Trump Hasn’t Killed the Global Trade System. Instead, He Split it in Two.

Allies find relations modestly tweaked, despite the president’s rhetoric, while relations with China are entering a deep freeze

When Donald Trump entered the White House on a platform of defiant nationalism nearly two years ago, many feared he would dismantle the global trading system the U.S. and its allies had built over the past 70 years.

He hasn’t. Instead, he is presiding over its realignment into two distinct systems.

  1. One, between the U.S. and its traditional, democratic trading partners, looks a lot like the system that has prevailed since the 1980s: free trade with a smattering of quotas and tariffs like those Ronald Reagan once deployed.
  2. The second reflects an emerging rivalry between the U.S. and China carrying echoes of the Cold War. On trade, investment and technology, the U.S. is moving to undo some of the integration that followed China’s accession to the World Trade Organization in 2001.

There are two big questions hanging over this realignment. The first is deciding how far the U.S. is prepared to decouple from China. The U.S. has given China until March 1 to avoid higher tariffs by addressing complaints it discriminates against foreign companies and steals their technology. Mr. Trump is counting on a deal that avoids a trade war. But many in his administration and Congress don’t trust China to make the necessary concessions and would likely advocate a sharper break.

The second question is whether the U.S. can persuade allies to join a united front to contain China. Other countries don’t relish the choice. Their economic ties to China are far greater than they ever were to the Soviet Union during the Cold War.

Two years ago, it was easy to predict a grimmer fate for the global trading system. Mr. Trump campaigned as a protectionist willing to tear up trade agreements and raise tariffs to shrink the trade deficit and bring back factory jobs.

In his first week he withdrew from the unratified 12-nation Trans-Pacific Partnership. He prepared to pull out of the U.S.-Korea Free Trade Agreement (Korus) and the North American Free Trade Agreement. Earlier this year he imposed steep tariffs on imports of steel and aluminum, using a little-used national security law, and threatened the same for autos.

Today, Korus and Nafta have been replaced by updated agreements(one not yet ratified) that look much like the originals. South Korea accepted quotas on steel. Mexico and Canada agreed to higher wages, North American content requirements and quotas for autos.

These represent a step back from free trade toward managed trade, but they will have little practical effect: The limits on how many cars Mexico and Canada can ship duty-free to the U.S., for example, exceed current shipments. Mr. Trump hasn’t stopped threatening auto tariffs, but for now his officials have elected instead to seek broader tariff reductions with Japan and the European Union.

.. Meanwhile, the U.S. trade deficit that incenses Mr. Trump has grown during his presidency, especially with China and Mexico, as a strong American economy sucks in imports. His exhortations to manufacturers to bring jobs back to the U.S. have largely fallen on deaf ears.

Douglas Irwin, an economist and trade historian at Dartmouth College, calls these results the “status quo with Trumpian tweaks: a little more managed trade sprinkled about for favored industries. It’s not good, but it’s not the destruction of the system.”

.. Yet the status quo with China is crumbling. Businesses have grown disillusioned with China’s restrictions on their activities, forced technology transfer and intellectual-property theft, all aimed at building up domestic competitors at foreign expense. Meanwhile, legislators in both parties are alarmed at increased military assertiveness and domestic repression under President Xi Jinping.

.. When Mr. Xi visited the U.S. in 2015, Mr. Sullivan urged his colleagues to pay more attention to China’s rise. On the senate floor, he quoted the political scientist Graham Allison: “War between the U.S. and China is more likely than recognized at the moment.”

Last spring, Mr. Sullivan went to China and met officials including Vice President Wang Qishan. They seemed to think tensions with the U.S. will fade after Mr. Trump leaves the scene, Mr. Sullivan recalled.

“I just said, ‘You are completely misreading this.’” The mistrust, he told them, is bipartisan, and will outlast Mr. Trump.

While delivering one message to China, Mr. Sullivan gave a different one to the administration and its trade negotiators: Don’t alienate allies needed to take on China.

“Modernize the agreements but stay within the agreements,” he says he counseled them. “Then we have to turn to the really big geostrategic challenge facing our country and that’s China.”

His was one voice among many urging Mr. Trump to single out China for pressure. Presidents Obama and George W. Bush sought to change China’s behavior through dialogue and engagement. Obama officials had begun to question engagement by the end of the administration. Last year, in its National Security Strategy, the Trump administration declared engagement a failure.

The Trump administration regards economic policy and national security as inseparable when it comes to Beijing, because China’s acquisition of Western technology both strengthens China militarily and weakens the U.S. economically.

