6/27/2019

June 27, 2019

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">‘China’s continuing drag on the global economy’ </h1><div class="date">June 27, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. ‘The Value of Global China’: McKinsey</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d3b822773102c2878bd87d1_The%20Value%20of%20Global%20China-McKinsey.jpg" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">McKinsey<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘At a time when the risks of international engagement are more obvious than ever, China faces important questions about whether – and to what extent – it should continue to pursue opening up its economy to the rest of the world. At stake may be some $22-37 trillion in economic value – or 15-26% of world GDP – by 2040.’The excerpts below are from <a href="https://www.project-syndicate.org/commentary/china-global-integration-trade-investment-liberalization-by-jonathan-woetzel-and-jeongmin-seong-2019-07" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘The Value of Global China.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">That essay is based on and is barely a taste of <a href="https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/China/China%20and%20the%20world%20Inside%20the%20dynamics%20of%20a%20changing%20relationship/MGI-China-and-the-world-Full-report.ashx" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China and the world: Inside the dynamics of a changing relationship,’</a> 168-page report from the McKinsey Global Institute and a team led by <a href="https://www.mckinsey.com/our-people/jonathan-woetzel" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Jonathan Woetzel</a>.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The report, long on charts and graphics, is a surprisingly quick-ish read.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Or you can ease into it through the 2-page <a href="https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/China/China%20and%20the%20world%20Inside%20the%20dynamics%20of%20a%20changing%20relationship/MGI-China-and-the-world-In-brief.ashx" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Briefing Note' </a> and the 32-page <a href="https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/China/China%20and%20the%20world%20Inside%20the%20dynamics%20of%20a%20changing%20relationship/MGI-China-and-the-world-Executive-Summary.ashx" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Executive Summary.’</a></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Absolutely terrific– one of the few must-reads so far this year.</li></ul>And don’t miss what seems to be almost a companion piece, <a href="https://www.mckinsey.com/featured-insights/innovation-and-growth/globalization-in-transition-the-future-of-trade-and-value-chains" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Globalization in transition: The future of trade and value chains.’</a><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;">'The Value of Global China'‘Over nearly 40 years of economic reform, China has reaped extraordinary rewards from opening up to the world,’ write <a href="https://www.mckinsey.com/our-people/jonathan-woetzel" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Jonathan Woetzel</a> and <a href="https://www.mckinsey.com/our-people/jeongmin-seong" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Jeongmin Seong</a>.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the potential of such engagement is far from depleted, our <a href="https://www.mckinsey.com/featured-insights/china/china-and-the-world-inside-the-dynamics-of-a-changing-relationship" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">new research</a> shows.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For example, while China commands 11% of global merchandise trade, it accounts for only 6% of global trade in services.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Moreover, while China’s banking, securities, and bond markets all rank among the world’s top three in size, foreign entities account for less than 6% of their value.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And though China has 110 Global Fortune 500 companies, less than one-fifth of their revenue is <a href="https://us.spindices.com/indexology/djia-and-sp-500/sp-500-global-sales" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">earned overseas</a>, compared to 44% for S&P 500 firms.’</li></ul>‘Even before today’s trade tensions, the relationship between China and the world had been changing.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s relative exposure to the rest of the world – in terms of trade, technology, and capital – peaked in 2007, and has been declining ever since, producing an overall decline from 2000 to 2017.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This partly reflects the economy’s growing emphasis on domestic consumption – a trend that accelerated after the global financial crisis sharply reduced foreign demand for China’s exports.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Over the same period, however, the rest of the world’s exposure to China increased, highlighting the country’s growing importance as a market, supplier, and provider of capital.’</li></ul><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d3b83efb1eba455371695f9_China%20world%20exposure%20index.png" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;">‘This divergence arguably reflects the unbalanced dynamic that is fueling trade tensions with the United States. The sheer scale of China’s impact may also be a factor.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Closer economic ties with the world have fueled China’s growth, as the country learned best practices from global players and provided cost-competitive products.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But there have been losses, too, notably in the form of manufacturing jobsin both China and advanced economies.’</li></ul>‘In any case, China and the world face important questions about the trajectory of their mutual engagement.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At stake, according to our simulation, may be some $22-37 trillion in economic value – or 15-26% of world GDP – by 2040.’</li></ul>‘While less predictions than possibilities, our simulation provides insight into the implications of the choices for China and the world in five key areas.’<h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘1. Growth as an import destination’:</h5><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China may either pull back from international trade, and the world may fail to reform the multilateral trading system, causing total global trade flows to decline.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Conversely, China could push forward, establishing itself as a major destination for exports from emerging and advanced economies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The total value at stake, according to our simulation, is $3-6 trillion between now and 2040.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘2. Liberalization of services’:</h5><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China may maintain current restrictions on its services sector, which create a productivity gap vis-à-visthe developed economies, or it could roll back these restrictions, attracting more foreign players and thus boosting the sector’s growth and global competitiveness.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Here, $3-5 trillion could be at stake.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘3. Globalization of financial markets':</h5><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China and the world can integrate their financial markets, thereby broadening investor choice and improving capital allocation, or they can maintain the status quo, risking more volatility and low productivity growth.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We estimate that $5-8 trillion of value could be at stake.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘4. Collaboration on global public goods’:</h5><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Global challenges, such as climate change, and provision of adequate public goods, such as infrastructure, depend on China and the world collaborating.