Two recent articles about China published on the same day are a good example of the difference between facts and analysis, as well as the importance of doing your own critical active reading.

Is China Old News or the Next Big Thing?

The first author provides a model of a failing contender to say that China has reached its apogee and will soon fall behind the US putting them in the same dangerous position as Germany in 1914 and Japan in 1941. The second author says that China is more belligerent due to the insular concerns of its dictator, and that the US will only be able to retain its military balance of power for the next 5 to 10 years against China.

Which is it? Which model provides the best evidence? How can they take the same data and come to different conclusions? What difference does the model make in determining the analysis and conclusion?

Which Article is Right?

They both have flaws. The first article doesn’t explain in detail how any power was considered a faltering contender. Some primary sources like leaders explicitly considering their relative position via other powers is a good start. The raw data concerning population, industrial capacity, would have been the optimal second step.

The article includes a reference to a secondary book that is a good, but the article could have used more. Moreover, the cause of the World War I is the subject of endless debate from the moment the war started. It’s tough to use one secondary source to then say that all the competing and contributing factors – nationalism, the alliance system, German militarism, mobilization timetables, the cult of the offensive – were superseded or directed by that one factor. In short, it’s tough to believe his cause for World War I is correct or compelling.

Yet that single cause becomes the model by which we are supposed to understand Chinese behavior.  The author listed many items that sound persuasive. Yet, as with his historical examples, the author didn’t present any hard data such as relative growth, GDP, or size of the military forces to make the case for a faltering contender. Thus, the author’s analysis relies on his examples doing the heavy analytical lifting.

The readers are supposed to assume that China is like 1914 Germany and 1941 Japan on the precipice of war.  Yet we could just as easily conclude that China will survive its black eye from the COVID-19 crisis, abort Hong Kong’s special rights without long term consequences, end their clash with India, and weather their economic storms to continue massive long term growth. Again, without specific metrics their status as faltering contender is debatable.

The second article’s major flaw was that he said that Chinese leader Xi Jinping was a cipher that nobody knew much about. This is true in most secretive but powerful organizations to the point that discerning their intentions and goals is often called “Kreminlology.” But then author went on to provide a single model for Xi’s decision making. Xi is supposedly scarred by his family being purged in the cultural revolution and then takes 21st century Leninism into the era where state tools are so much more powerful.

The author doesn’t consider a variety of long-term factors such as economic models and population growth that can drive political economic and military decisions. As you’ll notice, Xi’s traumatic childhood doesn’t have much to do with military dominance. I don’t have any indication for the sources the second author used to make that statement. The latest defense report indicates that China will not have a “world class” military until 2049 and though China has achieved superiority in some areas like ship building and land based missiles, “major gaps and shortcomings remain.”

Getting to the Truth About China

As I’ve written extensively, including in my book Dragon’s Claws With Feet of Clay: A Primer on Modern Chinese Strategy, I think China has many wonder weapons that make the news and sound scary. Those are the dragon’s claws. But borrowing from the vision of Daniel in the Old Testament, they have feet of clay. Economically their command-driven economy has created a bubble that will dwarf the 2008 housing crisis, a one child policy that creates demographic challenges, no war time experience from the top down to the bottom inducing staff officers and NCOs. (Notice how this is more detail about the Chinese military than either author provided.)

As a result, there is reason to be concerned, but little reason to believe they will outpace the US in 5 to 10 years. The second article seemed a bit more like Australian insider baseball musings.

Using these writings as case studies readers should have a much better grasp of how to assess pieces on their own. This is a good example of how two people can talk about the same subject and reach wildly different conclusions by using different analytical models that drive their thinking.

One relied on some historical examples to provide a modern model, but both sides of the equation lacked clear data and the example did the heavy lifting which is never what you want to have happen. The second author provided even less data to support his analysis, which is even more damning consider he was trying to divine the inner workings of Xi Jinping.

L'articolo Faltering Contender or Military Dominance: a Tale of Two Chinas proviene da InsideOver.

In the US–China relationship, the only certainty for the past few years has been tension and aggression. American President Donald Trump took office in 2017 and immediately set about upending the diplomatic and economic ties between them.

America’s Moves Against China

Since then, Washington has managed to turn the world against Chinese technology giants Huawei and ZTE and to threaten Chinese social media apps WeChat and TikTok.

In short, the US approach toward China has been entirely, relentlessly opposed to all things Beijing. What began as a trade war with tariffs slung as ammunition, has devolved into a mission to cripple Beijing at every opportunity.

As the US election draws nearer, China could be hoping for a respite under a possible Biden administration. However, the presumptive Democratic nominee is more likely to continue Washington’s assault on Beijing.

Changed Mindset?

Although it was only last year that presidential candidate Joe Biden said the Chinese are “not bad folks … they’re not competition for us,” Biden has since come around to a more opposition-minded approach to China, however, as Foreign Policy reported. In a Democratic primary debate, he called Chinese President Xi Jinping a “thug.”Furthermore, an advisor said the candidate would maintain US sanctions that were leveraged as a response to Beijing’s takeover of Hong Kong.

In truth, the recent clampdown on democracy by Xi has likely altered Biden’s approach to China. Whereas Biden was a member of the first American delegation to Beijing in 1979 after the relationship was normalized, the status quo has changed considerably in the decades that have followed. 

The Fate of US Tariffs on China Under a Biden Presidency

As Trump has already taken the fall for introducing tariffs, which have been a staple of Trump’s economic policies, Biden could walk into office in January and leave them in place, Don Lee suggested for the Los Angeles Times. In doing so, the new president could use them as leverage to bring Beijing to the bargaining table. 

Biden, as a career politician and former vice president, would sport a more diplomatic tone than Trump. The change would be a welcome one for Beijing, which has been subject to the president’s bullying on issues ranging from 5G networks to the coronavirus.

