The Only Time Trump Wants International Cooperation

PABLO MARTINEZ MONSIVAIS / AP
Love your nation. Celebrate its sovereignty. Never buy into the misguided idea that someone else’s country should tell you how to run yours. President Donald Trump’s speech to the United Nations General Assembly last week was an ode to chest-thumping nationalism. But in one specialized field of human endeavor, Trump seems to believe that America is not nearly great enough: sliming political rivals.

As a presidential candidate, now and in 2016, Trump has tried to outsource opposition research to countries whose legal systems are awash in corruption or tainted by political influence.

Three years ago, he looked into a bank of TV cameras and implored Russia, “if you’re listening,” to find Hillary Clinton’s deleted State Department emails. (Russia was listening and, we’ve since learned, hopped right to it, as Robert Mueller’s investigation showed.) Trump now faces an impeachment investigation in the House for pressuring Ukraine to dig up damaging information about the 2020 Democratic front-runner, former Vice President Joe Biden. Heedless of the impeachment machinery whirring on Capitol Hill, he stood outside the White House on Thursday and told reporters that he’d like to see the Chinese investigate the business dealings of Biden’s son Hunter in their country.

In so many other arenas, Trump has denounced and ditched international cooperation. He pulled out of the Iran nuclear agreement and the 12-nation Trans-Pacific Partnership, both of which Barack Obama had negotiated. He’s questioned whether the NATO military alliance is worth the price. “America first” was the slogan that helped Trump win the presidency. But he doesn’t seem to believe it’s the tactic that will help him keep it.

Trump sees foreign-policy priorities as bargaining chips, advancing or discarding them as his needs change. In an example from 2017, he dialed back public criticism of China because he wanted the country’s help ending North Korea’s nuclear program. That summer, his aides had drafted a speech aimed at intellectual-property theft, which they viewed as a bedrock Chinese trade practice. At Trump’s insistence, they eliminated virtually all references to China in hopes of not offending its leadership at a time when he was coaxing them to lean on North Korea.

These sorts of calculations fall within the bounds of traditional statecraft. What happens, though, when Trump tosses domestic politics into the mix? What if China agreed to plow forward with an investigation into the Bidens at Trump’s behest? Could that induce Trump to go softer in U.S.-China trade talks—negotiations that influence the price of consumer goods, the livelihood of American farmers, and employment levels? When a president conflates personal politics with the national interest, we’re left to wonder.

If Trump was worried about possible corruption involving Americans overseas, he could turn to his own country’s investigators for help examining their dealings. There is, of course, a law-enforcement agency with a long tradition of investigatory work here in the sovereign United States: the FBI. It would be an abuse of power for Trump to order the FBI or the Justice Department to fast-track an investigation into any political opponent, but he would be within his rights to pass along what information he may have, Richard Painter, who was the chief White House ethics lawyer under President George W. Bush, told me.

But Trump doesn’t want the bureau on the case. He’s spent much of his presidency savaging the FBI and the broader U.S. intelligence community, airing baseless accusations that they spied on him during the 2016 election. In an interview with ABC News in June, Trump was dismissive of the notion that it’s wrong for foreign governments to provide dirt on political opponents, and that the right thing for campaigns to do when they’re contacted is to involve the FBI.

“But when somebody comes up with oppo research, right, they come up with oppo research, ‘Oh, let’s call the FBI.’ The FBI doesn’t have enough agents to take care of it,” Trump told the network’s George Stephanopoulos.

Trump conveyed his disdain for the bureau’s leadership—officials he appointed—when Stephanopoulos reminded him that FBI Director Christopher Wray had recently testified to Congress that campaigns should report instances of foreign interference in U.S. elections. “The FBI director is wrong, because frankly it doesn’t happen like that in life,” Trump said. What’s wrong is not only saying, as Trump once did, that you’d accept help from foreign countries in an election, but strong-arming them into tarring a political opponent. After he said he’d like China to probe the Bidens, the Federal Election Commission chairwoman, Ellen Weintraub, retweeted a message she’d sent over the summer that it’s illegal to solicit something of value from a foreign national as part of a U.S. election.

“Is this thing on?” Weintraub wrote, cheekily, using a microphone emoji.