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Greater or less collaboration could put about $3-6 trillion of value at stake, and potentially much more, as climate change’s impact is likely to be much greater after 2040.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">‘5. Flows of technology and innovation’:</h5><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Increased technology (and knowledge) flows between China and the rest of the world would support the development of globally competitive, productivity-enhancing solutions; decreased flows would undermine global productivity.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The world can also decide how to facilitate more or fewer flows of technologies that are increasingly subject to security reviews.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘According to our simulation, $8-12 trillion could be at stake, depending on the extent to which technology flows unleash innovation and productivity growth.’</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;">‘It is important to note that these choices are not just China’s; the world also has decisions to make.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For example, by working together to reform the global trading system in ways that strengthen dispute resolution and boost inclusiveness, countries could ensure that the benefits from increased Chinese (and other) trade are shared broadly.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Furthermore, if China moves to globalize its financial sector further, the rest of the world must be open to Chinese investment.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And, of course, all countries should play a role in delivering global public goods; on climate change, in particular, they must commit to reaching specific milestones in line with their capabilities and their contributions to the problem. ‘</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Finally, countries should ensure that their trade and investment policies are conducive to continued transfer of technology and knowhow.’</li></ul></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. China's Maritime Militias in the ‘Gray Zone’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d3b8536cb7dfd240bee7f27_China%27s%20Maritime%20Militias%20in%20the%20South%20China%20Sea.jpg" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">CSIS<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">“War without Gun Smoke” (一场没有硝烟的战争): ‘Paranaval forces, and the “gray zone” in which they typically operate, are on the frontlines of China’s seaward expansion.’I was astonished years ago when China claimed rights to essentially the entire South China Sea, and when it began to build islands there to enforce its claim – and the U.S. and the rest of the world let it happen.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">That astonishment is now mixed with some admiration at how cleverly China is protecting its spoils – a paranaval militia.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Here is a short video followed by details of how this works.</li></ul><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><a href="https://www.youtube.com/watch?v=y2Rk1wRCfnc" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China's Maritime Militias in the South China Sea’</a> is 2m20s video by the Center for Strategic and International Studies (CSIS).‘China is asserting claims to all the waters and airspace of the South China Sea,’ says narrator Gregory Poling of the CSIS.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And they're doing it not primarily with military or law enforcement vessels.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They're doing it with an armed militia that camouflages itself by operating on fishing boats.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The maritime militia is really the tip of the spear for China's power projection in the South China Sea.’</li></ul>‘The South China Sea is the most contested piece of geography on the planet.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Thelargest recent deployment we've seen of this militia has taken place over the last seven months around Thitu Island, which is occupied by about a hundred Filipino civilians and a small military contingent.’</li></ul>‘China has had dozens of these militia boats surrounding the island every day.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘On a shot from December 20th what you see is 95 Chinese boats – the heaviest day that we monitored.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Every one of them is large.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘None of them broadcasting the signals that they should be to avoid collisions.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘None of them with nets or other gear in the water - none of them fishing.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They just sit there for long periods of time monitoring and intimidating the Filipinos.’</li></ul>‘It seems clear that China's goal in the South China Sea is to establish effective dominance of all the waters and airspace within what they call the “Nine-Dash Line.”’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They don't want to do that by fighting a military conflict with the United States or anybody else.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘What they want to do is use civilian actors - these paramilitary forces - to effectively control the space, make it impossible for their neighbors to operate, and therefore win without ever having to fight.’</li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;">Here is more about the China’s paranaval militia, taken from several interviews by Andrew S. Erickson and Ryan D. Martinson of the Naval War College’s China Maritime Studies Institute and the editors of China’s Maritime Gray Zone Operations.‘Chinese policymakers are very clear about the fact that their long-term goal is to exercise “administrative control” over all of the 3 million square kilometers of Chinese-claimed maritime space.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This includes all of the Bohai Gulf, large sections of the Yellow Sea and East China Sea, and all of the area within the nine-dash line in the South China Sea.’</li></ul>‘To this end, China employs maritime “Gray Zone” strategies have three primary characteristics.’<ol style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They seek to alter the status quo.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They do so gradually.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And they employ“unconventional” elements of state power.’</li></ol>‘Today, a large proportion of Chinese-claimed maritime space is controlled or contested by other countries.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This is the status quo that Beijing seeks to alter.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Its campaign to assert control over these areas has progressed over a number of years.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Clearly, then, Chinese leaders are in no rush to achieve their objectives.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And while China’s Navy plays a very important role in this strategy, it is not the chief protagonist.’</li></ul>‘The Chinese Coast Guard (CCG) and the People’s Armed Forces Maritime Militia (PAFMM) perform the vast majority of Chinese maritime gray zone operations.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Chinese strategists and spokespeople frame their actions as righteous efforts to protect China’s “maritime rights and interests.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The CCG uses law enforcement as a pretext for activities to assert Beijing’s prerogatives in disputed maritime space.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘PAFMM personnel are often disguised as civilian mariners, especially fishermen.’</li></ul>‘The PAFMM is a state-organized, developed, and controlled force operating under a direct military chain of command.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This component of China’s armed forces is locally supported, but answers to China’s centralized military bureaucracy, headed by Commander-in-Chief Xi Jinping himself.