Posts Tagged ‘intellectual property’

Currency Manipulation Isn’t Among China’s Trade Sins

October 16, 2018

The yuan is sliding against the dollar, but mostly as a result of U.S. policies like high spending and tariffs.

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A bank employee counts out 100 yuan notes in Shanghai, Aug. 8.
A bank employee counts out 100 yuan notes in Shanghai, Aug. 8. PHOTO: JOHANNES EISELE/AGENCE FRANCE-PRESSE/GETTY IMAGES

The Trump administration is railing against Chinese currency manipulation without any regard for the yuan’s actual ups and downs. Yes, the numbers superficially back Treasury Secretary Steven Mnuchin’s warnings: The yuan has dropped about 10% against the dollar since mid-April, effectively offsetting the impact of U.S. tariffs on Chinese goods. But this doesn’t prove that China is defying the laws of market economics. In fact, Beijing is doing precisely the opposite.

One law of economics: Fiscal expansions and monetary contractions strengthen currencies. The U.S. raised spending and cut taxes more than $200 billion in 2018. It’s the only major economy undertaking this type of fiscal expansion. At the same time, the Federal Reserve has been raising interest rates and selling off assets. Meantime, interest rates are still stuck at zero or below in Europe and Japan. They are hovering below 1% in the United Kingdom. It is no surprise, then, that America’s currency has strengthened by an average of more than 7% against those of its trading partners since April. The yuan is only one of many currencies left weakened against the dollar.

Another law of economics explains why China’s currency has slid somewhat more against America’s than the euro or the yen. Tariffs depreciate the currencies of countries they’re imposed on, because decreasing imports lowers demand for the exporter’s currency. China’s retaliatory tariffs have an offsetting effect. Yet the U.S. imports more from China than it exports, so its tariffs are levied on a larger base. Rising oil prices have compounded the downward pressure on its currency.

Regardless of whether Beijing put its thumb on the scale, U.S. policy and shifting economic fundamentals have weakened the yuan against the dollar. And it’s worth noting that there are no direct signs of such manipulation.

The Treasury Department’s definition of currency manipulation includes three criteria. First, a country has to maintain a current-account surplus above 3% of gross domestic product. The last time China exceeded this threshold was in 2010. Though China’s current-account balance swings significantly over time, it generally has continued a dramatic fall that began in 2008, dropping to a projected 0.7% of GDP in 2018, according to the International Monetary Fund. This is well below Treasury’s threshold and about half the level from a year ago.

Second, a country has to persist in a one-sided intervention—buying dollars to weaken its exchange rate. Yet China currently is selling dollars to prop up its exchange rate in the face of downward pressure, as it did in 2015 and 2016. Beijing’s overall policy in recent years has been aimed more at stabilizing the exchange rate than attempting to set it at any particular value. This means China is currently working to slow the yuan’s depreciation—precisely the opposite of the currency-manipulation charge.

The only one of Treasury’s three criteria for currency manipulation that China currently meets is a bilateral goods surplus of more than $20 billion. But this criterion is widely regarded as economic nonsense. The bilateral trade imbalance is related more to the U.S. domestic-savings deficit and global supply chains than to China’s trade or exchange-rate policy. The Treasury measure also ignores services, in which the U.S. has a surplus.

Consider that when China imports chips and screens from other Asian countries, and assembles the components before exporting finished products to the U.S., the entire value of the goods is debited from the U.S.-China bilateral balance. A fixed-dollar threshold also makes little sense when America’s trading partners vary so much in size. The same $20 billion value applies to China’s $13 trillion GDP and Switzerland’s $700 billion economy. Regardless, under Treasury’s rules a trade manipulator must meet all three criteria. China clearly does not.

The U.S. stands on solid ground in pushing China to adopt a more transparent, rule-based economic system. Much of Beijing’s policy toward inbound investment violates international norms. But when it comes to China’s exchange rate, the U.S. has gotten its wish but now is complaining about the result. These days, President Trump is likelier than Chinese President Xi Jinping to extol the value of a weak currency. But Mr. Trump’s cheap talk has been much less potent than his combination of deficit spending and tariffs, which created the strong dollar he is lamenting.

Mr. Furman, a professor of practice at the Harvard Kennedy School, was chairman of the White House Council of Economic Advisers, 2013-17.

Appeared in the October 16, 2018, print edition.


Chinese official finds Trump ‘very confusing’; says US warships at China’s doorstep building tension

October 14, 2018

President Trump’s inner circle is “very confusing” for foreign diplomatic officials in Washington to navigate, China’s U.S. ambassador Cui Tiankai told “Fox News Sunday” in an exclusive wide-ranging interview.

Tiankai added that U.S. warships are “on the offensive” near China, days after a U.S. destroyer nearly collided with a Chinese military vessel in the South China Sea. The Pentagon said the Chinese ship came within 45 yards of the U.S. destroyer, in an intentionally “unsafe” maneuver.

Tiankai’s comments come as Chinese President Xi Jinping and Trump prepare for a possible meeting at the G20 summit in Buenos Aires, Argentina, next month, amid a rapidly escalating trade conflict between the two nations that some have called a new cold war.

Asked by host Chris Wallace whether Trump listens primarily to hardliners like trade director Peter Navarro — who has characterized China as the economic “parasite of the world” — or moderates like chief economic adviser Larry Kudlow and Treasury Secretary Steven Mnuchin, Tiankai responded simply, “You tell me.”

The envoy added that other ambassadors seemingly have the same issue. President Trump has repeatedly said he tries to avoid “telegraphing” his moves to foreign adversaries.

“Honestly, I’ve been talking to ambassadors of other countries in Washington, D.C., and this is also part of their problem,” Tiankai said. “They don’t know who is the final decision-maker. Of course, presumably, the president will take the final decision, but who is playing what role? Sometimes it could be very confusing.”

Trump, citing widespread intellectual property theft in China that cuts into the profits of U.S. companies doing business there, placed tariffs on approximately $200 billion of Chinese imports in September, following his imposition of significant tariffs on nearly $35 billion in Chinese goods in July. China quickly retaliated with $60 billion in tariffs of its own.

The White House has bipartisan support for hitting back at Chinese intellectual property theft. In an interview in June, Senate Minority Leader Chuck Schumer, D-N.Y., ordinarily a fierce Trump critic, agreed with the administration’s China policy and said that the country “takes total advantage” of the U.S.

“Not only do they steal our intellectual property, they keep our good companies out, and say the only way you’re going to be able to sell your American products in China … is if you come to China, make them there, and give us the techniques and intellectual property,” Schumer said.

And the president has insisted his tariffs are already having a major impact.

“Their economy has gone down very substantially, and I have a lot more to do if I want to do it,” Trump told “Fox & Friends” last week. “They lived too well for too long and, frankly, I guess they think the Americans are stupid people. Americans are not stupid people. We were led badly when it came to trade.”


But in his interview with Fox News, Tiankai denied that China permits or engages in widespread intellectual property theft, and said even the suggestion was an affront to the country’s population.

“I think all of these accusations about how China has developed are groundless and not fair to the Chinese people,” he told Wallace. “You see, China has 1.4 billion people. It would be hard to imagine that one-fifth of the global population could develop and prosper not by relying mainly on their own efforts, but by stealing or forcing some transfer of technology from others — that’s impossible.”