Between the entreaties made to China and Ukraine, it’s clear the blowback from 2016 has not made the president any more cautious, and he continues to blur the lines between his own interests and his duties as head of state. Take the batch of text messages released by House Democrats late Thursday night. Right before a July phone call between Trump and Ukrainian President Volodymyr Zelensky, Kurt Volker, a former U.S. special envoy to Ukraine, sent a message to a Zelensky aide. The note suggests that a summit meeting between the two leaders was conditioned on Ukraine’s willingness to investigate a discredited theory that Russia might not have been the ones that pilfered Democratic emails in the 2016 race.

Writing that he had “heard from the White House,” Volker told the aide that if Zelensky would agree in the call to “get to the bottom of what happened in 2016,” the administration would “nail down” a meeting between the presidents.

The texts show Ukraine was reluctant to go along with the scheme, which smacks of a quid pro quo. In one note in July, William Taylor, the top U.S. diplomat there, wrote that Zelensky was “sensitive about Ukraine being taken seriously, not merely as an instrument in Washington domestic, reelection politics.” Yet Ukraine may have decided that defying Trump is too risky. New reports show that Ukraine’s prosecutor general is reviewing how the country handled an investigation into the energy company Burisma Group, on whose board Hunter Biden sat. That inquiry could ostensibly lead to the sort of renewed investigation into the Bidens that Trump wants done.

There’s no obvious parallel to a president so brazenly enlisting foreign countries in schemes to discredit political rivals. As a Republican candidate in the 1968 presidential race, Richard Nixon took steps to sabotage then-President Lyndon Johnson’s efforts to reach a Vietnamese peace deal. Using private surrogates, Nixon delivered a message to South Vietnamese President Nguyen Van Thieu that if he delayed, he might get better terms in a Nixon presidency. Nixon’s aim was to deprive the Democrats of a breakthrough in the war that might tip the election in Vice President Hubert Humphrey’s favor. Johnson would later complain that the ploy amounted to “treason,” as the author John Farrell described in his biography of Nixon.

But Nixon was only a candidate at the time, a private citizen. Trump is a sitting president.

“If you want democracy, hold onto your sovereignty,” he said in his U.N. speech. In the months leading up to that address, we now know, he was compromising U.S. sovereignty and weakening its democracy, all to extinguish the chances of a campaign opponent. In the week after the speech, nothing’s changed.

U.S. Tried to Stop China Acquiring World-Class Chips. China Got Them Anyway.

Silicon Valley’s AMD gave Chinese partner ‘keys to the kingdom’—and sparked a battle over national security

Advanced Micro Devices Inc. transformed itself from a financially struggling company to an investor’s dream in just three years, a turnaround that began with a decision to help Chinese partners develop advanced computer-chip technology.

That deal may have helped save the company, but it alarmed U.S. national-security officials, who saw it as a threat to their goal to rein in China’s supercomputing industry. Last week, after years of friction, the Commerce Department issued an order that effectively bars several Chinese entities—including AMD’s partners—from obtaining American technology.

It looked as though the U.S. had succeeded in stanching the flow of cutting-edge computer technology to China. In reality, it was too late. Chinese versions of AMD chips already have been rolling off production lines. That technology is helping China in its race with the U.S. to build the first next-generation supercomputer—an essential tool for advanced civilian and military applications. 

AMD’s Chinese partner, a military contractor, already used those chips to build what may prove to be the world’s fastest supercomputer, according to high-performance computing experts briefed on the project.

The partnership with the Santa Clara, Calif.-based chip maker was a game changer for China, which has long been unable to match the U.S.’s supercomputing power because of its inferior chips, one product the country has so far struggled to master. The AMD deal gave China access to state-of-the-art x86 chips, which are made by only two companies in the world: AMD and Intel Corp. They are the most dominant processor technology in use today.

It’s the keys to the kingdom,” said retired Brig. Gen. Robert Spalding, who served on the National Security Council in 2017 and 2018 and discussed strategies to stop the AMD deal with officials at other agencies. “Everything today is built on x86.”

A deal between Advanced Micro Devices and Sugon Information Industry granted China access to U.S. chip technology.

U.S. government

Chinese government

regulates

partners with

AMD

team up

Sugon

in a deal that gave China advanced chip tech, which the U.S. fears would help China’s military:

2

3

1

Develop nuclear weapons

Enhance missile defense

Pursue artificial intelligence

Sources: Sugon company statements; interviews with U.S. officials

AMD said in a written statement that it “has and will continue to comply with all U.S. laws,” and that the technology transferred to China in the deal wasn’t as high-performing as other U.S. products commercially available there at the time.