The administration has yet to publicly explain its goals. In 1946, at the start of the Cold War, diplomat George Kennan made the case for containing the Soviet Union in his famous “long telegram.” The Trump administration hasn’t done anything comparable for China. One reason might be that administration officials are divided. Mr. Trump appears torn between wanting to halt China’s rise at any cost and hoping for “a big and very comprehensive deal” that lifts the cloud of a trade war.

.. U.S. and domestic concerns have prompted Australia, New Zealand, Japan, Britain and Canada to restrict or consider restricting Huawei equipment in their telecom infrastructure, in particular for the next 5G mobile phone standard.

The U.S. is also seeking to wall China off from future trade deals. It insisted the pact replacing Nafta include a clause letting the U.S. quit if either Canada or Mexico signs a free-trade agreement with a “non-market economy,” i.e., China.

.. The first goes to the heart of Mr. Trump’s goal. If his aim is to hold back China’s advance, economists predict he will fail. China’s innovative capacity has expanded dramatically. China now accounts for 18.6% of articles in international scientific journals, according to one study, and nearly a quarter of global venture-capital investment, according to another.

Indeed, some China experts fear that the U.S., by adopting a more adversarial approach, weakens China’s reformers and strengthens its nationalist factions, making conflict more likely. They predict China will intensify its pursuit of technological self-sufficiency.

.. Persuading other countries to hold China at arm’s length will be harder than containing the Soviet Union. China accounts for 11% of world exports, whereas the Soviet Union in the 1980s accounted for less than 3%,

.. China is 22% of Japanese imports and exports; the Soviet Union was less than 1%.

.. Many of China’s close neighbors depend far more, economically, on China than on the U.S.

.. U.S. officials note that China’s aid, such its Belt and Road infrastructure program, often saddles recipients with debt. Yet the U.S. offers no alternative, said Mr. Rudd.
.. Some of Mr. Trump’s trade policies undermine the united front he wants against China. He hasn’t sworn off protectionism against U.S. allies, promising to withdraw from Nafta even if its replacement isn’t ratified by Congress. His steel and aluminum tariffs, most of which remain in place, outraged such allies as Canada.

U.S. officials play down such frictions as easily worked out. Abroad, they are seen as more serious. Canadian ambassador to the U.S. David MacNaugton said he told U.S. trade negotiators that if Mr. Trump carried through on his threatened 25% tariff on Canadian autos, it would fundamentally change bilateral relations for the worse for years to come. In a letter accompanying Nafta’s replacement, the U.S. agreed not to levy the tariffs.

2018 was the year of 5G hype. The 5G reality is yet to come.

The entire industry has spent much of the year marketing a dazzling future to consumers, one in which the successor to 4G LTE enables entirely new technologies, such as self-driving cars and remote medicine.

.. analysts say the first 5G-capable smartphones will not even arrive on the market until next year at the earliest. And with carriers largely switching on their 5G networks in select cities at first, it will take years for 5G to become as commonplace as 4G LTE is today.

.. Verizon announced it had activated 5G service for customers in four cities. The product is not meant for use outside the home; instead, it is being offered as a stand-in for residential Internet service. Still, it is a potentially transformative offering — households with only one wired Internet provider might soon have an additional choice. But it is not “mobile data” in the way consumers tend to think of it.

.. As for when we will see the first 5G-capable smartphone? Industry analysts say the consensus appears to be the first quarter of 2019.

“I think the expectation is probably Samsung,”..

Comments:

Exactly, I see 5G as widening the gap between urban and rural populations.

.. .  Verizon has almost completely stopped new Fios deployments for example (except for limited efforts in Boston) as they indicated it cost ~$800 per subscriber to install.

How China Views the Arrest of Huawei’s Meng Wanzhou

Few people around the world today are likely to recognize the name of Lin Weixi, a Chinese villager whose death helped launch the First Opium War, the conflict that came to define China’s relationship with the West in the modern era. In early July of 1839, as tensions between Britain and China were heightening over a trade imbalance, a couple of British merchant sailors in Kowloon got drunk on rice liqueur and beat Lin, who subsequently died. The British superintendent of trade, Charles Elliot, arrested the sailors, but refused to turn them over to the Chinese authorities, an act that China regarded as a violation of its sovereignty and an offense to justice.

.. Huawei is the largest telecom-equipment manufacturer in the world, and it recently overtook Apple as the second largest manufacturer of smartphones, after Samsung. Huawei has also emerged an increasingly powerful player in the tech industry. This year, it announced that it would increase its annual expenditure on research and development to as much as twenty billion dollars, which would place it among the world’s top R. & D. spenders, with Amazon and Alphabet.