“It’s important to notice who started this trade war. We never want to have a trade war.”

— China’s U.S. ambassador Cui Tiankai

He added: “It’s important to notice who started this trade war. We never want to have a trade war, but if somebody started a trade war against us, we have to respond and defend our own interests.”

Concerns have been raised that China, the largest foreign holder of U.S. Treasurys, might start dumping its holdings as a way to pressure the United States in the trade dispute. But Mnuchin said this possibility didn’t concern him because it would be contrary to Beijing’s economic interests to start dumping its Treasury holdings, and would be “very costly” to China.

Top U.S. officials have warned that the ongoing conflict with China extends beyond trade. In Senate testimony on Wednesday, FBI Director Christopher Wray said that “China, in many ways, represents the broadest, most complicated, most long-term counterintelligence threat we face.”

He added that “Russia is … fighting to stay relevant after the fall of the Soviet Union,” while “China is fighting tomorrow’s fight…and it affects every sector of our economy.”

Vice President Pence, meanwhile, has accused China of trying to interfere with U.S. elections, including by targeting tariffs toward industries that support Trump and even spreading propaganda in U.S. media outlets.

In response, Tiankai effectively called the U.S. the aggressor in several spheres of influence.

“You see, Chinese media, they are just learning from America media to use all these means, to buy commercial pages from newspapers, to make their views known or to cover what is happening here,” Tiankai said. “This is normal practice for all the media.”


The envoy also said that Chinese warships, which harassed and nearly collided with a U.S. destroyer recently in the disputed South China Sea, had responded appropriately to an intervention on their “doorstep.” Beijing has built up military fortifications on two contested Chinese man-made islands there despite pledging not to do so.

“Where the incident took place, you were right to say it was in South China Sea. So it’s at China’s doorstep,” Tiankai told Wallace. “It’s not Chinese warships that are going to the coast of California, or to the Gulf of Mexico. It’s so close to the Chinese islands and it’s so close to the Chinese coast. So who is on the offensive? Who is on the defensive? This is very clear.”

Tiankai said, however, that China would continue to “faithfully” implement sanctions against its longtime ally, North Korea, in order to restore stability to the region. He  said a “coordinated, phased, and step-by-step approach” to North Korean denuclearization is the best approach, mirroring the position of that country’s leader, Kim Jong Un.

“How can you convince him to give up all the nuclear weapons without any hope that the U.S. would be following a more friendly policy towards him?” Tiankai asked.

Secretary of State Mike Pompeo was in Beijing last week, where top Chinese officials vowed to take “all necessary measures” to safeguard their country. They have since said that high-level communications continue between the two countries.

Still, there were signs tensions between China and the U.S. have eased somewhat in recent days. Global stock market indexes bounced back sharply Friday after their recent plunges, on word of the possible presidential meeting.

And reports have emerged that Mnuchin has advised against labeling China a currency manipulator — a status that could trigger penalties. The Chinese currency has been falling in value against the dollar in recent months, raising concerns that Beijing is devaluing its currency to make Chinese goods more competitive against U.S. products.

Mnuchin did not say this weekend what the forthcoming Treasury report, set to come out next week, will conclude about China’s currency practices. In the past, Treasury has placed China on a watch-list but found that Beijing did not meet the threshold to be labeled a currency manipulator.

The Treasury secretary met Thursday with Yi Gang, head of China’s central bank. “I expressed my concerns about the weakness of the currency.” Mnuchin said.

Tiankai told Wallace that China, despite its ongoing spat with the U.S. on a variety of fronts, remains optimistic about November’s planned meeting between Trump and Jinping. Kudlow, the chief White House economic adviser, said on “Fox News Sunday” that the one-on-one between the two leaders will “probably” happen.

“There’s a good mutual understanding and good working relationship between the two,” Tiankai said. “I hope and I’m sure this will continue.”

Fox News’ Samuel Chamberlain and The Associated Press contributed to this report.

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John Bolton Warns Chinese Military to Halt Dangerous Naval Encounters

October 14, 2018

White House National Security Adviser John Bolton bluntly warned China this week that the U.S. military will not ignore threatening naval actions near U.S. warships in international waters.

Doubling down on the Trump administration’s tough policies toward China, Bolton also renewed criticism of Beijing for meddling in U.S. elections and stealing American technology.

By Bill Gertz

Image result for John Bolton, Photos

Commenting on the harassment of the guided missile destroyer USS Decatur by Chinese warship that nearly caused a collision in the South China Sea recently, Bolton said the threatening maneuver was unacceptable.

Navy commanders have rules of engagement that allow them to defend their ships, he said.

“The commanders have the authority we need,” Bolton said in an interview with radio commentator Hugh Hewitt.

“We will not tolerate threats to American service members. We’re determined to keep international sea lanes open. This is something the Chinese need to understand. Their behavior has been unnecessarily provocative for far too long.”

The Navy said the Decatur was harassed by a Chinese Luyang-class destroyer on Sept. 30 near one of the Spratly islands. The Chinese ship conducted a series of aggressive maneuvers and sailed within 45 yards of the destroyer, forcing it to change course to avoid a collision.

Navy surveillance photo of the encounter

Navy surveillance photo of the encounter

In the South China Sea, China has built up some 3,200 acres of disputed islands and has begun deploying advanced missiles on the islands.

China claims the entire sea, which is used for an estimated $5 trillion annually in shipping trade, is Chinese territory.

The United States insists the waters are international waters. The U.N. Permanent Court of Arbitration rejected Chinese claims to own the sea through a vaguely defined “nine-dash line” extending through most of the waterway.

Bolton was asked if the United States should urge regional allies such as Philippines and Japan to counter the Chinese island-building and militarization by building their own armed islands.

“I think we’ve got to do more first to establish for the Chinese that we do not acknowledge the legitimacy of any of this,” Bolton said.

“The ship near collision you mentioned is an example of how dangerous Chinese behavior is,” he added. “We have now got more participation by allies, the British, the Australians, and others, are sailing with us through the South China Sea. We’re going to do a lot more on that.”

Bolton also said regional allies also could begin to mine undersea energy resources in the South China Sea “with or without Chinese cooperation.”

“They need to know they have not achieved a fait accompli here. This is not a Chinese province and will not be,” Bolton said.

Bolton said the Chinese were able to get away with aggressive actions against Navy vessels and aircraft during the administration of President Barack Obama.

Chinese threatening behavior is a result of the Obama administration ignoring or mishandling the confrontation.

“The pressure’s now on President Trump,” Bolton said. “He’s responded in a way that has the Chinese confused. They’ve never seen an American president this tough before. I think their behavior needs to be adjusted in the trade area, in the international, military, and political areas, in a whole range of areas.”

Bolton said he is hopeful Xi Jinping will be willing to “talk turkey” in addressing the problems during the upcoming meeting of the G20 group of nations meeting in Argentina set for next month.

“But the president feels very strongly that China’s taken advantage of the international order for far too long, not enough Americans have stood up to it. Now’s the time to do it,” he said.

On Chinese theft of American technology and intellectual property, Bolton said the United States has been “taken to the cleaners for decades” by Beijing.

“Ever since China came into the World Trade Organization, they have pursued a mercantilist economic policy in what should be a free trade environment,” he said. “And they’ve gone well beyond that. They’ve violated rule after rule after rule.”

Those who argued Chinese admission to the World Trade Organization would pressure China into observing international rules and norms of behavior were wrong, he noted.