Commerce Department officials said last week’s action was made in consultation with other agencies. It followed weeks of inquiries by The Wall Street Journal about AMD’s Chinese partnership and the belief of some government officials that AMD had plotted a sophisticated end-run around regulators.

This account of the protracted battle over the deal between AMD and the government is based on interviews with more than a dozen current and former government officials familiar with AMD’s China deal, senior chip-industry executives, lawyers and company and government filings in the U.S. and China.

When Lisa Su was named AMD’s chief executive in October 2014, the company was desperate for cash, its debts were mounting and its revenue was declining. Its stock had dipped to around $3 a share. Some analysts predicted it would seek bankruptcy protection.

Three weeks after getting the top job, Ms. Su, a Taiwan-born New Yorker, jetted to Beijing to meet officials at China’s Ministry of Industry and Information Technology. A Chinese vice minister urged her to partner with China “to achieve mutual benefits based on AMD’s technological strength,” according to a ministry press release at the time.

In February 2016, AMD reached a joint-venture deal involving a leading Chinese supercomputer developer, a state-backed military supplier called Sugon Information Industry Co., to make chips licensing AMD’s x86 processor technology.

“Making contributions to China’s national defense and security is the fundamental mission of Sugon,” its website read as recently as December 2016. Sugon also makes computers for civilian use.

In exchange, the Chinese government gave AMD a lifeline: $293 million in licensing fees plus royalties on the sales of any chips developed by the venture.

That April, AMD got another boost from Beijing. It said it would get a $371 million payout for selling an 85% stake in two of its semiconductor factories in China and Malaysia to an entity controlled by China Integrated Circuit Industry Investment Fund Co., a state-backed financier known as “the Big Fund.” Its mission is to develop China’s indigenous chip industry.

Scientists examine a prototype of China’s next-generation exascale supercomputer at the National Supercomputer Center in Tianjin. PHOTO: XINHUA/ZUMA PRESS

The U.S. and China are competing to develop the world’s first exascale computer, a next-generation supercomputer that would be capable of doing one quintillion—or one billion billion—calculations per second. While supercomputers are used in tasks such as weather forecasting and cancer research, they also are integral to the development of nuclear weapons, encryption, missile defense and other systems. The chips American companies produce to power supercomputers, including AMD’s x86, are superior to any China can make on its own.

Semiconductors are a space where the U.S. still leads China and the rest of the world,“ says William Evanina, the U.S. government’s top counterintelligence official.

The U.S. still makes many of the world’s top supercomputers…

Source of the world’s top supercomputers*

1

2

3

4

5

U.S.

China

6

7

8

9

10

Switz.

Japan

Germany

…but China has been adding to its total.

Number of systems on list of 500 fastest

300

250

U.S.

200

150

100

50

China

0

2000

’10

*Rank based on maximum achieved performance

Source: Top500

Shortly before AMD announced the Sugon deal, Defense Department officials learned of a presentation the joint-venture partners made in China talking up the deal’s potential to transform the country into a leader in processor technology.

Pentagon officials quickly began seeking ways to unwind the deal, according to people familiar with the matter. They questioned company representatives and repeatedly tried to get them to submit the deal to a review by the Committee on Foreign Investment in the U.S., or Cfius, according to those people.

Companies routinely seek approval from the committee for deals that raise national-security issues. The committee is led by the Treasury Department and includes the Defense, Commerce, Justice and Energy departments, among others. It can recommend that the president block foreign investments in U.S. assets for national-security reasons.

AMD didn’t submit the deal for committee review, arguing Cfius didn’t have jurisdiction to review that type of joint-venture, according to people familiar with the matter. The company also claimed it wasn’t turning over any state-of-the-art technology. Pentagon officials found that response at odds with how the joint-venture had portrayed itself in China.

Treasury officials, who have the final say on the consensus-driven Cfius panel, ultimately agreed with AMD’s assessment that the deal fell outside its remit. That left AMD and Defense officials at a stalemate through the end of the Obama administration and the first months of the Trump administration.

A Treasury spokesman declined to comment, as did the Defense Department.