“Their stylistic differences are so great. It will certainly seem different,” said James Mann, a China expert and fellow at Johns Hopkins University School of Advanced International Studies. “It will still be conflict-ridden, maybe at times confrontational, but certainly ridden with conflicts in ways that either weren’t there or were downplayed a decade ago.”

In the past, Biden has criticized Trump’s use of tariffs, complaining that they exacerbate the economic problem between the two states. However, even if he does roll them back — either in part or whole — Biden will certainly take China to task in other ways. 

One such way might be to renegotiate the Trans-Pacific Partnership. Devised by former President Barack Obama, the policy would have brought together 12 nations within the Pacific. At the time, it failed to come to fruition because Democrats wouldn’t support it. However, times are different and both parties are unilaterally opposed to Beijing on nearly every issue: security, democracy, and human rights, to name a few.

‘A Special Challenge’

In an editorial for Foreign Affairs, Biden specifically mentioned China as one of the greatest threats to the US and identified ways he would handle it.

“China represents a special challenge. I have spent many hours with its leaders, and I understand what we are up against. China is playing the long game by extending its global reach, promoting its own political model, and investing in the technologies of the future,” Biden wrote.

“The United States does need to get tough with China,” Biden noted, further adding that “if China has its way, it will keep robbing the United States and American companies of their technology and intellectual property.”

The best way to do that would be to “build a united front of US allies and partners” to take on Beijing, according to Biden. A new TPP would be a solid start in that direction. Trump has actually laid the footwork for coordinating allies against China by courting Australia and the UK to its cause. Adding global pressure to Washington’s rage could stir China to reverse its ways in terms of human rights, but economically, it will take more.

Focus on Supply Chain

While the Trump administration has been concentrated on cutting China off from the US, a Biden presidency would be more focused on building a supply chain independent of China, the Brookings Institution concluded in an analysis. That remains the missing piece from Trump’s plan for China. While some manufacturers have left China for other Asian states, there has not been a concerted effort to bring companies to the US.

Biden has made rebuilding US supply chains for critical products such as pharmaceuticals and personal protective gear a platform issue, Axios reported. While the COVID-19 pandemic has certainly highlighted the urgency for self-reliance in terms of medical products, Biden’s policy could translate to a long-term effort of shifting away from China.

Although Biden will undoubtedly reintroduce a more tactful voice to the Oval Office, his presidency would still need to maintain pressure on China. However, Biden would likely find other ways of doing that instead of tariffs and executive orders. By establishing meaningful relationships with allies and implementing domestic policies geared at increasing production, a Biden presidency could tackle the China issue more effectively than Trump.

L'articolo What Would a Biden Presidency Mean for China? proviene da InsideOver.

The United States believes Beijing has too much influence in Hong Kong and has threatened to cease recognition of the special administrative zone’s autonomous status, with potentially far-reaching consequences.

US: Hong Kong No Longer Has a ‘High Degree of Autonomy’

The US decided on Wednesday that Hong Kong no longer had a “high degree of autonomy.” The statement came in response to new security laws for Hong Kong that China announced last week and approved this Thursday at the end of its National People’s Congress. It arguably marks the end of individual rights for the Chinese special administrative region.

China’s Premier Li Keqiang defended China’s decision on Thursday. The law served the “constant implementation” of the “one country, two systems” principle and ensured “long-term stability and prosperity” in Hong Kong.

The 1992 US-Hong Kong Act allowed Washington to treat Hong Kong as fully autonomous in trade and economic matters even after Britain returned it to China in 1997. Hong Kong is currently exempt from US punitive tariffs on China and, unlike China, still allowed to import certain sensitive technologies.

However, these exceptions are subject to the condition that Hong Kong can act autonomously from China. It seems apparent that Washington no longer considers Hong Kong autonomous. Accordingly, Secretary of State Mike Pompeo declared that no reasonable person could claim that Hong Kong had maintained a high degree of autonomy vis-à-vis China given the facts.

Range of Options for Cancelling Hong Kong’s Special Status

Withdrawing autonomy status would provide the United States with various options. One of these are sanctions against Chinese officials, such as visa restrictions or asset freezes in the United States. A much more severe option is to withdraw Hong Kong’s special trading status, which is currently still treated independently of China under commercial law. If the US government denied Hong Kong this special status, Hong Kong would be affected by the same rules that apply to mainland China, which would be a hard blow to the Hong Kong economy. Which option the US will utilize is with President Trump. The latter had already announced that “something would be done” in the next days.

China Says it Will Take ‘Necessary Countermeasures’

The Chinese embassy in Washington, meanwhile, said in a statement on Wednesday that China’s new Hong Kong legislation targets a “very narrow category of actions that pose a serious threat to national security” and “do not affect Hong Kong’s high level of autonomy, rights and freedoms of Hong Kong residents or have the legitimate rights and interests of foreign investors in Hong Kong.” However, the embassy also stated that China was inclined to take “necessary countermeasures” to any US action.

Hong Kong Prime Minister Carrie Lam also defends the national security law, saying that it was “totally unacceptable” for foreign lawmakers to interfere in Hong Kong’s internal affairs. Sanctions would only further complicate the situation in the city, Lam said.

Chinese Media Slams American ‘Troublemakers’

In mainland China, the US’ decision was heavily criticized in the Chinese state media. On Thursday night, state-run news agency Xinhua Washington accused the US of conspiring with the “troublemakers” in Hong Kong. Moreover, Washington politicians were “selectively blind” and only interested in “accusing, attacking and slandering China” while supporting Hong Kong and the powers behind it. The latter was precisely the reason why national security legislation was necessary.

There is no question that the security law passed by the National People’s Congress will significantly increase the rights of the Chinese central government to intervene in Hong Kong and Macau, and thus further exacerbating the tense situation. Even more: undermining Hong Kong’s autonomy has the potential to affect trust in the Hong Kong as an international economic hub noticeably and for years to come, while China runs the risk of further jeopardizing its international credibility.