“They’ve done the opposite. They’ve gotten worse. They steal our intellectual property so they’re able to compete with us without the investment that’s required in research and development. They force technology transfers from American and European companies,” Bolton said.

The Chinese have misused their access to the international system to build up their economy and then used their economic power to build up their military forces.

On the issue of whether Russia or China poses the most significant strategic challenge to the United States, Bolton said: “I think we do see China as the major issue of this century.”

Trump, based on his business experience, is challenging China on economic ground and Bolton said blocking Chinese theft and acquisition of U.S. know-how would substantially reduce Beijing’s military capabilities.

Asked if Google and Facebook should be cooperating with the Chinese in developing information controls, Bolton said Vice President Mike Pence last week urged American tech companies not to cooperate with Chinese repression.

“I would say to shareholders of these companies that portray themselves as the open internet, transparent future, really? You want to make money off of repression? If I were a shareholder, I’d want to know what the answer of our corporate leadership was,” Bolton said.

The Trump administration is tightening export controls in terms of restricting technology with dual civilian-military uses, and also doing more to prevent technology theft through cyber attacks.

On Chinese election meddling, Bolton said the problem is serious.

“We are very worried about the question of Chinese interference not just in individual elections, but more broadly trying to influence the American political discussion with an influence campaign that I think could well be unprecedented,” he said.

Echoing declassified intelligence made public during a speech by Pence, Bolton said the Beijing influence operations must be stopped.

“I think the United States needs to stand up, frankly, to any foreign government that thinks it’s going to interfere in our politics,” he said. “We are a self-governing people. We will govern ourselves. We don’t need international institutions to tell us how to do it. And we particularly don’t need foreigners trying to exert undue influence over us.”

On the disappearance of Saudi Arabian journalist Jamal Khashoggi, Bolton said he has spoken with Saudi officials and “we just don’t know what the facts are.”

“The United States does not have information it’s not revealing,” he said. “If we had information, we’d know better exactly how to handle this. We’ve made it clear we want to know what the facts are. We’re going to continue to do that.”

Bolton criticized the Obama administration for its so-called strategic patience policy toward North Korea that allowed Pyongyang to develop nuclear weapons and long-range missiles to deliver them.

The past policy was “a synonym for doing nothing about North Korea.”

“I think the combination of the potential use of military force against North Korea and the maximum pressure campaign that the president waged on the economic front is what has brought Kim Jong Un to the table,” he said, adding that Trump could meet Kim Jong Un for a second time in the next couple of months.

Prospect of Trump-Xi talks raises hope for thaw in trade war

October 13, 2018

With China and the United States opening the door to a meeting next month between Presidents Xi Jinping and Donald Trump, hopes are rising for a potential easing of tensions in the trade war between the world’s two largest economies.

Image result for China’s currency , photos

Worries about the increased tariffs the two sides have imposed on each other’s goods contributed to a dizzying bout of volatility in financial markets this week. The higher tariffs raise costs for companies in both countries, and economists say that if they remain in place indefinitely, they could depress economic growth.

A Xi-Trump meeting, if it happens, would take place during a summit of leaders of the Group of 20 biggest global economies in Argentina in late November.

“I don’t think any decision has been made in regards to a meeting,” Treasury Secretary Steven Mnuchin told reporters Saturday in Bali, Indonesia, where he’s attending global finance meetings.

Still, Larry Kudlow, Trump’s top economic adviser, said in Washington on Friday that preparations for the talks were under way.

“It looks like there will be a meeting in Buenos Aires at the G-20,” Kudlow said in an interview with CNBC. “We are looking at it. The Chinese are looking at it. Preparations are being made. I can’t say 100 percent certainty, but there is no question everybody is looking at it.”

Kudlow said that so far, the administration viewed China’s negotiating offers as “rather unsatisfactory” but that “maybe talks between the two heads of state will bear fruit.”

Asked if China would need to make specific concessions for such a meeting to take place, Mnuchin said, “To the extent that we can make progress toward a meeting I would encourage that and that’s something we’re having discussions about, but for the moment there’s no preconditions. The president will decide on that.”

The trade feud has been fueled by US accusations that China engages in cyber-theft and coerces foreign companies into handing over technology in return for access to the Chinese market, as well as by Trump’s anger over China’s trade surplus with the US It is far from clear that the US might be preparing to consider lifting penalty tariffs on about $250 billion of Chinese products.

Mnuchin repeated the Trump administration’s determination to achieve a more balanced trading relationship that does not require foreign companies to form joint ventures to transfer technology to gain market access.

Lu Kang, a spokesman for China’s Foreign Ministry, offered no specifics Friday but said, “I have also seen the relevant reports.”

The Wall Street Journal and the Washington Post have cited officials as saying Trump has decided to proceed with a meeting with Xi.

Global indexes bounced back sharply Friday after their recent plunges, on word of the possible presidential meeting, along with strong Chinese export data. Japan’s Nikkei 225 index gained 0.5 percent to 22,694.66 after a nearly 4 percent loss on Thursday.

Hong Kong’s Hang Seng surged 2.1 percent to 25,801.49. The Shanghai Composite index advanced 0.9 percent to 2,606.91. Shares recovered in Taiwan and rose throughout Southeast Asia.

On Wall Street, the Dow Jones Industrial Average jumped 305 points, or 1.2 percent, in late-morning trading, and the Nasdaq composite surged 138 points, or 1.9 percent. Later, both stock indexes gave up much of their gains.

Friday’s volatility followed a swoon over the previous two days that erased 1,300 points from the Dow and dragged the S&P 500 down more than 5 percent.

Reports that Mnuchin has advised against labeling China a currency manipulator — a status that could trigger penalties — were also seen as easing tensions. The Chinese currency has been falling in value against the dollar in recent months, raising concerns that Beijing is devaluing its currency to make Chinese goods more competitive against US products.

In his comments in Bali, Mnuchin did not say what the forthcoming Treasury report, set to come out next week, will conclude about China’s currency practices. In the past, Treasury has placed China on a watch-list but found that Beijing did not meet the threshold to be labeled a currency manipulator.

Mnuchin met Thursday with Yi Gang, head of China’s central bank.

“I expressed my concerns about the weakness of the currency.” Mnuchin said.

He said that in the discussions he had with the Chinese, they had made clear that they didn’t see a further weakening of the Chinese yuan as being in their interests.

Concerns have been raised that China, the largest foreign holder of US Treasurys, might start dumping its holdings as a way to pressure the United States in the trade dispute. But Mnuchin said this possibility didn’t concern him because it would be contrary to Beijing’s economic interests to start dumping its Treasury holdings.

“That would be very costly for them,” Mnuchin said.

China’s surplus with the United States widened to a record $34.1 billion in September as exports to the American market rose 13 percent from a year earlier to $46.7 billion, down slightly from August’s 13.4 percent growth. Imports of American goods increased 9 percent to $12.6 billion, down from August’s 11.1 percent growth.

Beijing’s exports to the United States have at least temporarily defied forecasts they would weaken after being hit by punitive US tariffs of up to 25 percent.

September marked the second straight record Chinese monthly trade surplus with the United States. Export numbers have been buoyed by producers rushing to fill orders before American tariffs rose. But they also benefit from “robust US demand” and a weaker Chinese currency, which makes their goods cheaper abroad, Louis Kuijs of Oxford Economics said in a report.