Commerce Department officials also were investigating the deal for compliance with export controls. In June 2017, following a series of inquiries, they sent AMD an “is informed letter” that alerted the company they suspected the China deal violated export controls. AMD replied that it was complying with all regulations, according to people familiar with the matter.

In its statement to the Journal, AMD said that starting in 2015, it “diligently and proactively briefed the Department of Defense, the Department of Commerce and multiple other agencies within the U.S. government before these joint ventures were entered into, and we received no objections to their formation or the transfer of technology.”

Before the transfer of any technology, AMD said, the Commerce Department notified the company that it wasn’t restricted or otherwise prohibited from being transferred.

Current and former national-security officials said in interviews they believe AMD designed the deal’s complex structure, which involved the creation of two interlinked joint ventures, to sidestep U.S. regulations. AMD said the deal was structured for business and technological reasons and to comply with regulations, not to evade them.

AMD controls the first joint venture, which licenses the U.S. chip maker’s x86 intellectual property and manages production of the chips. The second venture, controlled by AMD’s Chinese partner, designs the devices that use the chips and sells the final products.

China’s new chips are based on AMD’s own EPYC processors. PHOTO: ADVANCED MICRO DEVICES

The arrangement enables AMD to share technology with China while retaining control over the entity working with its intellectual property. The creation of the second, China-controlled joint-venture allowed the parties to claim that the resulting product was indigenously developed in China, a key goal of the Chinese government.

While Cfius has jurisdiction to review foreign purchases of U.S. chip assets, it doesn’t have clear authority to review overseas joint ventures that don’t grant a foreign entity control over a U.S. business.

AMD didn’t have to seek an export license from the Commerce Department because it stripped out the parts of its x86 chip that would have required licenses, such as encryption technology, which China didn’t need anyway.

The x86 chips under development for China, code-named Dhyana, are similar to AMD’s own EPYC chips, minus U.S. encryption technology that AMD omitted, say people familiar with the deal.

The joint venture’s U.S. managers stressed to employees that the Dhyana chip was being developed for commercial purposes, such as providing processing technology to Chinese tech giants such as Baidu Inc. or Tencent Holdings Ltd. , according to one of the people familiar with the deal.

Sugon, however, told state-run media that the x86 technology could serve China’s bid to build the world’s first exascale supercomputer. The joint venture’s job postings in Chinese implore candidates to help strengthen China’s domestic chip ambitions.

Sun Ninghui, head of the computing-technology institute at the Chinese Academy of Sciences, which works closely with Sugon, likened its chip development strategy to what China did with high-speed trainsintroduce a foreign technology to the market, absorb it, and then innovate to make China a leader.

“This gradually advances our ability to comprehend their core technologies,” Mr. Sun told a government-run newspaper. “That way, we no longer can be pulled around by our noses.”

By mid-2017, concerns about AMD’s China deal had reached the Trump White House. Retired Gen. Spalding, who left the National Security Council last year, said of AMD: “They’re using the letter of the law to violate the spirit of the law.”

In November 2017, Sen. John Cornyn (R., Texas) and then-Rep. Robert Pittenger (R., N.C.) introduced legislation to expand Cfius’s authority, including broader powers to review joint ventures overseas.

There was heavy opposition from many companies and trade organizations, which feared Cfius interfering in their overseas activities, and the provision didn’t make it into the final version of the legislation that passed in August 2018.

Defense Department officials decided to unilaterally submit AMD’s Sugon deal to Cfius for review, despite Treasury’s earlier interpretation that it fell outside the panel’s jurisdiction. Only rarely in Cfius’s 44-year history has the committee been asked to review deals without the cooperation of either party involved, according to lawyers who track the confidential cases.

As the Cfius filing sat in limbo, Lisa Porter, the Defense Department’s deputy undersecretary for research and engineering, criticized AMD’s China deal in front of industry executives. AMD officials hired Beacon Global Strategies, a Washington-based consulting firm that employs former top national-security officials, to try to make peace.

On Friday, however, the Commerce Department announced the new export restrictions banning Sugon and its affiliates on the AMD deal from accessing U.S. technology without a license. The move, which followed the imposition of similar export restrictions last month targeting Chinese telecommunications giant Huawei Technologies Co., effectively forces AMD to unwind the deal.

In its decision, the Commerce Department said the Chinese entities were determined “to be acting contrary to the national security or foreign policy interests of the U.S.” It added: “Sugon has publicly acknowledged a variety of military end uses and end users of its high-performance computers.”

