co. are negotiating about the theft of intellectual property, especially high tech intellectual property. But what will happen when a new day dawns and China does not need to steal intellectual property? What will happen when we fall behind? Go back to the beginning of this post and note what Ferguson said: the Trump administration wants to dictate Chinese technology policy. The Chinese are unwilling to discuss it. What if the day comes when China owns the most advanced technology and we are mostly selling soybeans?

But, fear not. The American intelligentsia, for all of their dudgeon about China, are fighting a war against bigotry. The Chinese aspire to become a tech leader. We want to lead the world in diversity. Who do you think is going to come out on top?

1 comment:

Sam L. said...

You may be slightly skeptical, but I am severely skeptical.

Huawei: I am reminded of a science fiction story I read many years ago, I think 30-40 years ago, about a military team off somewhere in a shooting war, and the unit leader's radio electronics had been compromised...