The Chinese yuan has lost nearly 10 percent of its value against the dollar this year. That prompted suggestions Beijing might weaken the exchange rate to help exporters. But that might hurt China’s economy by encouraging an outflow of capital. The central bank has tightened controls on currency trading to prevent further declines.

The Associated Press

In full offensive on China, Trump gambles on end-game

October 13, 2018

Donald Trump has escalated his feud with China into a full-press offensive that has drawn comparisons to the Cold War. Now the question on both sides of the Pacific is, how will it end?

In recent weeks, Trump has slapped $250 billion worth of tariffs, boosted military support for rival Taiwan, accused China of interfering in US elections, stepped up denunciations of Beijing’s human rights record and curtailed its access to US nuclear technology.

The real estate mogul, who early in his tenure had described Chinese President Xi Jinping as a friend, was generally presumed to be most interested in trade as he has repeatedly vowed to ramp up US factory production by fighting back the flow of cheaper manufactured imports.

But his administration has expanded its pressure campaign to virtually all fronts, a strategy unprecedented since the time the United States and China established diplomatic relations four decades ago.

“It is a full-frontal assault by the US on China,” said Elizabeth Economy, director for Asia studies at the Council on Foreign Relations.

© AFP/File | Trump, who early in his tenure had described Chinese President Xi Jinping as a friend, was generally presumed to be most interested in trade as he has repeatedly vowed to ramp up US factory production by fighting back the flow of cheaper imports

“There is a general sense in Washington that China is simply too big now, it’s simply too large as a country and as an economy, to allow it to continue to violate all sorts of expected international trade and investment norms,” she said.

Economy said that the United States was also struck at how Xi has “presented a very different China to the world” with a “much more ambitious and expansive foreign policy.”

“The US and other countries say, ‘Okay, this is the China we have to deal with, not what we anticipated ten years ago.'”

– China ready for ‘marathon’ –

Hua Po, a political commentator in Beijing, agreed that trade was only the “superficial” source of friction.

He believed that the underlying concern of the United States was the Made in China 2025 plan, under which Beijing has set a goal of rapidly ensuring that a majority of its industry is sourced domestically.

The United States accuses China of rampantly stealing technology and seeking an unfair trade advantage by forcing foreign businesses to work with local partners.

“Even if the trade issue is resolved, other problems between China and the United States will continue to exist,” Hua said.

Hua said that Trump seemed to want “to fight a new cold war.” But Hua doubted that the United States would enjoy the support of its allies, especially in Europe, which do not see China as the same type of threat as the former Soviet Union.

And amid turbulence on Wall Street, China is expecting the US economy to see growing strains as negative effects emerge from Trump’s signature domestic policy of tax cuts, Hua said.

“China does believe that this dispute will last for some time. The United States wants to run a 100-meter race with China, but China wants a marathon with the United States,” he said.

– Diplomacy through confrontation –

Tensions soared between the world’s two largest economies last month at the annual UN General Assembly session.

A closed-door meeting of foreign ministers from the five permanent members of the Security Council turned “icy” as US Secretary of State Mike Pompeo lashed out aggressively against China, whose foreign minister, Wang Yi, responded with similar intensity, according to a witness.

Vice President Mike Pence a week later delivered a speech in which he took China to task and made the headline-grabbing claim, a month ahead of congressional elections, that Beijing was intervening in US politics, citing the Asian power’s purchase of newspaper advertisements and its imposition of counter tariffs in politically crucial states.

The two countries have still kept in contact on resolving the nuclear crisis with North Korea, a top priority for both powers, with Pompeo visiting Beijing after a stop in Pyongyang.

Ryan Hass, the director for China policy on the White House’s National Security Council under Obama, said that Trump had taken a new course by emphasizing public pressure over diplomacy with China.

He said that Trump had gambled “on the assumption that Beijing needs a stable relationship with Washington” and that Beijing is ready to moderate its policies both at home and abroad.

“Beijing believes Washington is organizing itself to contest China’s rise. As such, Beijing sees little incentive to accommodate Trump’s demands on trade or other issues, because doing so would not resolve the underlying source of intensifying rivalry — Washington’s efforts to hold back China’s rise,” said Hass, now a fellow at the Brookings Institution.

“Given these dynamics, it is unlikely that either side will moderate its approach in the foreseeable future,” he said.



U.S. Edges Toward New Cold-War Era With China

October 12, 2018

WASHINGTON—The Trump administration is moving deliberately to counter what the White House views as years of unbridled Chinese aggression, taking aim at military, political and economic targets in Beijing and signaling a new and potentially much colder era in U.S.-China relations.

In the first 18 months of the administration, ties between the world’s two biggest powers were defined by negotiations over how to restrain North Korea and ways to rebalance trade. Those high-profile endeavors masked White House preparations for a more hard-nosed stance with Beijing—a strategy now surfacing as China’s help with Pyongyang wanes and trade talks stall.

Interviews with senior White House officials and others in government make clear that recent volleys in what appears a new Cold War aren’t the exception to President Trump’s China policy. They are exactly what the administration wants—putting the spotlight on a meeting between Mr. Trump and Chinese President Xi Jinping at a multilateral summit planned for November.

Vice President Mike Pence last week gave a blistering speech on U.S.-China relations, saying “the United States has adopted a new approach to China” with the message to China: “This president will not back down.”

On Wednesday, the Treasury Department announced new rules targeting China that tighten national security reviews of foreign investment. On the same day, the Justice Department said it had brought a Chinese intelligence operative arrested in Belgium to the U.S. to face charges he conspired to steal trade secrets from GE Aviation and others. It was the first time prosecutors publicly identified someone in custody as a Chinese intelligence officer.

The Energy Department announced Thursday heightened controls on nuclear technology exports to China. The administration also signed off recently on Justice Department directives that force a pair of Chinese state media outlets to register as foreign agents.

The speed of the U.S. shift to a more confrontational China strategy has surprised many Chinese officials and sent Beijing scrambling to stabilize the relationship, with Washington the disrupter, analysts said.

“The U.S. is getting tougher and tougher, confronting China on all fronts,” said Zhu Feng, an expert on China-U.S. relations and international security at Nanjing University. “Beijing should be very coolheaded because does a new Cold War serve China’s interests? No.”

The U.S. moves represent an emphatic shift from a “constructive engagement” strategy that dates to the establishment of diplomatic ties in 1979. It was based on hopes China would slowly liberalize economically and politically.

Chinese President Xi Jinping, center, at a banquet on April 6, 2017, hosted by President Trump and first lady Melania Trump at the Mar-a-Lago resort in Palm Beach, Fla.
Chinese President Xi Jinping, center, at a banquet on April 6, 2017, hosted by President Trump and first lady Melania Trump at the Mar-a-Lago resort in Palm Beach, Fla. PHOTO: LAN HONGGUANG/XINHUA/GETTY IMAGES

Underpinning the change is the view that China has reversed course since Mr. Xi took over in 2012 and began recentralizing political and economic controls, pledging to build his nation into a great world power.

The more aggressive U.S. approach was forecast last December in the National Security Strategy that put China on par with North Korea, Iran and jihadist terrorist groups as the biggest U.S. threats. At the time, the strategy contrasted with Mr. Trump’s personal diplomacy.

