SinoTech: U.S. and China Delay Bilateral Summit as Negotiators Work on Trade Deal

On March 14, Treasury Secretary Steve Mnuchin shared with reporters that the Trump-Xi summit, originally scheduled for late March, would be pushed back because American and Chinese trade negotiators are still working to address unspecified issues. The Wall Street Journal reported on March 19 that negotiators are hoping to finalize a deal by late April. The White House has vigorously denied reports that the Chinese are worried Trump might walk away from a trade deal after he walked out on North Korean leader Kim Jong Un during last month’s summit in Hanoi. White House Press Secretary Sarah Huckabee Sanders ridiculed reporting on Beijing’s concerns as “absurd,” arguing that the president would ensure that “whatever deal we get is in our best interest.”

Mnuchin’s announcement comes amid mixed signals from others in the Trump administration. During a St. Patrick’s Day reception on March 14, President Trump praised the Chinese government as “very responsible and very reasonable” and indicated that “we’ll have news on China … over the next three to four weeks.” The president also said of trade talks: “We’re getting what we have to get, and I think we’re getting it relatively quickly.” Mnuchin similarly argued that “something will resolve in the near future,” sharing that U.S. and Chinese negotiators were poring over a “150-page document.” But just two days earlier, in contrast to the president’s tone, U.S. Trade Representative Robert Lighthizer was characteristically cautious. Speaking before the Senate Committee on Finance on March 12, he emphasized that “major issues” remain and stated that “we’re either going to have a good result or we’re going to have a bad result before too long.”

On March 15, China fast-tracked and overwhelmingly approved a new foreign investment law that bolsters protections for foreign companies’ intellectual property as well as grants additional market access for foreign firms. State-run news outlet Xinhua heralded the new law as marking the start of a “new chapter for [China’s] opening up,” and indeed, the law does contain general provisions aimed at addressing foreign concerns such as forced technology transfer and nontariff barriers. But business groups have criticized the law for not going far enough: In a press release, the European Union Chamber of Commerce in China argued that “there should be no legal distinction between foreign and local companies” at all, while the American Chamber of Commerce in China criticized the law’s provisions as vague and argued that the law had been enacted “without extensive consultation and input from industry stakeholders.”

The law takes effect on Jan. 1, 2020. The delay, according to one analyst, will offer “additional opportunities for foreign companies to work with regulators to resolve … concerns.” Yet the new law is proof that an effective U.S.-China trade deal will require strong enforcement and verification provisions. On March 19, Lighthizer again stressed the importance of enforcement, which any deal’s success would rely on, reiterating that the U.S. has to “maintain the right … to raise tariffs” in cases where the Chinese violate a potential trade agreement.

Tensions Between Huawei and the U.S. Government Continue to Escalate

A rift is emerging between countries willing to ban Chinese telecommunications giant Huawei from constructing their domestic 5G networks and those that are not. The United States has been a vocal advocate of prohibiting Huawei products or products using Huawei components for 5G infrastructure and has even threatened to cease sharing certain intelligence with allies that deploy Huawei 5G equipment. However, the New York Times reported on March 17 that a number of countries, including Germany, India and the United Kingdom, may opt against a wholesale ban of Huawei equipment and seek to manage security risks in other ways. Final decisions have not yet been made, however, in countries such as Germany, where a member of the Federal Intelligence Service, the German foreign intelligence agency, recently told legislators that previous “security-relevant incidents” provoked concerns about whether Huawei was a reliable supplier for Germany.