Hong Kong used to be under British rule from 1841 to 1997, apart from a brief period under Japanese occupation during World War II. Britain eventually agreed to transfer the entire colony to China in 1997 after obtaining guarantees that Hong Kong’s system, its freedoms, and way of life would be preserved for at least five decades.

L'articolo The US and Hong Kong’s Special Status proviene da InsideOver.

The Trump administration continuing its fight against China-based tech giant Huawei after taking a break during the coronavirus pandemic. Previously, Washington banned the company from deploying its 5G infrastructure in the US, using an executive order to label it a national security risk. On Friday, the Trump administration went a step further to prevent global chip manufacturers from supplying Huawei — a plan that had been previously considered — causing Huawei’s stock value to slide and risking retaliation from Beijing.

American Businesses in the Crosshairs

“The U.S. has utilized national power and used the so-called national security concern as an excuse, and abused export controls to continue to suppress some particular companies in other countries,” China’s commerce ministry said in a statement issued Sunday.

As a result, American companies including Apple Inc., Cisco Systems Inc., Qualcomm Inc., and Boeing Co. will likely be targeted. A report from China-based Global Times indicated Beijing will place them on an “unreliable entity list.” China has already paused new purchases of Boeing aircraft.

The new restrictions put in place Friday extend beyond US borders by requiring foreign companies who use America technology to be licensed before providing Huawei with computer chips. The regulation applies even to Huawei-designed chips if they are produced by companies that use American technology. 

The rule will also close a loophole that allowed Huawei to continue to profit off US technology, the US Department of Commerce said.

“There has been a very highly technical loophole through which Huawei has been in able, in effect, to use U.S. technology with foreign fab producers,” Commerce Secretary Wilbur Ross said in an interview with Fox Business Network on Friday.

New Requirements

Ross reiterated that the intention of banning Huawei centred on national security concerns.

“This is not how a responsible global corporate citizen behaves,” Ross said. “We must amend our rules exploited by Huawei and HiSilicon and prevent U.S. technologies from enabling malign activities contrary to U.S. national security and foreign policy interests.”

HiSilicon, Huawei’s solution to skirt around its previous ban, allowed the company to source semiconductors from other manufacturers, the New York Times reported. However, those companies often used American technology to develop the chips that Huawei had designed. Under the new regulation, they would no longer be permitted to supply the company. 

After the rule goes into effect in September, companies that want to continue to do business with Huawei can apply for licenses. The US State Department said it would consider licenses on a case by case basis. 

“This is a licensing requirement. It does not necessarily mean that things are denied,” a senior State Department official said. “We tend to approach Huawei with some concern but this is a measure that gives the US government visibility into what is moving.”

Trump’s Favorite Target

The Trump administration’s fight against Huawei comes amid two larger US–China conflicts: a trade war that was approaching deescalation in January and the COVID-19 pandemic for which Washington blames on Beijing. Huawei offers a big name for the US to hit economically, a target to point at and show results when its hits land.

Huawei’s smartphone sales outside of china fell by 35% as a result of the administration’s policies against the company. As business success in China is strongly intertwined with relationships with Communist Party officials, hurting Huawei indirectly affects the government of Beijing, hence its quick rush to defend the tech giant.

US President Donald Trump has made his position on China and Huawei abundantly clear and if anything, he is more eager to attack it because of the coronavirus pandemic. As the new rule does not go into affect until September, a mere two months before the US elections, it’s quite possible that Democratic candidate Joe Biden will have to continue the battle. 

Biden’s close ties to China have raised eyebrows at times and he has a history of strongly supporting favorable relations with Beijing. As a senator in the 1990s, he advocated for it to be given the World Trade Organization’s most-favored-nation status. As vice president, he pushed for increased trade saying Americans “welcome this competition.” 

After the Phase 1 trade deal was announced in January, Biden downplayed concerns declaring, “What are we worried about?”

‘Strangle Huawei’

However, Biden may actually take a tougher stand on China through policies outside the scope of a trade war that Americans have to foot the bill for.

“The vice president intends to do two things: hold Trump accountable for a catastrophic set of failures in his approach to China, and a colossal gap between tough talk and weak action,” said Jake Sullivan, a senior advisor for Biden. Specifically, Biden will engage other states to coordinate a joint effort to pressure China, which would be “a hell of a lot better than just the United States choosing to try to fight a trade war with China all by ourselves.”

On the technology side, Biden would also  look to expand restrictions on technology that enabled China to commit genocide against its Uighur population. Against Huawei in particular, Biden said on a debate state in February that he supported a ban on the company using its network technology in the US, a rare point of a agreement between him and the president. 

‘Modern Wars are Fought With Semiconductors’

Biden will also find support in Congress. Actions against Huawei have never exactly been a partisan issue with both Republicans and Democrats supporting the measure.

“The United States needs to strangle Huawei,” said Sen. Ben Sasse, R–Neb. “Modern wars are fought with semiconductors, and we were letting Huawei use our American designs. This is pretty simple: Chip companies that depend on American technology can’t jump into bed with the Chinese Communist Party.”

Long-term economic prospects between the two states depend on resolving the trade war. For that, Biden may be better as he has shown more proclivity to consider other avenues for attacking Beijing. The US trade war is only the first problem to overcome, however, and Biden may bring aboard other nations to create a united front against China, something Trump has never shown an interest in doing.

With increased calls for Beijing to allow for an independent investigation of COVID-19, the world is slowing turning against China. As a unifying candidate, Biden would be America’s best shot at settling the score, as opposed to Trump’s lone wolf mentality.

The Huawei ban is only a small piece to the larger economic struggle between the US and China. Although Trump managed to hurt the company, Biden’s holistic approach may have a longer and more widespread effect. 