Early in his term, Mr. Trump flattered Mr. Xi, talking up a holiday card he received before taking office and sharing “the most beautiful piece of chocolate cake” at their Mar-a-Lago dinner in the spring of 2017. He scotched a campaign promise to label China a currency manipulator, saying he didn’t want to jeopardize a potential ally against the threat from North Korea.

Since then, White House advisers have changed to a more hawkish crew. And Mr. Trump has seen that his personal and controversial gambits—extending a lifeline to ZTE Corp., for instance—haven’t yielded enough in return. After a dozen phone calls with Mr. Xi, an exchange of letters and several face-to-face meetings, the tepid response from China has irritated the president, one senior administration official described, like death from a thousand cuts.

Beijing was infuriated by the U.S. decision last month to impose sanctions on a Chinese military agency—and its chief—for purchasing Russian SU-35 jet fighters and equipment related to its S-400 antiaircraft missile system, U.S. officials said.

China responded to the sanctions by lodging a formal complaint with the U.S. ambassador, ordering the return of its navy chief from a visit to Washington, and refusing permission for a U.S. Navy ship to port in Hong Kong.

Chinese foreign minister Wang Yi, speaking recently at the Council on Foreign Relations, said growing U.S. fears that China would seek global hegemony was a serious strategic misjudgment.

“Where this ends is a trade deal,” a senior administration official said. “Xi is starting to look at this and say, ‘Wow, Trump is doing the things he said he’s going to do,’ and realize that he has to get to work.’”

Chinese foreign minister Wang Yi speaks during a United Nations Security Council briefing on the U.N. General Assembly last month in New York City.
Chinese foreign minister Wang Yi speaks during a United Nations Security Council briefing on the U.N. General Assembly last month in New York City. PHOTO: EVAN VUCCI/ASSOCIATED PRESS

Hard lessons

The November meeting between Messrs. Trump and Xi may help soothe tensions on trade but there appears little prospect the new U.S. stance will soften. There is a souring on China across Washington, even in groups that have long promoted stronger U.S.-China relations.

Many in the business community, for instance, have favored a “grow-together” policy with China, with the hope it would open the world’s second biggest economy to American companies. That optimism has turned to distrust, largely over China’s aggressive focus on acquiring U.S. technology.

The U.S. Chamber of Commerce has criticized China’s theft of intellectual property from American businesses, including with a scathing report on Beijing’s Made in China 2025 policy, a blueprint for turning China into a global manufacturing leader.

At the Pentagon, military brass have historically sought a relationship with their Chinese counterparts that would survive political mood swings. Even there, senior officials say they have reached their limit.

Efforts to build the U.S.-China military relationship by showing off American capabilities have been exploited by the Chinese. Gen. Joe Dunford, the chairman of the Joint Chiefs of Staff, came away even more clear-eyed about that after a trip to Beijing last year to establish a formal military communication mechanism: An aide’s tablet, left in a hotel room, had been tampered with, souring the U.S. military establishment on doing business with China.

U.S. Gen. Joe Dunford, center right, chairman of the Joint Chiefs of Staff, joins  Chief of the General Staff of the Chinese People's Liberation Army, Gen. Fang Fenghui, left, during ceremonies last year in Beijing.
U.S. Gen. Joe Dunford, center right, chairman of the Joint Chiefs of Staff, joins Chief of the General Staff of the Chinese People’s Liberation Army, Gen. Fang Fenghui, left, during ceremonies last year in Beijing.PHOTO: ANDREW HARNIK/ASSOCIATED PRESS

This month, a Beijing trip by Defense Secretary Jim Mattis, already stalled over a failure to agree on goals for the meeting, was canceled after a Chinese destroyer nearly clipped a U.S. Navy vessel in the South China Sea.

Mr. Trump first displayed an antagonistic posture toward China on the presidential campaign trail, referring to it as the enemy.

“I beat the people from China—I win against China,” Mr. Trump said at a campaign rally in 2015 in Bluffton, South Carolina. “You can win against China if you’re smart. But our people don’t have a clue. We give state dinners to the heads of China. I said, ‘Why are you doing state dinners for them? They’re ripping us left and right. Just take them to McDonald’s and go back to the negotiating table.’ Seriously. It’s true.”

The view caught on with his voters. Among Republicans who identify as Trump supporters, just 4% agreed that China was an ally, while 86% said it was an adversary, according to a Wall Street Journal/NBC News poll in April.

Plans for a tough approach to China were contemplated by the Trump administration shortly after the inauguration. Then came the diversions: North Korea launched missiles and tested rocket engines five times in the first 100 days. Trade disputes erupted not just with China, but also with the European Union, Canada and Mexico.

There also were calls for a more conciliatory approach to Beijing in those early days. Then-Iowa Gov. Terry Branstad asked Mr. Trump to tone down heated rhetoric because of significant trade between China and the farmers in his state. Mr. Branstad was selected to be the U.S. ambassador to China.

Henry Kissinger, the former secretary of state, met with Mr. Xi after the presidential election and returned saying that Mr. Trump shouldn’t be held to his campaign promises. Mr. Kissinger delivered a warm message from China’s leader to the president-elect.

Jared Kushner, the president’s son-in-law and senior adviser, helped set up Mr. Trump’s trip to Beijing last year, and emphasized the importance of the relationship between the two countries. Treasury Secretary Steven Mnuchin portrayed himself to the president and the Chinese as someone who could bridge the divide. Gary Cohn, the top national economic adviser, argued against imposing tariffs on China.

Treasury Secretary Steven Mnuchin, left, and Chinese Vice Premier Wang Yang last year in Washington, D.C.
Treasury Secretary Steven Mnuchin, left, and Chinese Vice Premier Wang Yang last year in Washington, D.C. PHOTO: BRENDAN SMIALOWSKI/AGENCE FRANCE-PRESSE/GETTY IMAGES


Mr. Mnuchin’s efforts to act as a mediator have since yielded few results, reducing his influence over China policy and showing that negotiations with Beijing would be tougher than anticipated, people familiar with the matter said. Mr. Cohn is now gone, and Mr. Kushner has turned his focus elsewhere.

That has given way to more hawkish aides, including White House chief of staff John Kelly, a military veteran. His view of China, like Gen. Dunford’s, was hardened by experience, according to a person familiar with the matter.

During Mr. Trump’s visit to Beijing last fall, Mr. Kelly got into a physical altercation with a Chinese official who was seeking access to the nuclear football, the briefcase that includes the president’s mobile nuclear-missile command center. Mr. Kelly told colleagues that he refused to accept an apology, and he would only accept one if a senior Chinese official came to Washington and offered contrition while standing under a U.S. flag.

White House Chief of Staff John Kelly, center, Terry Branstad, U.S. ambassador to China, right, and President Trump during a meeting with China’s President Xi Jinping last  year in Beijing.
White House Chief of Staff John Kelly, center, Terry Branstad, U.S. ambassador to China, right, and President Trump during a meeting with China’s President Xi Jinping last year in Beijing. PHOTO: JONATHAN ERNST/REUTERS

Peter Navarro, the president’s trade adviser, is a longtime China hawk and compiled a report this summer for Mr. Trump that showed how China’s economic aggression threatens the U.S. technology sector. He has been distributing a book to administration officials titled, “The Hundred-year Marathon: China’s Secret Strategy to Replace America As the Global Superpower.”