In a statement on its WeChat account, Sugon said the decision would severely disrupt its cooperation with U.S. partners. It said it had complied with all U.S. laws and would seek to discuss the issue with U.S. officials. “We believe there is a large gap in the understanding of Sugon’s corporate circumstances on the part of relevant U.S. authorities,” it said.

The Commerce action will make it hard for China to make future generations of the x86 chip, and it’s unclear if AMD’s partners will be able to continue producing the current version without the U.S. company’s technical assistance, according to experts in semiconductor technology. But China gained significant technical know-how through the deal, which has already yielded chips currently powering supercomputers.

For AMD, pushing back against U.S. national security officials while its China partnership gained traction paid off. The chip maker used the cash infusion to get back on its feet and has since introduced an array of competitive new products.

The company’s stock price has risen to around $30 per share recently, from under $2 in early 2016. AMD’s shares were the S&P 500 index’s top performers last year, rising nearly 80%.

China Hardens Trade Stance as Talks Enter New Phase

Chinese negotiators emboldened by perception U.S. was willing to compromise

The hardened battle lines were prompted by Beijing’s decision to take a more aggressive stance in negotiations, according to the people following the talks. They said Beijing was emboldened by the perception that the U.S. was ready to compromise.

  1. In particular, these people said, Mr. Trump’s hectoring of Federal Reserve Chairman Jerome Powell to cut interest rates was seen in Beijing as evidence that the president thought the U.S. economy was more fragile than he claimed.
  2. Beijing was further encouraged by Mr. Trump’s frequent claim of friendship with Chinese President Xi Jinping and by Mr. Trump’s praise for Chinese Vice Premier Liu He for pledging to buy more U.S. soybeans.

An April 30 tweet, in which Mr. Trump coupled criticism of Mr. Powell with praise of Chinese economic policy, especially caught the eye of senior officials. “China is adding great stimulus to its economy while at the same time keeping interest rates low,” Mr. Trump tweeted. “Our Federal Reserve has incessantly lifted interest rates.”

Why would you be constantly asking the Fed to lower rates if your economy is not turning weak,” said Mei Xinyu, an analyst at a think tank affiliated with China’s Commerce Ministry. If the U.S.’s resolve was weakening, the thinking in Beijing went, the U.S. would be more willing to cut a deal, even if Beijing hardened its positions.

That assessment, however, flies in the face of a strong U.S. economy. Gross domestic product in the first quarter rebounded from the end of 2018, with growth clocking in at a seasonally adjusted annualized rate of 3.2%, up from 2.2% the prior quarter. The jobs report for April, released on Friday, showed the unemployment rate falling to 3.6%, the lowest in nearly 50 years.

But at the same time, China’s economy has stabilized this year following months of weakness. Although China’s exports dropped unexpectedly in April, its first-quarter growth came in at 6.4%, beating market expectations. The generally improving economic picture gave Beijing more confidence in trade talks, as did a recent conference on the country’s vast infrastructure-spending program, called the Belt and Road Initiative, which was attended by about 40 heads of government and state.

Chinese leaders saw the conference turnout “as China has more leverage to improve relations with other countries and with the U.S. business community,” said Brookings Institution China specialist Cheng Li. “It made them play hardball.”

If China misread the signals—and vice versa—it wouldn’t be the first time.

The history of U.S.-China trade negotiations is filled with misunderstandings, as the two nations, with very different political systems, struggle to figure out each other’s intentions.

.. In another apparent sign of mixed signals, Trump administration officials had thought they had made it clear that they were weary of negotiations and that it was time for Beijing to make specific commitments to change laws, including adding protections for intellectual property and barring the forced transfer of U.S. technology.

As talks resume Thursday, one big question mark is whether China will agree to U.S. demands for changes in Chinese law to implement the trade deal. Beijing maintains this would impinge on Chinese sovereignty and take too long to implement, but Beijing had made similar commitments in prior trade deals, including those it signed to join the WTO in 2001.

U.S. officials say Beijing has failed to make good on those commitments, while China has promised to further liberalize its economy.

“The U.S. is correct to seek a multiprong approach of not relying solely on commitments but also actually changes to the laws, so as to ensure Chinese leadership intentions are fully conveyed down to all local levels of government,” said Harvard Law Professor Mark Wu.