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘While most retain day jobs– they do fish, at least some of the time - militiamen are organized into military units and receive military training, sometimes from China’s Navy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In recent years, there has been a push to professionalize the PAFMM.’</li><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Sansha City Maritime Militia, headquartered on Woody Island in the Paracels, is the model for a professional militia force.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is outfitted with seven dozen large new ships that resemble fishing trawlers but are actually purpose-built for gray zone operations.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Lacking fishing responsibilities, personnel train for manifold peacetime and wartime contingencies, including with light arms, and deploy regularly to disputed South China Sea areas, even during fishing moratoriums.’</li></ul></ul>‘Meanwhile, the PLA Navy also plays a role in disputed waters, serving what Chinese strategists call a “backstop” function.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It discourages foreign countries from pushing back too forcefully and stands ready over the horizon to come to the aid of China’s gray zone forces should the situation escalate.’</li></ul>‘Using paranaval forces like the coast guard and the militia allows China to find an optimal balance between “rights protection” and “stability maintenance.”’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Paranaval forces are much less provocative than gray-hulled warships.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese coast guard operates on the pretext of routine law enforcement, and militia often pretend to be fishermen.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet both forces can be used to pursue traditional military objectives of controlling space.’</li></ul></td></tr></tbody></table></td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘The Failures of the “Failure of Engagement” with China’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img src="http://www.paulsoninstitute.org/wp-content/uploads/2016/04/Iain-Johnston-1-725x443.jpg" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">The Washington Quarterly ▪ Summer 2019<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘What do they believe the world would look like if the United States had rejected engagement early on? Would China be more or less socially and economically liberal?’‘One core element in the current narrative in Washington about China is that the previous U.S. engagement strategy, pursued mainly from the Clinton administration on, has failed,’ writes Harvard’s Alastair Iain Johnston in <a href="https://cpb-us-e1.wpmucdn.com/blogs.gwu.edu/dist/1/2181/files/2019/06/Johnston.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘The Failures of the “Failure of Engagement” with China.’</a>‘The “engagement failed” idea rests on two empirical claims and one (mostly unspoken) counterfactual claim.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The first empirical claim is that engagement was designed to create a Chinese commitment to the U.S.-dominated liberal order, but basically failed to change China’s preferences toward the international norms and institutions that constituted this order.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The second empirical claim is that engagement was designed to liberalize, even democratize, China’s political system, and as such has failed.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The counterfactual claim is that, had the United States never adopted the engagement strategy in the first place, the United States would be better off today because it would have been better prepared to compete with or contain China earlier.’</li></ul>‘According to the current narrative, a primary criterion for the success or failure of U.S. engagement was whether an authoritarian China would evolve into a much more politically liberal and/or democratic China.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Since a politically liberal, even democratic, China has not emerged, engagement has been a failure.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Vice President Mike Pence underscored this conclusion in an October 2018 speech on China: “Previous administrations made this choice [economic engagement of China] in the hope that freedom in China would expand in all of its forms–not just economically, but politically, with a newfound respect for classical liberal principles, private property, personal liberty, religious freedom—the entire family of human rights. But that hope has gone unfulfilled.”’</li></ul>‘But today’s dominant narrative about the failure of engagement—embodied in the 2017 National Security Strategy and in a great deal of punditry of late—is ahistorical and simplistic. It mischaracterizes and sometimes omits the causal arguments used by key figures in the engagement strategy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For the most part, the U.S. government’s engagement strategy did not posit that systemic political liberalization or democratization was inexorable or inevitable.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Substantive political liberalization and/or democratization in China would be a hard and unpredictable slog that combined both the liberalization of mass attitudes in China, external pressure on the PRC regime, as well as considerable change in the preferences for self-preservation of the Communist Party.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Nor was political change in China the core goal of engagement.’</li></ul>‘China’s economic development and integration, aided to a large degree by U.S. engagement policy, appears to have worked in liberalizing societal attitudes, as engagers predicted.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Whether the regime would respond positively to these attitudes and preferences was less certain and depended on the interests of the Communist Party and, to some degree, on external pressure on human rights.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Either way, according to the engagement argument, a positive outcome in democratizing the Chinese government was neither inevitable, nor even the principal goal of engagement.’</li></ul>‘Finally, putting aside the conceptual and empirical problems with the “engagement failed” argument, its proponents need to think more carefully about the counterfactual logic of their claim.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘What do they believe the world would look like if the United States had rejected engagement early on? Would China be more or less socially and economically liberal? Would China be more or less supportive of the nuclear nonproliferation regime? Would China be more or less supportive of containing greenhouse gases?’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The “engagement failed” advocates implicitly and sometimes explicitly make the following counterfactual argument: if the United States had not engaged China, it would have had at least a two decade jump in balancing or containing the PRC.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The United States would have mobilized the capabilities and resources to deal with China earlier, making U.S. interests in the Asia-Pacific and elsewhere more secure than they are today.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But “engagement failed” advocates would also logically have to make a strong case against other, equally plausible, but less optimistic counterfactual histories.’</li></ul>‘One such alternative might be that without engagement, the United States would have faced a hostile, nuclear-armed China alienated from a range of international institutions and norms, kept out of global markets, and with limited societal/cultural exchanges.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In other words, a China still ruled by a ruthless Leninist Party but one that had massively mobilized and militarized to vigorously oppose U.S. interests.