John Bolton, the new national security adviser, has long advocated for a tough approach to China. According to a senior administration official, Mr. Bolton has “unleashed” Matthew Pottinger, chief Asia adviser for the White House, to push for stronger China policies.

The views of Mr. Pottinger, a former U.S. Marine and former reporter for The Wall Street Journal, were reflected in the National Security Strategy that last year put China in the same threat category as North Korea and Iran. He helped oversee a research project detailing ways Beijing uses money to influence U.S. think tanks, universities and local governments.

Mr. Pottinger said at an event last month at the Chinese embassy in Washington that the White House had updated its China policy to clearly acknowledge the rivalry between the two nations. “For us in the United States,” he said, “competition is not a four-letter word.”

Looking ahead, U.S. officials expect continued pressure on China. A plan to punish private companies that help Beijing’s expansion in the South China Sea was discussed early in the administration but shelved. That type of sanction is being reviewed again.

White House officials said they expected more information would be declassified from the intelligence community’s study on China’s influence on U.S. elections and cyberspace. And the Commerce Department is set to tighten export controls, aimed at preventing U.S. surveillance technology from being used to suppress China’s Muslim Uighur minority.

The White House also expects to release a report in about a month reviewing U.S. foreign assistance. It will take aim at China and, at least indirectly, the country’s so-called Belt-and Road infrastructure development program, a senior administration official said.

Mr. Pence has criticized some of the related projects in the program, saying they leave nations buried in debt. “We seek a relationship grounded in fairness, reciprocity, and respect for sovereignty,” he said in his speech last week. “And we have taken strong and swift action to achieve that goal.”

Write to Michael C. Bender at, Gordon Lubold at, Kate O’Keeffe at and Jeremy Page at

China Champion of Resolving Issues Through Mutual Respect

October 12, 2018

Image result for China, red, map, pictures

Post flagship forum held in Kuala Lumpur in the shadow of the US-launched trade war stresses the importance of resolving issues through mutual respect

South China Morning Post

PUBLISHED : Friday, 12 October, 2018, 8:31pm
UPDATED : Friday, 12 October, 2018, 8:31pm

Any forum on China in the current climate can be expected to be defined by the escalating trade war being waged by the United States. Moving such a gathering out of its usual comfort zone in Hong Kong and relocating it in Southeast Asia at this time provides a window into the fears and insecurities of a region caught in the middle of the conflict. To be sure, uncertainty and anxiety about what the future holds was one prevailing mood this week at the Post’s flagship China Conference in Kuala Lumpur. The trade war dominated the two-day event. But downbeat sentiment about the prospect of Asia’s economies being derailed by collateral damage to economic growth was counterbalanced by a brighter vision of how participants saw China’s role in this part of the world and globally.

The choice of Malaysia courted disharmony, given the cancellation of China-backed infrastructure projects after the shock election of Prime Minister Mahathir Mohamad, and the potential for the South China Sea territorial dispute between Beijing and others to become a regional flashpoint. But the Malaysian side dispelled such underlying concerns at two levels. First, by officially endorsing the importance of healthy bilateral relations. Second, Economic Affairs Minister Azmin Ali, a top lieutenant of Mahathir, said Malaysia was looking to China to provide “global leadership”, not only economic but beyond – for example in exercising soft power by “advancing universal values such as freedom of conscience, mutual respect and justice”. His remarks resonated with those of former UN undersecretary general Noeleen Heyzer, who said cultural exchanges were important to ties between China and Southeast Asia.

The importance of technology and innovation to productive cooperation in the region was an abiding theme, providing platforms for Jack Ma, co-founder and executive chairman of Alibaba Group Holding, owner of the Post, and executive vice-chairman Joe Tsai. Ma said Asia and not the US or Europe, would be the focus of the current, internet-driven revolution of human society. Tsai said with governments keen to foster entrepreneurship and innovation, they should rethink how they tax workers in the technology industry on stock options that amount to foregone salary so as to encourage them to invest themselves “just like investors invest capital”. Former Hong Kong chief executive Leung Chun-ying pointed out the root of the trade war, saying the US needs to reduce its trade balance. The trade war took participants’ minds off the US-China South China Sea dispute, amid concerns it is resurfacing as a potential proxy platform for superpower rivalry. Azmin reaffirmed Malaysia’s support for freedom of navigation. The kind of open dialogue afforded by the conference does no harm to the prospect of a peaceful and mutually respectful resolution of navigational, trade and security issues.

US arrests alleged Chinese spy over theft of aviation secrets — China’s economic and military espionage

October 11, 2018

The U.S. Justice Department said on Wednesday it had arrested and indicted a spy for China’s Ministry of State Security on charges of economic espionage and attempting to steal trade secrets from several U.S. aviation and aerospace companies.

Chinese operative Yanjun Xu was detained in Belgium in April after a Federal Bureau of Investigation probe and extradited to the United States on Tuesday.

The Washington Post reported he was lured to Belgium by U.S. agents.

© Yasuyoshi Chiba / AFP | Men work with a jet engine at General Electric (GE) Celma, GE’s aviation engine overhaul facility in Petropolis, Rio de Janeiro, Brazil on June 8, 2016.

The FBI called it an unprecedented extradition and said the indictment showed the direct oversight of China‘s government in economic espionage against the United States.

The charges come as Washington increases pressure on Beijing over its trade policies and alleged theft of U.S. intellectual property.

Cybersecurity experts said the arrest was another sign of the escalating trade tensions between the two countries, adding they had seen increasing espionage by Beijing for business advantage.

“China is actively engaging in targeted and persistent intrusion attempts against multiple sectors of the economy, including biotech, defense, mining, pharmaceutical, professional services, transportation and more,” said CrowdStrike Chief Technology Officer Dmitri Alperovitch.

Image result for china, stealth fighter, photos

China’s J-20 stealth fighter

A U.S. Department of Justice statement said Xu, a deputy division director for the State Security Department of China’s Jiangsu province, targeted several U.S. aerospace companies, including GE Aviation, a subsidiary of General Electric Co.

It described another unnamed firm as “one of the world’s largest aerospace firms, and a leading manufacturer of commercial jetliners and defense, space and security systems,” and a third as a leader in unmanned aerial vehicle technology.

GE Aviation has supplied engines for large Boeing Co and Airbus SE aircraft, and is working on a new generation of engines for commercial planes and heavy-lift military helicopters.

The indictment against Xu said he targeted aviation firms since around December 2013. It also said he made contact with experts working for the firms and recruited them to travel to China, often for the initial purpose of delivering a university presentation and paying their costs and a stipend.

“This unprecedented extradition of a Chinese intelligence officer exposes the Chinese government’s direct oversight of economic espionage against the United States,” the statement quoted Bill Priestap, the FBI’s assistant director for counterintelligence, as saying.

John Demers, the assistant U.S. attorney general for national security, said the case was not an isolated incident.

“It is part of an overall economic policy of developing China at American expense,” he said. “We cannot tolerate a nation stealing our firepower and the fruits of our brainpower.”

The Chinese Embassy and Xu’s lawyers did not immediately respond to requests for comment.

The maximum penalty for conspiracy and attempt to commit economic espionage is 15 years, while that for conspiracy and attempt to steal trade secrets is 10 years.

The Ministry of State Security is China’s intelligence and security agency and is responsible for counterintelligence, foreign intelligence and political security.