.. Huawei’s investment in innovation has been persistent and purposeful. According to the head of geotechnology at Eurasia Group, Huawei is the only company that can currently produce “at scale and cost” all the elements of a 5G network, heralded as the next frontier of wireless communications. As such, it is positioned to take the lead in what’s been called the fourth industrial revolution.

.. Washington has long been worried that Chinese telecommunications equipment can be used for intelligence purposes. Huawei was founded, in 1987, by Ren, who was formerly an engineer in the People’s Liberation Army. Last week, the Times reportedthat “Counterintelligence agents and federal prosecutors began exploring possible cases against Huawei’s leadership in 2010” and that “as they investigated Huawei, F.B.I. agents grew concerned that company officers were working on behalf of the Chinese government.” In 2012, a U.S. House Intelligence Committee report concluded that Huawei “was unwilling to explain its relationship with the Chinese government or Chinese Communist Party,” and that the United States “should view with suspicion the continued penetration of the U.S. telecommunications market by Chinese telecommunications companies.” The Times also reported that “the top United States intelligence agencies told senators this year that Americans should not buy Huawei products.”

.. All this is viewed very differently in China, partly for reasons that date back to the nation’s devastating defeat in the First Opium War. In the eighteenth century, the British wanted tea much more than the Chinese wanted anything from the West, resulting in a chronic trade imbalance and a huge outflow of silver and gold from West to East. To staunch that flow, British traders decided to flood the Chinese market with opium from India, violating Chinese laws that forbade trafficking of the narcotic. As efforts to enforce the ban broke down, the British handily captured the city of Canton, before marching up the Chinese coastline. Within two years, Great Britain had made significant headway into the Chinese market, pried open a series of ports, and extracted concessions that the Qing dynasty was helpless to deny.

.. The war taught China two lessons it has never forgot.

  1. The first was that it had failed to recognize the threat of Western technological prowess. While Britain was energetically cultivating the use of steam in the first industrial revolution—and the steam-powered ships that propelled its victory in the war—China had sequestered itself, falling behind in mastering the technology that became the modern world’s instrument of power. President Xi Jinping’s push for technological supremacy in the twenty-first century can be seen as a continued revision of Chinese tactics.
  2. The second was that principle matters little in an international war of wills. In 1840, a Chinese official named Lin Zexu was tasked with stamping out the opium trade. He sent a letter to Queen Victoria, signed by the Emperor, in which he made an appeal to her conscience. “The purpose of your ships in coming to China is to realize a large profit,” Lin wrote. “You do not wish opium to harm your own country, but you choose to bring that harm to other countries such as China. Why?

Lin’s letter, however, reportedly never reached the Queen, and, in Parliament, the political and economic justification given for war elided ethical concerns. Aggression against the Chinese, it was argued, was entirely about defending Britain’s honor. Many agreed with the sentiments of Samuel Warren, a novelist and later a Member of Parliament who, in a widely distributed pamphlet titled “The Opium Question,” wrote, “In the name of the dear glory and honour of old England, where are the councils which will hesitate for a moment in cleansing them, even if it be in blood, from the stains which barbarian insolence has so deeply tarnished them? . . . Why are not there seen and heard there, by those incredulous and vaunting barbarians, the glare and thunder of our artillery?”

.. Even if people in the West have heard of Lin Weixi, it’s doubtful that they would see any connection between the case of a villager killed by a couple of drunken British sailors and that of Meng Wanzhou, a top executive accused of fraud who is able to post a multimillion-dollar bail and live under a sort of house arrest in one of two opulent homes that she and her husband own in Canada. They would certainly see a sharp distinction between China’s Party-managed judiciary and Canada’s independent courts. But a Western court’s attitude toward a Chinese citizen will be understood in China as an echo of a time when Western politicians exploited an asymmetric international order. How the nations involved choose to proceed at this juncture, two hundred years later, may come to define the terms of Sino-American engagement for many years to come.

 

 

Australia Details Huawei Threat

“If the 5G network of the future isn’t there, there’s a good chance electricity supply might be interrupted, water supply might be interrupted, the financial sector or elements of it might be impacted,” said the head of the Australian Signals Directorate. The organization’s role is similar to that of the U.S. National Security Agency. “That’s why it was important to get security right at the start. It was a foundational issue,”

.. Huawei has been accused of spying by U.S. lawmakers and criticized over suspected links to the Chinese government and the People’s Liberation Army. Australia was one of the first Western countries to move against the company, barring it as far back as 2012 from supplying equipment for Australia’s high-speed national broadband

.. Huawei’s chief financial officer, Meng Wanzhou, the 46-year-old daughter of the company’s founder, was detained in Canada earlier this month at the urging of U.S. authorities seeking her extradition as part of an investigation into allegations of sanctions-busting sales to Iran.