L'articolo Trump Administration Hits Huawei Again as Beijing Threatens Retaliation proviene da InsideOver.

While economies around the world continue to suffer from the coronavirus pandemic, the World Trade Organization faces the added difficult of replacing its director-general Roberto Azevêdo. He resigned on Thursday in a shock move. Azevêdo’s resignation will be effective Aug. 31, over a year before his second term was set to expire. 

Early Retirement

Azevêdo said his decision was based on personal reasons and not the result of any particular trouble within the WTO, the New York Times reported. He also said he would step down early to provide the organization more time time to hunt for a successor, but admitted the process of replacing him would most likely last into next year.

“The selection process would be a distraction from — or worse, a disruption to — our desired outcomes (rebuilding global markets),” he said during a virtual WTO meeting. “We would be spending valuable time on a politically charged process that has proved divisive in the past.”

Azevêdo, the former lead trade negotiator for Brazil, has been in Geneva since 1997, but recent years have brought increased pressure to his duties as head of the WTO. Specifically, US President Donald Trump’s trade war with China and general policy of applying tariffs on a number of states, created turmoil that rippled across industries worldwide.

Under Azevêdo, the WTO has been a bastion for free trade and liberal international economic policies. That mentality clashed with Trump, who decided to portray the WTO as an adversary that needed to go, much like the North Atlantic Treaty Organization.

China’s Status Questioned

The American president said he was “OK with” Azevêdo’s departure and took another chance to attack the organization. 

“We’ve been treated very badly… They treat China as a developing nation. Therefore China gets a lot of the benefits that the US doesn’t get,” Trump said.

He also blamed the WTO’s admittance of China in 2001 as a contributor to job losses in the US. 

“The WTO is BROKEN when the world’s RICHEST countries claim to be developing countries to avoid WTO rules and get special treatment,” Trump said in July 2019. “NO more!!! Today I directed the U.S. Trade Representative to take action so that countries stop CHEATING the system at the expense of the USA!”

In retaliation, the Trump administration has refused to confirm appointments to the WTO’s Appellate Body — its supreme court — for two years. With only one member left since December, it is unable to rule on international disputes, as Reuters reported.

In lieu of judicial appointments, several members of the WTO including the EU and China were forced to hobble together a temporary dispute resolution body.

The US isn’t alone in criticizing the WTO; Japan and the EU have both urged for reforms, especially concerning the way the organisation treats China. Azevêdo’s early departure will give the body ample time to deliberate on whether to pursue a candidate who can introduce change at the global level.

A Tunnel with No Light at the End

First, it must continue to navigate the COVID-19 crisis, however and Azevêdo has taken umbrage with states refusing to cooperate. As economic leaders, the US, China, and European states should work together to combat the emergency. Instead, the world has divided, mostly against China.

“Either we shape up and begin to talk to each other and find common solutions or we are going to pay a heavy price,” Mr. Azevêdo said in April.

The outlook for 2020 remains grim according to WTO projections. On the lower end of the scale, merchandise trade could plummet 13% with gross domestic product sliding 2.5%, Bloomberg reported. The worst case scenario foretells a 32% drop in trade and GDP fallout of 8.8%.

“These numbers are ugly — there is no getting around that,” Azevêdo said. “But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects.”

Leaderless at the Worst Possible Time

Without Azevêdo, a WTO veteran at the helm, the organisation’s effectiveness will be limited at best. Prior to his announcement, the WTO was already managing conflict between the world’s largest economies, navigating criticism from Trump, and trying to develop a strategy to rebound from the coronavirus pandemic. Now it has to somehow accomplish these goals without its leader, and perhaps any leader, until the pandemic relents.

In leaving the WTO before his scheduled September 2021 exit date, Azevêdo has further crippled the organisation at the absolute worst possible time. The WTO warned the global economic collapse may be the worst in a generation and states look to it for answers.

“To lose the leader of the WTO is a serious blow. There is a broken global trading system, and it needs leadership to fix it,” remarked Josh Lipsky, director of the global business and economic program at the Washington-based Atlantic Council.

On a positive note, Azevêdo’s departure may allow a more progressive candidate to assume the mantle, which could satisfy criticisms from Trump, the EU, and Japan. How the WTO decides to handle China going forward will quite possibly determine the organization’s future. As the tide turns against Beijing over lack of COVID-19 cooperation and transparency, it is foreseeable that WTO members change their tune on China and begin to advocate for real changes, including some reforms Trump has pushed for.

L'articolo WTO Director-General Resigns Early, Leaving Organisation Adrift During Global Pandemic proviene da InsideOver.

For the Trump administration, China has played the role of enemy in several past chapters of foreign affairs and economic negotiation, but the US government is now trying to work together with Chinese officials. The shift comes as US deaths from COVID-19 have exceeded 1,000 per day for the first time.

The Beijing-Washington Divide

Beijing and Washington have been at odds since President Donald Trump rode into Washington promising to renegotiate trade with Beijing, which he said had been taking advantage of the US for decades. Trump, he said in the third person, knew how to make the biggest and best deals. 

Thus began the US–China trade war. On Jan. 15, it appeared to be coming to an end as Trump and Chinese President Xi Jinping signed Phase One of the agreement. But only two weeks later, the World Health Organization declared Covid-19 was a Public Health Emergency of International Concern. The virus, which originated in Wuhan, China, delivered Trump a new framework in which Beijing could once again play the role of villain.

Blame Game

To be certain, the Communist Party of China (CPC) took actions that critics might consider unscrupulous. It silenced Dr. Li Wenliang who raised the alarm at the beginning of the outbreak. After he died from the virus, the CPC conveniently exonerated him, but by then the virus had already become a global pandemic.

Some international observers have also questioned the accuracy of CPC reports on the number of Covid-19 cases. “Nobody believes China’s numbers,” said Mario Esteban, a senior analyst at the Elcano Royal Institute in Madrid. 