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Then there would be the overall socioeconomic benefits forgone due to earlier confrontation with China—the material benefits from trade and the future benefits from cooperation on the threat from climate change.’</li></ul>‘In short, this counterfactual reality would feature a much more dystopian U.S.- China relationship than exists today.’</td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. Hardline trade minister joins China’s negotiating team</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://assets.bwbx.io/images/users/iqjWHBFdfxIU/ig5oaDDTs0tI/v0/1000x-1.jpg" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Bloomberg<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Zhong has a reputation as a tough negotiator and is seen by some on the U.S. side as a hard-liner who could make discussions even more hostile than they have been already.’‘After spending most of the past year in the relative shadows of the talks, Chinese Commerce Minister Zhong Shan has joined two conference calls with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in recent weeks and is expected to be at the table when the two sides start meeting in Shanghai on Tuesday next week,’ Bloomberg <a href="https://www.bloomberg.com/news/articles/2019-07-25/new-entrant-to-u-s-china-trade-negotiations-raises-questions" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reports</a>.‘But why Beijing has chosen to elevate him is unclear, said the official, and there are questions over how he could affect the tone in the talks.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Zhong has a reputation as a tough negotiator and is seen by some on the U.S. side as a hard-liner who could make discussions even more hostile than they have been already.’</li></ul>‘Since the talks collapsed in May, Zhong’s rhetoric toward the U.S. has become less complimentary than it once was.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“The U.S. has started trade frictions with us. It violates the WTO rules and is typical unilateralism and protectionism,” he said in a recent interview with the People’s Daily. “We need to uphold the spirit of struggle and firmly defend the interest of our nation and people, as well as the multilateral trading system.”</li></ul>‘Part of Zhong’s strength in China comes from his long-running links to Chinese President Xi Jinping.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He became deputy governor of Zhejiang province in 2003 and worked under Xi, then the provincial party chief, before moving to Beijing as vice commerce minister in 2008.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He was appointed China’s international trade representative in 2013 and was involved in the negotiation of a number of bilateral free-trade agreements.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He was also dispatched to deal with the European Union on trade conflicts over solar products and telecommunication equipment.’</li></ul>“With more experience in dealing with the nitty-gritty of trade negotiations than Liu and a lower political rank, Zhong is more likely to stick to detail and defer major decisions to the very top leadership,” said Bonnie Glaser, director of the China Power Project at the Center for Strategic and International Studies in Washington.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“People who are working for the Chinese Communist party in these kinds of negotiations are all hardliners,” she said. “You will not find the gaps that you see in the United States between a Lighthizer and a Mnuchin, with which you can very clearly find differences in approach and differences in their views on what a deal might look like.”</li></ul></td></tr></div></div><div id="article5" class="post-card"><div class="t2-block">5. ‘The Continuing Chinese Drag on the Global Economy’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d3b86cab1eba4aa2f16a463_Brad%20Setser%20copy.jpg" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">CFR<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Trump's trade policies aren't the only reason for the slowdown in global trade.’‘The June trade data shows a rising Chinese trade surplus,’ writes Brad Setser of the Council on Foreign Relations.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And that isn’t just a function of lower oil prices.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s manufacturing trade surplus is up significantly.’</li></ul>‘And that rise has come even as China’s manufacturing surplus with the United States has fallen a bit—which by definition means that China’s surplus with the rest of the world is rising.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In fact, China's manufacturing surplus with countries not-governed by Donald J. Trump is up about $100 billion over the last 12 months.’</li></ul><img src="https://cfrd8-files.cfr.org/sites/default/files/styles/large_xl/public/image/2019/07/China%20Manufacturing%20Trade%20Balance%20%20with%20U.S.%20vs.%20RoW%20%28T12M%20Sums%2C%20USD%20Billions%2C%20U.S.%20is%20from%20the%20U.S%20.Data%29_1.png" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;">‘The rise in China's overall surplus in manufacturing trade hasn’t come from particularly strong Chinese exports.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Take out trade with the United States and Chinese exports are up a bit. But the pace of growth is modest.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The rise in the surplus is mostly the result of weak Chinese imports.’</li></ul><img src="https://cfrd8-files.cfr.org/sites/default/files/styles/large_xl/public/image/2019/07/China%27s%20Trade%20in%20Manufactures%2C%20Excluding%20the%20United%20States.png" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;">‘Of course, some of that change is nominal.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We normally think of swings in prices impacting commodity trade, not manufactured trade.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But China imported about $300 billion in imported circuits last year, and <a href="https://www.wsj.com/articles/memory-boost-unlikely-to-last-11562940800" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">memory chip prices were way down </a>before the recent trade fight between Korea and Taiwan.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Falling prices on chips though should reduce the nominal value of both China's imports and its exports (imported semiconductors are re-exported as computers and smart phones and networking equipment)—it doesn't completely explain the current gap between China's import and export growth.’</li></ul>‘And some of the fall in imports reflects falling exports to the United States, as roughly a third of China’s imports are for re-export.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But if China's exports to the U.S. are down by just over 10% ($60 billion, roughly) that only works out to a $20 billion fall in China's imports from the rest of the world.’</li></ul>‘The rise in China's surplus consequently seems to reflect ongoing domestic weakness), not just weakness in China's exports.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And that's impacting all of China's trading partners.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘No one is doing particularly well selling to China right now.’</li></ul><img src="https://cfrd8-files.cfr.org/sites/default/files/styles/large_xl/public/image/2019/07/China%27s%20Manufacturing%20Trade%20%28exc.%20the%20United%20States%2C%20T12M%20Sums%2C%20USD%20billions%29.png" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;">‘So China's trade surplus with countries that haven't raised tariffs is rising. What of the United States?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘U.S. imports of manufactures of non-Chinese manufactures are still up 5 percent year over year in the most recent data (last data point is May).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The U.S. isn’t providing the kind of big positive impulse to the world economy that it provided in the first part of 2018 (nothing like a 10 percent y/y increase in the world's largest importer of manufactures to juice global trade numbers).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘However, if you set China aside, the net impulse to global trade from the United States is still positive.’