U.S. Can Destroy Huawei

Catch-up is how economists explain the success of China and other fast-growing developing economies. Not having to invent the wheel, the microchip or the theory of continuous improvement is a distinct advantage over having to invent them.

This is not a small part of the Huawei story. Its rise in 32 years to be the world’s largest telecom-equipment manufacturer and the second largest maker of smartphones is a story of catch-up—of learning from the West, but also stealing from the West. Or to put it more politely, Huawei has taken advantage of the fact that Beijing is not interested in enforcing the intellectual-property rights of foreigners under Chinese law.

An early Huawei router design was shown to have been filched from Cisco, right down to copying the typos in the instruction manual. This week a U.S. criminal indictment piggybacking on a successful private lawsuit by T-Mobile shows persuasively that Huawei stole the design of a robot, known as Tappy, for testing the durability of cell phones.

Nobody in his right mind thinks these episodes are exceptions. Nobody even needed these episodes to suspect that Huawei’s spectacular success has not been the product entirely of its own ingenuity and hard work (though these have been considerable). U.S. and other Western companies also vigorously “learn” from each other right up to the limit prescribed by our patent laws. In China, there is no limit. Stealing is regarded as a national development strategy and patriotic duty. The U.S. indictment alleges that Huawei even offered bonuses to employees who successfully purloined a competitor’s trade secrets.

This might seem clever, but it points to a problem for China’s own development—and not only because it antagonizes trade partners. China wants higher-order technology and investment from the West. It won’t come if trade secrets aren’t honored and enforced. China’s own firms cannot develop to their potential, at home or globally, if their own intellectual property isn’t secure even as they are distrusted abroad as agents of Chinese spying.

Which brings us to the growing tranche of U.S. legal actions directed at Huawei. We might prefer that prosecution of its chief financial officer, Meng Wanzhou, now awaiting extradition from Canada, were over something other than violating U.S. sanctions on Iran. But the U.S. is nonetheless positioning itself to destroy China’s shiniest success story, as it almost did ZTE until Donald Trump relented in a last-minute olive branch to Xi Jinping.

If Ms. Meng is extradited and convicted, she can be given a stiff prison sentence. The U.S can impose heavy fines on her company for sanctions-busting as well as for unrelated technology convictions. The long arm of U.S. law can seize Huawei assets and threaten key employees—including founder and CEO Ren Zhengfei—with arrest if they set foot outside China. Washington can turn up the pressure on other nations to exclude Huawei equipment from their networks. Perhaps most damaging, it can stanch Huawei’s access to still-vital U.S. building-block technologies.

In U.S. Trade Representative Robert Lighthizer, Mr. Trump has a general who probably would be happy to command such a war. Mr. Xi’s government might respond by stirring up patriotic froth in China’s media. Beijing might start seizing U.S. businesspeople as hostages, as it already has done Canadian businesspeople in apparent response to the Meng extradition fight. If so, look out below.

The Trump administration tends to exaggerate how much U.S. prosperity and security depend on getting tough over China’s trade practices. Our national strength is overwhelmingly made at home.

On the other hand, if China wants to go down this road, it might as well unfurl a banner declaring itself North Korea writ huge—a country that intends to thumb its nose at international norms, a pirate nation living by blackmail and theft. Six years ago this column was spanked by foreign-policy types for saying a tad too bluntly that stealing was an activity that “unites the private and public selves of Chinese officials.” But it’s true. For the sake of its own development, China needs to start separating business from the state, and holding its companies to some cognizable standard of lawfulness.

So here’s a question: Do you trust both sides to manage this conflict? Washington should be able to mete out technology sanctions, arguably necessary to protect U.S. security and military advantage, without throwing the entire economic relationship out the window. It can uphold our laws and prosecute Huawei for clear violations without trying to bury China’s entire output of exported iPhones, coat hangers and flat-screen TVs in tariffs.

For its part, getting into a full-scale economic war over practices that Beijing knows are indefensible and need to change would be an exceedingly poor decision by China’s maximum leader, Mr. Xi. Unfortunately, poor decisions have been a métier, off and on, of China’s Communist Party over the past 70 years.

We should not kid ourselves about the risks. Not all risks can or should be avoided, however.

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.