Cybersecurity experts said former U.S. President Barack Obama and Chinese President Xi Jinping had reached an understanding in 2015 on cyber espionage, but the agreement appeared be withering away.

Chris Painter, the former U.S. State Department official who negotiated the agreement, said in a Twitter post it was “not surprising that now the relationship has deteriorated, so has the agreement.”

Late last month, the Department of Justice reported the arrest of a Chinese citizen in Chicago on charges he covertly worked for a high-ranking Chinese intelligence official to help try to recruit engineers and scientists, including some who worked as U.S. defense contractors.

NBC News on Tuesday quoted U.S. officials as saying a professor at a top cancer research center in Houston facing child pornography charges was also under scrutiny for alleged economic espionage for China.



In this undated photo released by China's Xinhua News Agency, made available on Sunday, Nov. 25, 2012, a carrier-borne J-15 fighter jet takes off from China's first aircraft carrier, the Liaoning. China has successfully landed a fighter jet on its first aircraft carrier, which entered service two months ago, the country's official news agency confirmed Sunday. The Liaoning aircraft carrier underscores China's ambitions to be a leading Asian naval power, but it is not expected to carry a full complement of planes or be ready for combat for some time.

See also:

Chinese Navy Short on Carrier-Based Fighters


China ‘nearing mass production’ of J-20 stealth fighter after engine problems ironed out

The People’s Liberation Army J-20

China’s stealth bomber to take to the skies soon

October 10, 2018

A computer-generated rendering of an H-20 bomber. Photo: Twitter

A computer-generated rendering of an H-20 bomber. Photo: Twitter

The long-awaited H-20 is set to have an operational range of 8,000 kilometers without mid-air refueling

hinese media have confirmed that the Hong-20, or H-20, the nation’s next generation strategic stealth bomber that has been more than a decade in the making, may take to the skies very soon.

In August, state broadcaster China Central Television revealed in a documentary marking the 91st anniversary of the founding of the People’s Liberation Army that the first H-20, a genuine “game changer”, could roll off its production line sooner than estimated.

Earlier this month, CCTV confirmed that the first H-20 trial flight was on the horizon.


A CCTV news program offered a glimpse of what is believed to be a prototype of the H-20 bomber. Photo: CCTV screen grab

The Beijing-based Global Times then concluded that the Xi’an plant of the Aviation Industry Corp of China must have wrapped up tests of the new bomber’s avionics, hydraulics and electronics.

Previous overseas reports noted that the H-20 was designed by the Shanghai Aircraft Design and Research Institute. Then, in 2008, a painstaking, decade-long endeavor began to replace the antiquated H-6 series still in service.

The H-6 series and its revamped version the H-6K – a modified model of a 1950s-era Soviet Union Tu-16 Badger – remain the backbone of the Chinese Air Force’s strategic deterrence, often seen taking part in symbolic circumnavigation missions in breach of Taiwan’s airspace.

Known specifications of the new bomber include a wing design that mimics that of the American Northrop Grumman B-2 Spirit stealth bomber to ensure a minimal profile that can slip through an adversary’s radar.

Its weapon bay should carry a payload of no less than 10 tons, either conventional cruise missiles or thermonuclear weapons, with the ability to strike targets from standoff ranges.

Observers say the design objective is for the long-range H-20 to remain airborne for some 8,000 kilometers to jet way beyond the second island chain – formed by Japan’s Ogasawara and Volcano Islands as well as Guam and the US Mariana Islands in the middle portion of the Pacific – without aerial refueling.

News Corp Australia Network also speculated in May that the H-20 could reach northern parts of Australia, after taking off from PLA artificial island bases reclaimed in the South China Sea.

The Global Times once quoted aviation commentator Fu Qianshao as saying that the ultimate goal for the H-20 was to expand its operational range to 12,000 kilometers with 20 tons of payload.

In that somewhat far-fetched scenario, the H-20 would be able to traverse the Pacific and fly close enough to the contiguous United States to be able to fire missiles at American mainland targets.

Read more: Beijing aims to be able to bomb US with its new H-20

Why the PLA’s J-20 jet-fighter has been so hard to spot

Time to End the U.S., China Trade War

October 10, 2018

The world’s first and second largest economies cannot disengage fully, regardless of the actions of particular administrations, say two US foreign policy observers from the Brookings Institution.


The Brookings Institution

Fresh from reworking US trade agreements with North American partners, the European Union, and South Korea, the Trump administration is focusing on its biggest trade irritant, China.

In confronting China, US President Donald Trump enjoys support from a policy community worried about China’s military assertiveness and willingness to flout global norms in fields ranging from international investments to intellectual property.

Image result for china, cargo ship, photos

But President Trump’s demands on China have ranged all over the map, demanding at one point that China reduce its bilateral trade surpluses, later that it drop the “Made in China 2025” technology initiative, and now that it eliminate tariffs that adversely affect Republican voters.

This new charge of election meddling — which President Trump laid out in remarks on nonproliferation to the UN Security Council — has been recently amplified by Vice-President Pence in even harsher terms that stopped just short of calling for full disengagement from China.

Calls for disengagement are premature and dangerous; earlier steps must include finding better US strategies for dealing with China. US policy needs clearer objectives, a more realistic approach, and better tactics to achieve its goals.

Today’s reflexive, tit-for-tat tariff escalation is proving ineffective and may cause lasting damage to both economies and to the critical US-China geopolitical relationship.

Trump Haley

FILE- In this Sept. 24, 2018 file photo, President Donald Trump talks to Nikki Haley, the U.S. Ambassador to the United Nations, at the United Nations General Assembly at U.N. headquarters. Congressional and Trump administration officials told The Associated Press that Haley plans to resign. She was appointed to the U.N. post in November 2016. (AP Photo/Evan Vucci, File)


The United States has inter-related problems with China and at different times has emphasised different issues, confusing Chinese negotiators.

President Trump has made a big deal of the bilateral trade imbalance. Economists do not see this as a problem.

China’s overall current account surplus, the broadest measure of trade, is down to about 1 per cent of GDP in 2018. China has deficits with many countries that export natural resources and surpluses with some advanced economies, like the United States, that import its manufactured goods.

The administration could probably reach an agreement to sell more to China, especially agricultural and energy products. Other things being equal, this would reduce China’s bilateral surplus. But the United States would then likely sell less of those products to other countries so that those bilateral imbalances would worsen. Nothing real would have happened.

A second and more important issue is that China has many market access restrictions. Some of these are old-fashioned protectionism: For many years, China had a 25 per cent tariff on auto imports. That has recently been reduced to 15 per cent, but such taxation is still high in today’s world.

There are also many sectors in which China restricts direct foreign investment, usually by requiring foreign firms to be minority partners in joint ventures.

Here, China is out of step with practices in other large emerging markets such as Brazil, India and South Africa. This investment protectionism puts foreign firms at a disadvantage and results in their transferring technology to Chinese state enterprises that will eventually be their competitors.

But China is now showing willingness to reduce restrictions in autos and financial services. This is a good start and a promising area in which Washington could make real progress in negotiations.

READ: Despite headwinds, China continues to open up, a commentary


A third issue closely related to the second is technology competition between these two biggest economies in the world.

These two spend the most, globally, on research and development, and there will naturally be competition to develop the technologies of the future. As long as it is on a level playing field, such competition is healthy. Each is likely to make breakthroughs.