</li></ul><img src="https://cfrd8-files.cfr.org/sites/default/files/styles/large_xl/public/image/2019/07/U.S.%20vs.%20Chinese%20Manufacturing%20Imports%20from%20Third%20Party%20Markets.png" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;">‘And, well, the United States hasn't been competing that effectively for global demand either.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘U.S. exports of manufactures are now down year over year. Unlike China.’</li></ul><img src="https://cfrd8-files.cfr.org/sites/default/files/styles/large_xl/public/image/2019/07/U.S.%20vs.%20Chinese%20Manufacturing%20Exports%20to%20Third%20Party%20Markets_0.png" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;">‘Some of the growth in U.S. imports may be the product of the diversion of trade away from China (but likely not that much in aggregate, even if the effect is significant for specific countries—U.S. imports from Vietnam are up a lot, but imports from Vietnam are roughly 1/10th as large as imports from China).’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And it is possible that China’s weakness is a function of the broader uncertainty that Trump has introduced into the global trading system.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Thus Trump's tariffs have an impact that extends well beyond their direct impact on bilateral Sino-American trade.’</li></ul>‘But right now, it looks like China’s own self-induced slowdown—China tightened policy out of concerns about excessive credit growth back in 2018, and China's auto market has been in the doldrums for reasons completely independent from the trade war—has been an important independent factor in slowing global trade.’‘And, for the non-Chinese world, the United States remains a demand locomotive.’<img src="https://cfrd8-files.cfr.org/sites/default/files/styles/large_xl/public/image/2019/07/U.S.%20Trade%20Balance%20in%20Manufacturing%20Trade%20%28exc.%20China%2C%20T4Q%20Sums%2C%20USD%20Billions%29.png" alt="CHINADebate" width="100%" style="width: 100%;margin: 0 auto;"> </td></tr></div></div></div>

6/26/2019

June 26, 2019

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">Xi's 'Self-reliance' - Why Blacklisting Huawei Could Backfire</h1><div class="date">June 26, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Greetings!Rather than cave to President Trump, Xi Jinping is renewing the call for Chinese ‘self-reliance.’That term has a long and evolving history in the Chinese Communist Party.So, just what Xi means is important to understanding his position.Part of China’s efforts toward ‘self-reliance’ includes Huawei.So President Trump’s blacklisting Huawei could backfire. Instead of forcing concession from Xi, Xi might double-down on Chinese self-reliance.And, over time, China may indeed become self-reliant – and not just in technology.To highlight the issue, I have made ‘self-reliance’ red and underlined throughout.Four essays today to cover these topics:<ol style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Xi Jinping’s Trade Conundrum: Why the Chinese Leader Isn’t About to Back Down</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Why Blacklisting Huawei Could Backfire</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">BACKGROUNDER | Huawei: China’s Controversial Tech Giant</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Mao Redux: The Enduring Relevance of Self-reliance in China</li></ol>Let me know what you think!</td></tr></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. Xi Jinping’s Trade Conundrum: Why the Chinese Leader Isn’t About to Back Down</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://files.foreignaffairs.com/styles/article_lead_1x/s3/images/articles/2019/06/19/xi.jpg?itok=QHzgAv8G" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Foreign Affairs<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">For all the talk of self-reliance, China remains dangerously dependent on American technology and trade.’‘A month after American and Chinese negotiators failed to seal what was supposed to be a “slam dunk” of a trade deal, observers on both sides of the Pacific are still scratching their heads over what went wrong,’ writes <a href="https://www.csis.org/people/christopher-k-johnson" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Chris Johnson</a> of the Center for Strategic and International Studies and is a former senior China analyst at the CIA in <a href="https://www.foreignaffairs.com/articles/china/2019-06-20/xi-jinpings-trade-conundrum" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Xi Jinping’s Trade Conundrum’</a> in Foreign Affairs.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But in Washington and Beijing, leaders already appear to be gearing up for a longer-term struggle, making a <a href="https://www.foreignaffairs.com/articles/china/2018-11-27/there-no-grand-bargain-china" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">true deal</a>—one that resets rapidly deteriorating bilateral ties—increasingly elusive.’</li></ul>‘In the U.S. news media, most <a href="https://www.wsj.com/articles/frustration-miscalculation-inside-the-u-s-china-trade-impasse-11557692301" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">commentators</a> have blamed China for the recent effort’s collapse.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At the last minute, this <a href="https://www.nytimes.com/2019/05/06/us/politics/trump-tariffs-china.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"> analysis</a> suggests, China reneged on terms that U.S. Trade Representative Robert Lighthizer and his Chinese counterpart, Vice Premier Liu He, had painstakingly hammered out over 11 rounds of tough, often heated negotiations.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Among the many competing <a href="https://www.nytimes.com/2019/05/16/world/asia/trade-xi-jinping-trump-china-united-states.html?login=email&auth=login-email" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">hypotheses</a> for China’s seemingly abrupt about-face, one has <a href="https://asia.nikkei.com/Editor-s-Picks/China-up-close/How-Xi-Jinping-s-colleagues-rejected-an-unequal-trade-deal" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">gained particular credence</a>, and that is that unidentified “hawks” or “vested interests” in the Politburo of the Chinese Communist Party (CCP) rejected the concessions that Liu—and by extension his boss, ‘Chinese President Xi Jinping—made in the negotiations.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But this notion is simply absurd.’</li></ul>‘In his nearly seven years in office, Xi has relentlessly<a href="https://www.foreignaffairs.com/articles/china/2019-03-06/problem-xis-china-model" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"> centralized</a> decision-making authority in his hands.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He has manipulated the military, the security services, and the CCP’s propaganda machine to silence his opponents and effectively coup-proof his rule.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Doing so has allowed him to pursue an assertive style of Chinese statecraft, one less awestruck by American power than in the past.’</li></ul>‘Against this backdrop, the idea that hard-line underlings could have pulled Xi’s policy toward the United States off course isn’t just wrong-headed—it’s dangerous for U.S. policy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Those who believe that Xi can be bullied by hard-liners must also imagine that he is on the defensive, if not on the ropes, at home and as such is unable to return to the original terms of the trade deal.’ </li></ul>‘Xi very likely orchestrated the turnabout himself.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Such a move would make sense, given that within the CCP’s unique ecosystem, leaders generally gain more by outflanking hard-liners than by siding with reform-minded technocrats.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In fact, Xi has made seizing the nationalist high ground—in order to deny it to his opponents—a hallmark of his rule.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Xi likely shifted China’s negotiating posture in order to stall the talks, which gives him leverage even while he retains the flexibility to return to the negotiating table whenever he believes the conditions are right.