Don’t Believe the Hype About Trump’s Trade Deal with the European Union

maybe intending it as a compliment—craftily packaged together a number of small concessions and previously agreed upon initiatives which allowed Trump and his allies to hail the agreement as an American win. “This is a real vindication of the President’s trade policy,” Wilbur Ross, the Secretary of Commerce, told reporters as he travelled to the Midwest with Trump on Thursday.

In reality, the Europeans gave up little except their prior refusal to negotiate under threat.

.. Juncker’s pledge that the E.U. would import more U.S.-grown soybeans, for instance, formalized something that was likely to happen anyway. After Trump imposed hefty tariffs on Chinese steel and aluminum products, earlier this year, China responded by imposing equally hefty levies on U.S. agricultural exports, including soybeans. That made American soybeans prohibitively expensive for Chinese buyers

.. Brazil, traditionally the E.U.’s largest supplier, is now shipping more of its produce to China, encouraging the Europeans to shop elsewhere. “While China concentrates its purchases on Brazil, the rest of the world turns to the U.S.,

.. Looking years ahead, Norway’s reserves have plateaued, and the Europeans will eventually need alternative suppliers. U.S. producers could well be among them. But, again, such a result may well have occurred without Wednesday’s agreement.

.. hopefully nobody tells Trump that these concessions were largely illusory.

.. Both sides provide subsidies or tax breaks to politically powerful groups, such as farmers, and to industries they deem strategically important, such as commercial-aircraft manufacturers in the E.U. and military contractors in the U.S. These policies proved sticking points when the Obama Administration and the E.U. engaged in unsuccessful negotiations about a transatlantic free-trade treaty, and they will almost certainly prove to be sticking points again.

.. One way to think of the outcome of Wednesday’s meeting is that Trump is happy to declare a victory whenever he can get away with it. However, a more optimistic reading of this week’s developments is that Trump has finally realized that he needs the E.U.’s support in his campaign against China’s much more overtly mercantilist trade practices, and that, in this area at least, the United States and Europe have common interests.

.. E.U. officials wanted to persuade the Trump Administration to pursue grievances against China through the World Trade Organization (W.T.O.), the global ruling body for trade disputes, rather than by dishing out tariffs unilaterally. The article also noted that Robert Lighthizer, the U.S. Trade Representative, a key player in the Trump orbit, is not necessarily averse to this idea.

.. “Comfortingly, there is mounting evidence that Mr Lighthizer is not out to torpedo the WTO,”

.. If Lighthizer could persuade Trump to go down this route, and his negotiating team could construct a common front with the E.U., there is a possibility that, sometime in the future, China might be persuaded to make some real concessions in areas like opening its markets and respecting intellectual-property rights. If that did occur, the Trump Administration could claim a genuine victory.

 

The Double Standard of America’s China Trade Policy

As a Chinese official once explained to me, the strategy is to open the window but place a screen on it. They get the fresh air (foreign investment and technology) while keeping out the harmful elements (volatile capital flows and disruptive imports).

In fact, China’s practices are not much different from what all advanced countries have done historically when they were catching up with others.

.. One of the main US complaints against China is that the Chinese systematically violate intellectual property rights in order to steal technological secrets. But in the nineteenth century, the US was in the same position in relation to the technological leader of the time, Britain, as China is today vis-à-vis the US. And the US had as much regard for British industrialists’ trade secrets as China has today for American intellectual property rights.

.. The fledgling textile mills of New England were desperate for technology and did their best to steal British designs and smuggle in skilled British craftsmen. The US did have patent laws, but they protected only US citizens. As one historian of US business has put it, the Americans “were pirates, too.”

.. Any sensible international trade regime must start from the recognition that it is neither feasible nor desirable to restrict the policy space countries have to design their own economic and social models. Levels of development, values, and historical trajectories differ too much for countries to be shoehorned into a specific model of capitalism.

..  Governments that worry about the transfer of critical technological know-how to foreigners are, in turn, free to enact rules prohibiting their firms from investing abroad or restricting foreign takeovers at home.

.. Many liberal commentators in the US think Trump is right to go after China. Their objection is to his aggressive, unilateralist methods. Yet the fact is that Trump’s trade agenda is driven by a narrow mercantilism that privileges the interests of US corporations over other stakeholders. It shows little interest in policies that would improve global trade for all. Such policies should start from the trade regime’s Golden Rule: do not impose on other countries constraints that you would not accept if faced with their circumstances.