Decisions about whether to adopt Huawei equipment may also be influenced by information that emerges from a lawsuit filed by Huawei against the U.S. government on March 6. The company filed its complaint in the U.S. District Court for the Eastern District of Texas in Plano, Texas, where Huawei’s U.S. headquarters is located. In the complaint, Huawei alleges that certain parts of Section 889 of the 2019 National Defense Authorization Act (NDAA), which limit the purchase and use by the federal government and affiliated contractors of telecommunications equipment from Huawei and ZTE, are unconstitutional. In particular, Huawei alleges violations of the Due Process Clause because the company has been denied the liberty to engage in business and respond to Congress’s accusation; of the Bill of Attainder Clause because the NDAA is “singling out Huawei for punishment”; and of the Vesting Clause because Huawei argues that the executive and judicial branches rather than Congress should have determined whether Huawei was connected to the Chinese government and presented a threat. In a press release, Huawei said it hopes the court will issue both a declaratory judgment and a permanent injunction regarding the ban on Huawei equipment in the NDAA. In a statement accompanying the filing of the complaint, Huawei’s rotating chairman, Guo Ping, stated, “The U.S. Congress has repeatedly failed to produce any evidence to support its restrictions on Huawei products. We are compelled to take this legal action as a proper and last resort.”

The lawsuit may also be an effort to force the government to describe the evidence and reasoning supporting the ban and the government’s claims about Huawei’s security risks. The filing of the complaint comes as Huawei tries to improve its public image internationally. In multiple interviews with foreign media, founder Ren Zhengfei has stressed that the company does not pose a security threat and criticized the U.S. government’s approach. In his first interview after Huawei filed its lawsuit, Ren told CNN on March 14 that, “Since the United States’ attack and suppression of us, everyone [at the company] has really come together and wants to make our products better.”

Huawei has sought to distance itself from any accusations that the Chinese government could compel it to engage in espionage, sparking lively debate and skeptical commentary among China-watchers. Shortly after Huawei filed suit in the U.S., Chinese Foreign Ministry Spokesperson Lu Kang spoke in support of the company, saying that when the NDAA was adopted, the “Chinese government already made serious representations to the U.S. side to oppose the China-related negative contents in it” and that the Chinese government believed the lawsuit was “totally legitimate and understandable for a company to safeguard its legitimate rights and interests in a lawful way.”

In Other News

• In testimony before the Senate Committee on Armed Services, Chairman of the Joint Chiefs of Staff Gen. Joseph Dunford criticized Google’s work in China, arguing that “the work that Google is doing in China is indirectly benefiting the Chinese military.” Both Dunford and Acting Secretary of Defense Patrick Shanahan raised concerns about the transfer and theft of civil technologies for military use in China. The comments came after Google decided in June 2018 that it would not renew a contract with the Pentagon to work on Project Maven, a program using machine learning to analyze images captured from drone footage. In October 2018, Google also withdrew from competition for a cloud-computing contract for the military. Meanwhile, news surfaced last year that Google had shut down a program known as Project Dragonfly, which sought to develop a censored version of its search engine for use in China, which banned Google search in March 2010. Google continues to invest in other projects in China, however.
• The Wall Street Journal reported on concerns surrounding the role of Huawei Marine Networks Co., a company controlled by the Chinese telecom, in constructing submarine internet cable networks. The company has been involved in approximately 90 projects involving undersea fiber-optic cables. The Wall Street Journal noted that since 95 percent of voice and data communications across continents are now carried by fewer than 400 undersea cables, counterintelligence officials in the U.S. worry that monitoring devices could be attached to those cables or even that internet access could be entirely cut off. Huawei stressed that it is a private company, has never attached such devices and would never seek to do so.
• A number of U.S. universities recently announced that they will stop accepting donations from Huawei and otherwise limit their relationships with the company, reported Bloomberg. According to the U.S. Department of Education, between 2012 and 2018, Huawei donated or entered into contracts with universities worth $10.6 million. These funds included collaborations in computer science and telecommunications as part of the Huawei Innovation Research Program. Among the universities ceasing ties with Huawei are Princeton University, the University of Oxford, the University of California at Berkeley and Stanford University.
• An internal 57-page audit by the U.S. Navy revealed that contractors and subcontractors of the Navy have been “under cyber siege” from foreign adversaries, according to a report by the Wall Street Journal. The audit emphasized the threat that Chinese hackers pose to U.S. military research and intelligence and expressed concern about the Navy’s defenses. Earlier this month, U.S. cybersecurity firms FireEye and iDefense reported that Chinese hackers had targeted universities in the United States, Canada and Asia engaged in maritime research, as well as Navy contractors.
• The Civil Aviation Administration of China (CAAC) signaled its growing role in setting global aviation safety standards last week when China became the first country to ground flights of Boeing 737 Max 8 planes after a crash outside Addis Ababa, Ethiopia—the second lost plane of that type in six months. Others quickly followed China’s lead, including India, Singapore, Australia, the European Union, Canada and eventually the United States. While the Boeing 737 Max 8 crashes raised legitimate safety concerns, the agency’s decision also provoked speculation that CAAC may have been motivated partially by a desire to improve the market share of Chinese-made commercial airliners, namely the C-919, which is produced by the state-owned Commercial Aircraft Corp. of China and competes with the Boeing 737 Max 8.