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘By unleashing its own hawks, the Trump administration has actually made such a pivot much more complicated.’</li></ul>‘Understanding Xi as fully in command, rather than as having been outplayed by hard-liners within the Politburo, sheds useful light not only on the collapse of the trade talks but also on the direction of China’s domestic and foreign policy. Xi has two competing—and possibly contradictory—impulses when it comes to managing the trade dispute with Washington.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘On the one hand, he wants to show that China is no longer the weak and backward country that suffered a “century of humiliation” at the hands of Western and Japanese imperialists. Rather, it has become a strong, confident, and modern power.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘On the other hand, Xi is fully aware that China is struggling to manage its transition from an old, dirty, and industry-heavy economy to a twenty-first-century knowledge economy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Such a transition will inevitably cause substantial economic dislocations, which risk disrupting the country’s seemingly smooth and inexorable rise.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But any prolonged setback runs the risk of increasing Chinese dependency on the United States at a time when Washington’s trade policies are particularly unfriendly.’</li></ul>‘In depicting China as a great power on the world stage, Xi seeks to reframe the larger narrative of the CCP and its leadership of the country.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The CCP already bases its legitimacy on performance, and in particular on its capacity to break through the “middle-income trap,” the plateau where economic theory holds that a country’s development can get stuck for structural reasons.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Xi’s claim that he is leading the country into a new era places additional pressure on the party to deliver real improvements in living conditions—and fast.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the United States dominates a number of industries that are essential to building a modern high-tech economy, most notably the semiconductor industry, and as a result China cannot completely control its own destiny.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Trump administration erased any doubts on that score when it issued Commerce Department denial orders against China’s two leading telecommunications companies, ZTE in April 2018 and Huawei in May. Blocking the companies’ access to critical U.S. components threatens to hobble China in its bid to develop 5G and other technologies that will prove foundational in the future.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And therein lies the central contradiction of Xi’s new narrative. For all the talk of self-reliance, China remains dangerously dependent on American technology and trade to fuel its continued growth and prosperity.’</li></ul>‘But Xi is far too wily to risk relying on an unpredictable U.S. president.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘By stressingself-reliance and the indigenous pursuit of technological innovation, he has prepared the ground for a sharp inward turn should one become necessary.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘To this end, he has subtly reframed long-held principles of the CCP to suggest that China now shapes its external environment through its success and growing power.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'Whereas in the past the party cast the country as the passive beneficiary of good fortune on its periphery, today Xi presents China’s “economic miracle”—credited solely to the party’s vision and the people’s hard work and sacrifice—as the driving force behind a stable and secure international order.’</li></ul>‘In the end, Xi’s decision to backpedal on the draft trade agreement can be explained by the contradiction at the heart of the new narrative he is spinning for China.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The path to economic independence—and to the prosperous new era Xi has promised—runs through the United States and its high-tech industry.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As a result, Xi must steer a difficult political course, one best navigated from the nationalist high ground.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But instead of giving him a chance to climb down, the Trump administration risks forcing him to dig in.’</li></ul></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. Why Blacklisting Huawei Could Backfire</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.foreignaffairs.com/authors/lorand-laskai" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d12bee77a7a1a08b8f26c08_Lorand%20Laskai.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Foreign Affairs<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘In China, the concept of “self-reliance,” or ziligengsheng, traces its roots back to the civil war, when Mao Zedong’s communist guerrillas found themselves isolated and facing annihilation at the hands of the U.S.-backed nationalist forces.’‘Last spring, the U.S. Department of Commerce added the Chinese telecommunications company ZTE to a trade blacklist, effectively severing ZTE from its vital U.S. suppliers,’ writes <a href="https://www.foreignaffairs.com/authors/lorand-laskai" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Lorand Laskai</a> in <a href="https://www.foreignaffairs.com/articles/china/2019-06-19/why-blacklisting-huawei-could-backfire" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Why Blacklisting Huawei Could Backfire’</a> in Foreign Affairs.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Chinese President Xi Jinping told an audience at a tech company that the Chinese people must “cast aside the illusion and rely on ourselves.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“The illusion” was the idea that China can prosper even as it relies on foreign technology.’</li></ul>‘The Trump administration seems determined to prove Xi right.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Last month, it blacklisted the telecommunications giant Huawei, the third major Chinese company to be added to the Commerce Department’s blandly named Entity List within the last year.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Trump administration is also considering <a href="https://www.bloomberg.com/news/articles/2019-05-22/trump-weighs-blacklisting-two-chinese-surveillance-companies" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">blacklisting</a> several of China’s largest artificial intelligence companies.’</li></ul>‘The Trump administration is betting that banning Chinese tech companies will bring Beijing to the negotiating table with the aim of negotiating <a href="https://www.scmp.com/news/china/diplomacy-defence/article/2149006/us-wants-structural-changes-chinas-economy-steven" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">“structural changes”</a> to the Chinese economy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And barring that, it is hoping to deal China a blow in the race to harness next-generation technologies, such as AI and 5G.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But within China, the administration’s moves have created a powerful new consensus in support of “self-reliance” and “indigenous innovation,” two mantras of the Chinese Communist Party that the country’s tech industry has reluctantly taken up.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Washington has underestimated China’s ability to “tighten its belt,” as Xi put it after the ZTE blacklisting, and to develop replacements for foreign technology.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Trump administration may well be paving the way toward a more technologically independent, and possibly more powerful, China.’</li></ul>‘Blacklisting Huawei, however, has turbocharged the indigenous innovation effort.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As a result of the blacklisting, the company plans to launch a replacement for Google’s Android operating system later this year.