For a variety of reasons, relations between Washington and Beijing are at their lowest point in decades. Trump has maintained a hardline view on China economically, but he cannot sever ties and apply “maximum pressure” as he does with Iran and Venezuela.

On the virus front, Trump and Secretary of State Mike Pompeo had insisted on labeling the Covid-19 as “the Chinese virus” until recently. The terminology was so important to his administration that it even held up a G7 meeting. Trump and Vice President Mike Pence have also blamed Beijing for their own failure to adequately prepare the US for the scenario it now faces: weeks wasted on inaction, critically low supplies, and incoherent messaging. It is, in the words of Pence, China’s fault that the US is struggling with Covid-19.

‘Really Good’ Relationship

This Thursday, the administration’s tone changed. No longer would it seek to label the virus as “Chinese” or “Wuhan”. Furthermore, Washington is accepting deliveries of medical supplies from China and the American leader spoke highly of the relationship between the two states.

“The relationship with China is a good one, and my relationship with [Xi] is really good,” Trump said. He also added that he “will always assume the best” about Beijing’s leadership. 

Both sides have decided that they can accomplish more by working together. China had been partially to blame as some of its officials spread a rumor that the US created the virus in a lab and American soldiers spread the virus in Wuhan. Putting the war of words behind them, Xi and Trump understand the need for a coordinated global effort.

The seriousness of the pandemic is underscored by rising death rates. Deaths in Spain have hovered around 900 per day for the past week, France has crossed the 1,000 deaths per day threshold for two days in a row, and the US similarly has recorded two days of over 1,000 deaths each.

‘Nobody Cares About Trade’

At the urging of several top officials. Including son-in-law Jared Kushner and Treasury Secretary Steven Mnuchin, Trump has come to see the virus as top priority in order to revitalize the economy, and trade talks along with it. At least publicly, Trump is sidelining the trade discussions.

“This whole invisible enemy has taken over the world. Nobody cares about trade,” Trump said while recapping a phone call with Xi.

Privately, however, he has continued to pressure advisors to deliver him positive export data that reflect increased agricultural sales to Beijing. Boosting American exports to China is considered vital to Trump’s re-election campaign, so that he may say he accomplished a goal he set in 2016 — upending the global trade dynamic to benefit the US.

A Welcome Shift

Trade deal aside, the new tone of cooperation between the world’s two largest economies is a welcome development in the fight against Covid-19. The world — not only America — needs masks and other protection fro medical professionals. China has the factories and labor force to quickly scale up production in a way that the US simply cannot at this time.

Furthermore, China remains at the heart of the virus pandemic. Its data, observations, and findings are critical to understanding how it originated and how to stop it. Although there are reasons to doubt Beijing’s credibility, the US gain’s nothing from festering in the communication breakdown. Working together, China may find itself opening up enough that future pandemics could be prevented.

L'articolo Trump Changes Tone on China proviene da InsideOver.

The ongoing fight between the US government and Chinese telecom giant Huawei is escalating further, with important news that the Trump Administration is preparing to deliver a potentially crippling blow to the company. Specifically, the US Commerce Department is planning to ban any American-made chip technology from reaching Huawei’s hands and will prohibit Taiwan Semiconductor Manufacturing Company (TSMC) — one of Huawei’s main suppliers — from shipping chips to Huawei. Finding a reliable flow of chips from elsewhere will take time for Huawei, which is the largest private company in China according to Xinhua.

Brief Summary of the US-Huawei Dispute

The US believes China’s authoritarian communist government uses Huawei as a backdoor method to spy around the world. An upcoming full ban on Huawei is currently set for May 15, partly to allow providers who rely on Huawei — especially in the rural US — to find alternatives. The US says Huawei steals trade secrets and engages in numerous bad faith actions as a proxy of China’s government. The US government has consequently put in strong efforts to block Huawei from being permitted to set up 5G networks which it says would significantly compromise state security.

There is not conclusive, publicly-available evidence of Huawei spying or transferring information to the Chinese government, although in January, 2019, Huawei employee Wang Weijing was arrested in Poland and charged with espionage. The company subsequently let him go. Huawei was blacklisted as a national security threat by the US last May.

Huawei was established by People’s Liberation Army (PLA) engineer Ren Zhengfei in 1987 and is headquartered in Shenzhen, China. It makes telecom equipment and infrastructure like broadband and mobile networks and produces smartphones and various consumer electronics such as smart TVs, tablets and computers. Boosted by years of massive investment from the Chinese Development Bank and Export-Import Bank which has helped fund its expansion all over the African continent, Huawei steadily rose in prominence and dominance and even began to overshadow Western firms. In July, 2018, Huawei surpassed Apple and became the second-biggest smartphone maker on the planet after first-place Samsung.

The Arrest of Meng Wanzhou

Ren’s daughter and CFO Meng Wanzhou was arrested in late 2018 by Canadian police while connecting to a flight at Vancouver International Airport. She was detained on behalf of the United States who wanted her to be extradited stateside for allegedly breaking their Iran sanctions in her Huawei business dealings though a subsidiary called Skycom. Meng is currently under house arrest in Vancouver and her next hearing is scheduled for March 30, however the extradition process could take years before being resolved and Meng has also counter-sued the Canadian government for their actions. Huawei also sued the US in March of last year for banning its products from use by federal government agencies.

In addition to US opposition, Huawei has been banned from New Zealand’s 5G network and that of Australia and the US, as mentioned. Canada is also reassessing whether Huawei will be permitted to be involved in its next generation of mobile networks and the EU has expressed concern as well. The UK has allowed Huawei to be involved in 5G although it won’t be involved in “core functions”, with the UK’s intelligence services saying security issues from the supplier are not overly serious and are “manageable.”

What Happens Next With the Semiconductor Ban?