Commentary

As negotiations over a U.S.-China trade deal apparently enter the final stretch, commentators are again focused on the likelihood of a deal. Appearing in an interview on Freakonomics, Gary Cohn, former chief economic adviser to Trump, argued that the “U.S. is desperate right now for an agreement” and that the president “needs a win.” In an editorial for the South China Morning Post, Professors Stephen Nagy and Bryan Mercurio contended that though China and the U.S. are “likely to reach an agreement … soon,” Beijing “cannot and does not want to deal with the structural imbalances in the trading relationship.” In the meantime, U.S. tariffs on Chinese goods continue to raise costs for American consumers and business owners. A New York Times report by Jim Tankersley argued that “it is small-business owners … who are largely footing the bill for Mr. Trump’s tariffs,” warning that those companies are “beginning to chafe as the fight drags on.” Bess Levin of Vanity Fair slammed the trade war as having cost Americans “$3 billion a month last year.”

Although the trade war has cost China $40 billion in lost exports, according to one estimate, analysts have also noted that China’s global influence continues to grow. A South China Morning Post editorial argued that “for countries around the world, China’s ‘Belt and Road Initiative’ [BRI] has more pros than cons.” Analyzing Italy’s hopes of joining the BRI, another South China Morning Post article cast Rome’s policy as driven by Italian undersecretary of state for economic development Michele Geraci, a “Sinophile who has ignored international warnings not to put too much trust in China.” Various European countries have continued to push for warmer ties with Beijing despite calls by Germany and other Western European countries to counter unfair Chinese trading practices. A recent piece by Philip Heijmans in The Atlantic explored the stark divisions over Huawei in Europe. Fred Kempe suggested that “greater coordination inside Europe and across the Atlantic could bring considerably more leverage to the negotiating table.” Finally, a significant new European Commission strategy paper takes a tough but balanced line on the EU-China relationship, describing China as “simultaneously, in different policy areas, a cooperation partner with whom the EU has closely aligned objectives, a negotiating partner with whom the EU needs to find a balance of interests, an economic competitor in the pursuit of technological leadership, and a systemic rival promoting alternative models of governance.”

Some commentators have argued recently that the United States and China are engaged in a “new Cold War.” The Financial Times’s Gideon Rachman contended that “rising tensions between the U.S. and China are re-creating a geopolitical dividing line” and that “globalization itself may be threatened by the re-emergence of a two-bloc world.” Writing for the Japan Times, Professor Minxin Pei differentiated this new Cold War from the “Cold War between the U.S. and the Soviet Union,” concluding that the new Cold War “will be won … through the deployment of economic incentives to wage a geopolitical struggle.” Zachary Karabell, writing for Wired, focused on the “new U.S.-China Cold War over tech,” arguing that “we’re in the early stages of this contest.” Finally, an editorial in the Nikkei Asian Review called on the U.S. and China “to make compromises” so as to “avoid an escalation of a dangerous new cold war.”