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is also working to replace a myriad of U.S. components and software to which it will soon lose access.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Last week, Bloomberg <a href="https://www.bloomberg.com/news/articles/2019-06-05/huawei-mobilizes-workers-for-war-mode-to-beat-trump-blacklist" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reported</a> that Huawei has up to 10,000 developers working around the clock in three cities to “eliminate the need for American software and circuitry.”’</li></ul>‘China’s technology industry illustrates the problems markets pose to Beijing’s self-reliance push.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The wide availability of superior foreign software and hardware has hampered progress.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Moreover, China’s tech giants have long been noncommittal toward Beijing’s self-reliance drive, choosing to invest in lucrative consumer-facing applications rather than the “core technologies” that the state values.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The country’s three largest tech companies, Baidu, Alibaba, and Tencent, all owe their large valuations to consumer products built on Western technologies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘None other than Huawei founder Ren Zhengfei has <a href="http://www.telworld.com.cn/show-list-15003.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">repeatedly bashed</a> the idea of indigenous innovation and extolled the advantages of global supply chains. “The idea that one needs to do everything themselves is a mentality only for peasants,” Ren said in an interview last year.’</li></ul>‘But U.S. action against Chinese companies has begun to change their calculus toward indigenous development.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Reeling from U.S. sanctions, Huawei executives <a href="https://web.archive.org/save/https:/www.cnbeta.com/articles/tech/854287.htm" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">traveled</a> to Peking University last week to launch an R & D partnership with the university to bolster Huawei’s capacity for “indigenous innovation.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘By using the official slogan, Huawei’s bosses seemed to be offering a mea culpafor their past resistance to self-reliance.’</li></ul>‘Replacing the many U.S. suppliers on which Chinese companies rely will be a tall order, and at least in the short term, Chinese suppliers will be <a href="https://www.reuters.com/article/us-huawei-tech-usa-chip-catchup-analysis-idUSKCN1TE1R4" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">unable</a> to fully meet the needs of companies such as Huawei.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Advanced processors and chipsets that power the cutting-edge computation involved in machine learning, cloud computing, and 5G networks are almost exclusively developed by a handful of Western companies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Although some Chinese companies, such as Huawei’s chip unit HiSilicon, can build their own chips for some applications, they still rely on U.S. software and intellectual property to design the chips and international foundries, such as Taiwan’s TSMC, to manufacture them.’</li></ul>‘Nevertheless, China does have several factors working in its favor.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For starters, it doesn’t need to develop everything itself. Chinese companies have long been <a href="https://carnegieendowment.org/2017/08/12/deep-roots-and-long-branches-of-chinese-technonationalism-pub-72815" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">comfortable</a> acquiring technology abroad through partnerships, mergers and acquisitions, or outright intellectual property theft.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘U.S. export controls wouldn’t stop most of these, as they restrict only the export of U.S. technology or foreign products that contain significant U.S.-origin software or components.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Technological partnerships and academicexchanges between China and the European Union played a <a href="https://www.reuters.com/article/breakout-beidou/special-report-in-satellite-tech-race-china-hitched-a-ride-from-europe-idUSL4N0JJ0J320131222" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">critical</a> role in China’s development of the BeiDou constellation.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And Chinese state-backed funds, often using offshore shell companies, have proved adept at <a href="https://www.ft.com/content/7cfb2f82-1ecc-11e9-b126-46fc3ad87c65" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">evading scrutiny</a> from U.S. sanction enforcers.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As the U.S. technological embargo expands, so will the opportunities to poke holes in it.’ </li></ul>‘Another advantage is China’s enormous domestic market.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Few companies outside the United States are able to turn down opportunities to sell in China, and even fewer governments are willing to stomach the economic pain of turning away Chinese demand at Washington’s say-so.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Trump administration’s unsuccessful campaign to get Europe to ban Huawei from building its 5G network should have been a warning sign of the limited tolerance of U.S. allies for Washington’s brinkmanship.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Instead, the administration is doubling down on a strategy that anticipates allies toeing the U.S. line.’</li></ul>‘It didn’t have to be this way.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The United States could have maintained the rift between government and industry in China if it had ensured China’s continued dependence on U.S. technology.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Instead, the Trump administration’s actions against ZTE and Huawei have turbocharged China’s self-reliance drive, aligning the interests of government and industry.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Although in the short term the pain imposed on China’s tech industry by the blacklisting might appear to vindicate the administration’s move, over the long term its actions will pave the way to a more technologically formidable China.’</li></ul></td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. BACKGROUNDER | Huawei: China’s Controversial Tech Giant</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://cfrd8-files.cfr.org/sites/default/files/styles/article_header_l_16x9_600px/public/image/2019/06/HuaweiNew.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">CFR<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The Chinese telecommunications company faces accusations from President Trump and other leaders that Beijing could use it for cyber espionage. The outcome of the struggle could shape the world’s tech and 5G landscape for years to come’.‘The Chinese telecommunications giant Huawei is central to the construction of new fifth-generation (5G) mobile networks around the world,’ write <a href="https://www.cfr.org/bio/lindsay-maizland" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Lindsay Maizland</a> and <a href="https://www.cfr.org/bio/andrew-chatzky" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Andrew Chatzky </a><a href="https://www.cfr.org/backgrounder/huawei-chinas-controversial-tech-giant" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Huawei: China’s Controversial Tech Giant’</a> in a Foreign Affairs Backgrounder.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet its global influence has led the United States to raise concerns about whether the Chinese government could use the company to spy, or to sabotage critical infrastructure.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Washington has led a crackdown on Huawei by enforcing nationwide bans on the company’s equipment and encouraging its allies to do the same.’</li></ul>‘Some experts warn that tensions between Washington and Beijing over technology could lead to a “<a href="https://foreignpolicy.com/2019/02/04/is-an-iron-curtain-falling-across-tech/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">digital iron curtain,”</a> which would result in governments having to decide between doing business with the United States or China.’