In the coming weeks the semiconductor industry will try to get the Trump Admin to back down or weaken its ban, but the Administration wants the plan moved forward as fast as possible. Previously even tougher measures were wanted, but Trump said they were going too far on the restrictive side and could cut down on business opportunities in the future. America’s top three semiconductor producers make up almost half the world’s semiconductor chip revenue, which would starve Huawei for good options and cut off their supply chain to Qualcomm, Intel, Applied Materials and other chip makers.

The potential loophole, however, is that US semiconductor makers say the rules wouldn’t hit them if they don’t make the chips in the US so it would still be possible to continue business by outsourcing manufacturing. This loophole, and the desire to balance trade with security (despite the fact that doing so may not be possible) shows the complexity and difficulty of decoupling one link from the global supply chain of technology infrastructure — even if it is a genuine threat. Huawei made a lot of its biggest progress under former Chinese leader Hu Jintao and they are still going strong.

As a likely arm of the sinister Communist Party of China with its concentration camps full of Uyghur, Kyrgyz and ethnic, Muslim minorities and brazen lies and coverups about coronavirus that allowed the disease to spread, not to mention its ongoing, overall untrustworthiness there is no reason to give Huawei the benefit of the doubt; however, there is also no reason to respond to this conflict from a short-term viewpoint and engage in tit-for-tat. While the chip restrictions would certainly show that the Trump Administration is willing to play hardball in the short-term they won’t necessarily completely hobble Huawei further down the road — especially in the developing world — and are likely to simply increase China’s state subsidy of the giant and its expansion into non-US-aligned nations.

They also don’t solve the issue of how the US will effectively compete from a big picture perspective. Although the chip restriction measures are one step in the right direction, taking proactive action to crowd out Huawei from expanding and boosting US capabilities and soft power while simultaneously hitting Huawei’s chip supply would be a superior tactic than focusing in on punitive measures in the midst of a chaotic pandemic where face masks and ventilators are hard to come by.

Indeed, the Huawei dispute points to the many contradictions and vulnerabilities at the heart of the Trump Administration, which has shown itself to be consistently frenetic, reactive and erratic in its approach to almost every challenge facing the United States and the world.

L'articolo US Plans to Hit Huawei Even Harder by Restricting its Chip Supply proviene da InsideOver.

Popularly known as a dream destination for the business community and foreign investment, Hong Kong is one of the world’s most important financial and trading hubs. Currently, however, Hong Kong is facing its worst economic crisis since China took control of it in 1997. Months of violent anti-government protests, the US-China trade war, and the coronavirus outbreak have deteriorated Hong Kong’s economic outlook. In fact, Hong Kong’s economy shrank by 2.9 percent in October and December 2019.

“Pro-democracy protests and violence during the quarter affected economic sentiment as well as consumption- and tourism-related activities,” a government spokesperson said in a statement.

2019 Is Hong Kong’s Worst Economic Year In A Decade

The year 2019 was the worst for Hong Kong’s growth since 2009, as the global financial crash severely hit the commercial hub. The coronavirus menace is likely to compound the economic situation further. Tourism, which is a significant contributor to the Hong Kong economy, is expected to take a beating, as Hong Kong’s government takes measures to bar visitors from China.

According to experts, the slowdown in the economy will give strength to the pro-democracy movement, as they will paint it as a failure of the administration.

Hong Kong At Risk Of Brain Drain And Major Capital Outflow

Hong Kong is China’s prominent international business hub. It is an indispensable gateway for foreign funds to China. Hong Kong’s investments and financial transactions are facilitated throughout the world. In fact, the majority of direct investments in and out of China are transacted through Hong Kong. A lack of clear regulations and capital controls makes it much easier for investors to channel funds to or from China through Hong Kong.

The protests have already severely impacted the economy. The turmoil is keeping away business travelers and tourists, resulting in the first recession in 10 years. As per the Hong Kong government data, 1,530 multinational companies had established regional headquarters in the town in 2018. Of these, 290 were American companies. That’s been changing with evolving dynamics in global trade. More and more international businesses are opting to move their headquarters to China as its economic power has grown.

Protests Have Hurt Hong Kong’s Businesses And Job Market

Continuing protests have placed Hong Kong at risk of a loss of talent and a long-term outflow of capital, which are the two key ingredients to its economic success. The number of companies leaving Hong Kong, though currently minuscule⁠, may grow⁠ significantly if conditions do not improve—and with an exit of businesses there will also be an emigration of high-paying jobs.

Analysts are forecasting an even worse first quarter in 2020 for Hong Kong. If the protests continue disrupting the life of the city unabated it will undoubtedly affect Hong Kong’s status as an international business destination for companies seeking to do business in China or the region. Multinationals might move their operations and capital to places like Singapore and the economic outlook could become even worse. Much remains to be seen, but with protesters having a self-interest in portraying economic downturn as a result of poor government, Hong Kong’s future is concerning and the protests may well continue.

L'articolo Hong Kong’s Recession: A Shot in the Arm For Protesters proviene da InsideOver.

On 15 January, after 18 months of a trade war with China, United States President Donald Trump and Vice Premier Liu He of China signed a “Phase 1” trade agreement. Treasury Secretary Steven Mnuchin proclaimed this as a “big win” for the president but also acknowledged that this phase did not achieve all of the reforms they had sought.

The trade war has had a profound impact on both countries and this agreement is believed to be the first step towards creating a more level trade environment between the two countries. Yet as the fanfare fades on phase one and the details begin to emerge there is some scepticism as to what was accomplished.

In December of 2019, in anticipation of this phase one, President Trump decided against imposing additional any further tariffs on China. He decided against adding $160 billion of goods from China for items such as cell phones and laptops but changed his mind, just in time for the holiday season. The United States also slashed the tariff rate in half for $120 billion worth of goods from 15% to 7.5%.