The innovators will capture some of the benefits, but the nature of technology diffusion is that much of the benefit will spread to the whole world.

Chinese President Xi Jinping (middle) talks with Facebook Chief Executive Mark Zuckerberg (right) as Lu Wei, China's Internet czar, looks on during a gathering of CEOs and other executives at the main campus of Microsoft Corp September 23, 2015  in Redmond, Washington.

Chinese President Xi Jinping, centre, talks with Facebook chief executive Mark Zuckerberg, right, as

Chinese President Xi Jinping, centre, talks with Facebook chief executive Mark Zuckerberg, right, as Lu Wei, left, China’s Internet czar, looks on at Microsoft’s main campus in 2015 (Photo: AFP/TED S. WARREN)


Yet China distorts this competition in multiple ways. Chinese firms operating behind protective barriers often gain extra resources to take their innovations out to the world.

China’s industrial plan, “Made in China 2025,” sets targets for domestic self-sufficiency in key industries, and some tools to achieve these goals will violate market-oriented rules.

READ: The trouble with ‘Made in China’, a commentary

Direct subsidies to innovators and to state-owned enterprises also tilt the playing field toward China’s technologically sophisticated companies.

Weak international property rights protection in China, especially for foreign firms, puts US technologies at risk.

Electronics factory in Shenzhen. Steve Jurvetson/Flickr

Finally, as suggested by recent reports, China still condones cyber theft of commercial secrets.

Pushback against these policies is needed, but it would be far more effective if mounted by a global coalition of the United States and its allies.

More difficult issues arise for technologies that have defence applications. Each side has trade and investment restrictions concerning defence-related technologies.

The key issue here is to identify and update the areas that need to be restricted for legitimate security reasons. At the same time, these restrictions must not be allowed to become excuses for protectionism.

To address these multiple concerns, some voices in Washington are calling for the United States to disengage from China. They argue that it will not be possible to have fair competition and that the two countries are likely to be in conflict in the future.

This is a dangerous idea. First, US allies are not going to follow if the US adopts a Cold War policy of trying to contain China.

Second, an isolated China will have even stronger incentives to adopt unfair practices to achieve economic and technological parity. It is better to manage the competition than to assume that it is headed for conflict.



The rapid, wide-ranging escalation of tariffs in the US-China trade war has no precedent in the years since the Great Depression. The war began in early 2018 with US tariffs on solar panels and washing machines, and has now escalated to covering US$250 billion of US imports from China.

China, in turn, has imposed tariffs on the bulk of its imports from the United States. These actions — mostly unilateral and pointedly discriminatory — are almost certainly inconsistent with World Trade Organisation (WTO) rules.

The tariffs applied by the two countries are not “remedies” in the sense of correcting market distortions, nor are they preventing, say, sharp adjustments in a declining industry.

On the contrary, they will cause dislocations, raise costs, and increase uncertainty. Their value lies in the possibility that they will force the other side to make concessions, or at least deter it from even worse behaviour.

READ: Why tariffs are the wrong instruments to address US-China trade issues, a commentary

If that doesn’t happen — if neither side capitulates to the other’s demands — the tariffs will prove to be costly, mutual mistakes.

Related image

Chinese exports piled up for shipment. Credit Reuters

And that seems to be where the US-China trade war is headed. These are large, domestically oriented economies that depend lightly on each other’s markets, so punitive tariffs have limited macroeconomic effects.

The value added in China’s exports to the United States amounts to about 2 per cent of the country’s GDP, down significantly from just a decade ago.

United States exports to China amount to only about 1 per cent of GDP. In the short run, these tariffs will subtract only a small amount from each economy’s growth. Capitulation on either side is very unlikely.

Over time, the costs of these tariffs will grow. The United States is apparently confident in threatening China because US imports from China exceed US exports to China.


But the asymmetry is illusory; tensions are already spilling into areas where the two countries are both consequential, including relations on the Korean Peninsula and between the Chinese and US militaries in the Western Pacific.

In these new spheres the potential for mutual damage is still higher.

Meanwhile, rapid-fire retaliations have all but closed off meaningful negotiations. The real issues, noted above, are complex and cannot be resolved by tweaking a ready template, such as existing trade agreements in the case of the South Korea-US free trade deal (KORUS) and the North American Free Trade Agreement (NAFTA).

In mid-September, Chinese and US officials apparently agreed to efforts to launch negotiations, but were then undermined by President Trump. With capitulation as the only option, Chinese decision makers halted discussions.


The self-defeating cycle of tit-for-tar tariff escalation is in neither country’s interest.

Even if the US goal were to disengage — an objective that we think would be wrong —that could be accomplished firmly and with fewer side effects with widely based tariffs and prohibitions on specific trade and investment flows. And if the United States does intend to solve genuine problems, it can suspend punitive tariffs while negotiations make progress.

Current tariffs are hardening positions rather than producing meaningful effects. They are taxes that make American producers less competitive and ultimately fall on consumers; they are bound to become unpopular over time.


Avoiding ineffective tariff escalation is not capitulation but smart policy, the first step toward achieving the goal of disengagement or negotiation.

An end to tit-for-tat responses — what the Hudson Institute’s Herman Kahn described in 1965, for nuclear war, as the “orgiastic spasm of destruction in which all the buttons are pressed and the commanding officers go home” — will offer immediate economic benefits to both sides and improve the climate for negotiation.

Stopping tit-for-tat escalation is beneficial even for a single country. The value of avoiding an “own goal” – imposing costs on the home economy — is self-evident.

In addition, there may well will be advantages for China from some steps advocated by the United States, but it is hard to pursue these ideas in the trade war environment.

The trade war plays into the hands of those who want to bolster state enterprises and maintain protectionism.

By putting tit-for-tat policies in the rearview mirror, China can focus on long-term priorities. These may include policies that have little to do with the United States, including the Regional Comprehensive Economic Partnership (RCEP) and the Belt and Road Initiative, as well as opening sectors to improve China’s competitiveness.

Along these lines, China recently cut tariffs on more than 1,500 products and eased investment restrictions to signal its continued economic opening.


Fruitful agreements between China and United States, however dim they may appear today, are possible. Many in China recognise that recent trends toward centralisation have backfired, and that continued growth will depend on renewed “opening up” in sectors ranging from financial services to technology.

China can take numerous unilateral steps that will benefit its domestic economy and be welcomed by Americans.

Within reasonable limits, the world’s first and second largest economies cannot disengage fully, regardless of the actions of particular administrations. They will compete in many areas and remain complementary in others.

The success of each will depend far more on its own policies than the policies of the other. Their joint goal must be to eliminate irritants, reduce distrust, and wall off areas of rivalry from those that allow mutually beneficial collaboration.

Even though neither China nor the United States is currently a party to the Trans-Pacific Partnership, that agreement establishes guidelines for competition in areas such as internet openness, data mobility, intellectual property protection, open investment, and the neutrality of state-owned enterprises.

These issues will have to be addressed sooner or later, whether now or under future administrations.

David Dollar is a senior fellow in the John L Thornton China Center at the Brookings Institution. Peter A Petri is the Carl J Shapiro Professor of International Finance at the Brandeis International Business School and a nonresident senior fellow in the John L Thornton China Center at the Brookings Institution. 

This commentary first appeared in the Brookings Institution’s blog Order from Chaos