However, 25% of tariffs are still in place for some items that the United States buys from China. Much of those tariffs are attached to components that American manufacturers need to assemble and complete their products in the United States. The issue with these tariffs remaining is that American manufacturers have been one of the more affected sectors in America not only since the trade war but for years now. In response to this, President Trump claims that China is paying those tariffs but studies have found that these costs are largely paid by American importers.

As part of this first agreement, China has agreed to increase its purchases of goods and services from the United States by more than 50% over the next two years. This includes $38 billion in services, $52 billion in energy products, $78 billion in manufactured goods and $32 billion in agriculture.

Farmers, particularly those in the American Midwest, have been hurt by the trade war. Due to the lack of Chinese demand and low prices, many farmers saw a decrease of close to 50% of the value of their crops. While some of that loss was offset by federal aid, it hasn’t lessened the overall impact. It’s thought that the billions in agriculture that China has promised to purchase will turn that industry around.

As Minnesota soybean and corn farmer Kristin Duncanson said in a recent NPR interview: “We’re optimistic that signing the agreement will reopen opportunities…But I’m also a realist enough to know that until the beans are actually shipped to customers that we can’t count our chickens before they hatch.”

One of the more contentious issues in the trade war surrounded intellectual property rights. A particular irritant for American tech companies that wanted to do business in China, they were required to provide access to their intellectual property. The Chinese government claimed to do this under the auspices of market access and licensing approval. The reality is that Chinese tech companies would co-opt and re-produce that intellectual property and then undercut the American tech companies.

It’s more than likely that this will remain a troublesome issue between the two countries because China has only agreed to strengthen legal protections for patents, trademarks, and copyrights. To combat pirating of movies, games, and software, China has also conceded to improve “criminal and civil procedures to combat online infringement of pirated and counterfeit goods.”

As world leaders gathered in Davos, Switzerland for the World Economic Forum, many trade experts say this first phase of the trade agreement was made to ease tensions. Mexican economic minister Graciela Marquez Colin said this deal is an “intermediate step.”

While in Davos, Chad Brown, and Jin Keyu, among others, point out the primary danger of this trade agreement is the impact on the global market. For China to meet its obligations with the US, it will inevitably shift purchases from other countries.

Brown, a senior fellow at the Peterson Institute for International Economics, spoke bluntly and has called the agreement a “disaster” and that it doesn’t address any of the “systemic issues.” Keyu, associate professor at the London School of Economics supported Brown: “You can have Chinese people buying more US goods and somehow the Chinese consumers will have to absorb the 2.4 billion dollars of American nuts and say goodbye to New Zealand, Australian suppliers…”

The baseline year for the agreement is 2017 in which the US share of China’s imports was 9% in those target categories (services, energy products, manufactured goods, and agriculture). According to Bloomberg Economics, that would almost double the US share by bumping it to 17%. Countries like Angola, the Republic of Congo and Mongolia derive 57%, 49%, and 47%, respectively, of their sales to China and would be profoundly impacted by the doubling of the US share.

Many world economic experts agree that the most difficult trade negotiations between the US and China have yet to begin. However, in spite of that and the potential global concerns since the 15 January signing and at the World Economic Forum, the head of the World Trade Organization, Roberto Azevedo said: “The political impact of (the phase one deal) cannot be underestimated.”

China has agreed to almost all of America’s demands for this first phase. During his visit to Davos, the Chinese malleability prompted President Trump to boast that while the deal is around $200 billion the number of purchases could end up closer to $300 billion. Of course, this would be contingent upon China following through and adhering to the agreement. And if they failed to do so, properly enforcing the agreement.

This enforcement is important because while China has agreed to end the forced technology transfer to market in China and agreed to strengthen intellectual property protections…they’ve agreed to this before.

The administration and adherence to the trade agreement are paramount to its success. According to the American Action Forum: “Any trade deal is only as good as its enforcement mechanism.” Traditionally, trade disputes have been handled by a neutral panel of experts, not the trade negotiators from the countries involved.

In this phase one agreement, the two countries have created a new resolution system. They’ve decided to resolve any issues on their own. Unfortunately, neither China nor the United States has been fond of resolutions, it’s one of the reasons the trade war lasted 18 months.

As the second-largest economy, behind the US, China has proven to be a formidable foe and that they won’t be bullied. What this means is that if there is a dispute after this first phase is implemented is that the most likely recourse will be more tariffs…or complete withdrawal by either country.

A source close to the Ministry of Commerce was quoted by the Global Times, a tabloid under the official newspaper of the Communist Party of China, People’s Daily: “We can’t expect that the China-US trade fiction will disappear simply because of the signing of a deal.” It was also intimated that it will lead to negotiations toward the next round of agreements any time soon.

The phase one agreement goes into effect on 14 February and has many economists, politicians, manufacturers, and farmers anticipating what the outcome and impact will be.

With that said, one immediate outcome is that phase one signing has emboldened President Trump. The president has now set his sights on the European Union. Trump has threatened the EU with tariffs on the bloc’s auto imports if it does not bend to Washington’s will. In an interview with CNBC, Trump said that the European Union will “have no choice.”

L'articolo The US and China Phase 1 Trade Agreement – All That Glitters Is Not Gold proviene da InsideOver.

Even before his White House ambitions, Donald Trump had marketed himself as a master deal-maker and campaigned on the promise of negotiating a fairer deal with China, calling the former setting “the worst ever”. 

A year into his presidency, Trump predictably unleashed his wrath on China, imposing tariffs on a hefty amount of imports from the country, which were immediately retaliated against. What followed was a full-blown trade war which gripped markets around the world in uncertainty. 

However, last week gave a ray of hope as the two countries finally signed the much-awaited phase one of the deal after a fair bit of stalling. At its core, the agreement addresses the massive trade imbalance that has existed in favour of Beijing – which Trump has long portrayed as a defeat – by getting China to buy more US goods. 

The Science of the Deal

The 96-page document is comprised of eight chapters that begin with intellectual property rights and then discusses technology transfer, trade in food and agriculture products, financial services, macroeconomic policies and currency, expanding trade, and dispute resolution. 

As per the details, China will now be required to push up its imports of goods and services from the US by an additional $200 billion from its 2017 levels (when it was worth $130 billion) over the next two years, giving the US president another thing to boast about in his upcoming election campaign. 

The commitment related to raising these purchases, in essence, captures the key achievement of the new agreement as it puts the target at an ambitious, possibly to the extent of being unattainable, level. China is expected to increase its imports of certain goods and services from the US by $76.7 billion in 2020 and $134.2 billion in 2021 from the pre-trade war volume of $134.2 billion in 2017. 

In 2017, China imported some US goods and services worth a total of $185.8 billion, which means that $51.6 billion of American exports are not covered by Phase 1 of the trade deal. 

The bulk of that committed increase is supposed to come from the manufacturing sector at $77.7 billion, with China required to buy at least $32.9 billion from the US in 2020 and $44.8 billion in 2021. Energy products are the next in line value-wise, with the agreed amount of imports over the next two years supposed to be no less than $42.4 billion. Finally, services imports have to be increased by at least $37.9 billion over the same timeline. 

Beginning with the chapter on intellectual property rights – a long-standing irritant that has irked Washington, and across partisan lines – the deal requires China to publish an action plan on how and when the country will implement its IP obligations. 

The two sides agreed “to ensure effective protection for trade secrets and confidential business information and effective enforcement against the misappropriation of such information.”

Confidential business information, as defined by the two, relates to not only trade secrets but processes, operations or even styles of work, production and source of income among other things, covering a broad range of areas. 

One major feature from this chapter is the burden of proof in trade secrets-related civil proceedings has been shifted to the accused. The party charged with misappropriation of a trade secret shall be required to produce the evidence, provided that the original holder can demonstrate certain conditions. 

Further, it lays out a series of areas where China is supposed to strengthen its IP regime, including the threshold for initiating criminal enforcement, criminal procedures and penalties, while making a specific mention of the pharma industry. 

The second chapter takes head-on the issue of technology transfer, a practice China forced upon companies and joint ventures entering the country. As per the agreement, no party shall subject market access, formally or informally, to the transfer of technology, be it in acquisitions, joint ventures or investment transactions or have any similar licensing requirements in place.  

Agriculture is the topic of discussion in the third chapter and it mandates China to pump its imports from the US in the sector by $32 billion cumulatively in 2020 and 2021, leading to an average annual total of $40 billion of imports. It also eliminates the Chinese non-tariff barriers and deals with issues related to standards, detailing into specific products such as pet food or dairy products. Consequently, both ensure greater market access for the US. 

Chapter four deals with the financial services and aims at reducing some barriers to entry for the US firms. For example, overseas assets of an American financial institution will now be taken into consideration when looking at asset requirements. 

On the other hand, the US has promised to acknowledge current pending requests by the Chinese institutions – specifically naming the CITIC Group, saying these will be considered expeditiously. 

In Macroeconomic Policies and Exchange Rate Matters and Transparency, the text states that both parties should follow a market-determined exchange rate and avoid manipulating its currency. 

Finally, the seventh chapter is about the dispute resolution mechanism, laying down a clear tiered process. Any issues relating to the agreement will be first consulted bilaterally at working-level groups and then rising through the ranks with Trade Representative and Vice Premier as the US and Chinese higher-most authorities, respectively. Both parties will have a Bilateral Evaluation and Dispute Resolution Office to the same end. 

If these talks fail to produce a consensus, then it lays down a process to follow, which includes appeals, for imposing tariffs and other penalties. 

But as far as tariffs are concerned, the deal gives little reprieve. While those meant to be effective from Dec 15 – on $160 billion of Chinese goods along with the retaliation on autos – have been withdrawn, the 25% tariff on $250 billion worth of Chinese goods will remain in place. Meanwhile, the September 1 tariffs on $120 billion of Chinese goods have been slashed by half to 7.5%. 

Now with the specifics addressed, let’s get to the finer details. Phase 1 of the deal touches upon some long-standing areas of dispute, in particular, the US trade deficit with China and the latter’s disregard for the former’s intellectual property. 

However, one area where it mostly emphasizes on is the increased imports. With a committed $200 billion of additional imports from the US, China has a monumental task at hand, which becomes even more difficult when one looks at its recent economic performance. The double-digit growth of the 2000’s is gone as the country’s GDP rate rose by 6.1% in 2019 – slowest in 29 years. 

In addition to an already slowing economy, China is still faced with steep tariffs from the US, which are hurting its exports and consequently, further denting the GDP growth rate. In such an environment, Beijing is supposed to increase its US imports by as much as 55%. 

Therefore, many believe that the desired targets would come through trade diversion rather than trade creation. What that means is that instead of importing a certain good from its current trading partner, China will shift the purchases towards the US to get to the agreed numbers. That would result in a managed trade framework where imports will be made by the origin of the country and not based on price, which any market mechanism should mandate. 

Take agriculture for example, where the average import value for the next two years should be $40 billion. However, details reveal that even when US agricultural exports to China peaked, in 2013, their value was $29 billion, well below the level mandated under the latest agreement. 

Other aspects of the deal, though just finalized and now to be boasted by Trump, had been in the offing for a while. For example, in November end, the Communist Party introduced new protections for copyrights and intellectual property. Similarly, a little while back, Washington had also un-designated Beijing as a currency manipulator. 

Whether there is going to be a second phase of this deal depends largely on China’s ability to manage the import targets, as on the rest of the issues, it had been converging, albeit gradually, for some time now.    

L'articolo The Science of the Deal: US-China Phase-One Agreement proviene da InsideOver.