<h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">What is Huawei?</h5>‘It is the world’s largest seller of telecommunications equipment, such as new 5G network infrastructure, and the second-largest smartphone maker.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Based in Shenzhen, China, Huawei sells its products domestically and internationally. In the United States, it sells few phones but helps provide connectivity in some rural areas.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Ren Zhengfei, the company’s <a href="https://www.latimes.com/projects/la-fi-tn-huawei-5g-trade-war/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">billionaire CEO</a>, founded Huawei in 1987.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With more than 180,000 employees, according to its website, Huawei claims to be a private company fully owned by its employees, though its precise <a href="https://www.nytimes.com/2019/04/25/technology/who-owns-huawei.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">ownership structure</a> is unknown.’</li></ul><img width="100%" src="https://cfrd8-files.cfr.org/sites/default/files/styles/large_xl/public/image/2019/06/Huawei-by-the-numbers.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">Why is it so controversial?</h5>‘In recent years, the United States and several other countries have asserted that the company threatens their national security, saying it has violated international sanctions and stolen intellectual property, and that it could commit cyber espionage.’‘Cyber espionage. The main concern, according to U.S. intelligence agencies, is that the Chinese government could use Huawei to spy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Officials, primarily in the United States but also in <a href="https://www.ft.com/content/543621ce-504f-11e9-b401-8d9ef1626294" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Australia</a> and several other countries, point to vague Chinese intelligence laws that could be used to force Huawei to hand over data to the Chinese government. (The United States has not publicly provided evidence that this has happened.)’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There are also concerns that Huawei’s 5G infrastructure could contain backdoors giving the Chinese government access to its inner workings and allowing Beijing to attack communications networks and public utilities.’</li></ul>‘A <a href="https://fas.org/irp/congress/2012_rpt/huawei.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">2012 U.S. House Permanent Select Committee on Intelligence report [PDF]</a> concluded that using equipment made by Huawei and ZTE, another Chinese telecommunications company, could “undermine core U.S. national security interests.”’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In 2018, six U.S. intelligence chiefs, including the directors of the CIA and FBI, cautioned Americans against using Huawei products, warning that the company could conduct “<a href="https://www.cnbc.com/2018/02/13/chinas-hauwei-top-us-intelligence-chiefs-caution-americans-away.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">undetected espionage</a>.”’</li></ul>‘At the heart of Washington’s concerns is 5G, the next generation of cellular networks, which will provide faster download speeds for smartphones, connect devices in smart cities, and support autonomous vehicles and robots.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“5G is a different type of risk versus 4G or 3G. It’s much harder to separate the core from the periphery,” says CFR’s Adam Segal. “Once you have those risks, you have to trust the company much more. But it is difficult to trust Huawei, given the relationship between companies and the Communist Party.”’</li></ul>Intellectual property theft. U.S. companies and global telecom firms have for years accused Huawei of <a href="https://qz.com/1627149/huaweis-journey-to-becoming-us-tech-enemy-no-1/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">stealing trade secrets</a>, starting with Cisco’s 2003 lawsuit alleging that its source code appeared in Huawei products. (The suit was later settled.)’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In 2017, a U.S. jury found Huawei guilty of stealing intellectual property from T-Mobile, and the U.S. Justice Department claimed in a <a href="https://www.justice.gov/opa/press-release/file/1124996/download" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">2019 indictment[PDF]</a> that Huawei repeatedly tried to steal design information for a T-Mobile robot.’ </li></ul>‘Trade violations. The United States claims that Huawei has long violated sanctions on Iran.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="https://www.justice.gov/opa/pr/chinese-telecommunications-conglomerate-huawei-and-huawei-cfo-wanzhou-meng-charged-financial" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘A federal indictment</a> unsealed in January 2019 against Meng Wanzhou, Huawei’s chief financial officer and Ren’s daughter, said that Huawei defrauded banks in order to do business with Iran and obstructed justice in the process by destroying evidence.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Meng, who has denied the accusations, was detained in Canada in December 2018 at the request of the United States, which is seeking her extradition.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">How much sway does Beijing have over tech companies?</h5>‘The government has considerable sway over all Chinese private companies through heavy regulation, including the requirement that they establish Chinese Communist Party (CCP) branches within them, and state-backed investment.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Executives of many of the biggest companies are party members, including Jack Ma of Alibaba and Huawei’s founder, Ren, who served as an engineer in the People’s Liberation Army during the Cultural Revolution.’</li></ul>‘Under President Xi Jinping, the lines between the public and the private have become even more blurred.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Experts have observed that the CCP is working to boost its <a href="https://foreignpolicy.com/2019/02/07/we-cant-tell-if-chinese-firms-work-for-the-party/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">influence over private industry</a>, especially tech companies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In recent years, foreign news organizations have reported that the government may start pressuring tech companies to <a href="https://www.nytimes.com/2017/10/13/business/china-online-stakes-control.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">offer the party direct ownership stakes</a> and give party members even greater roles in management, though there is no evidence that this has happened at Huawei.’</li></ul>‘Some experts and U.S. officials also point to vague Chinese laws that could be used to force Huawei to help the government with intelligence gathering.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For example, the <a href="http://eng.mod.gov.cn/publications/2017-03/03/content_4774229.h" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">National Security Law</a>, enacted in 2015, states that citizens and enterprises have the “responsibility and obligation to maintain national security.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="http://cs.brown.edu/courses/csci1800/sources/2017_PRC_NationalIntelligenceLaw.pdf" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">2017 National Intelligence Law[PDF]</a> declared that Chinese companies must “support, assist, and cooperate with” China’s intelligence-gathering authorities.’</li></ul>‘At the same time, Huawei has distanced itself from the CCP, repeatedly asserting that its equipment has never been used, and will never be used, to spy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In January 2019, Ren made a <a href="https://www.wsj.com/articles/huawei-ceo-hits-back-at-claims-compan" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">rare media appearance</a>, saying he “would never harm the interest of my customers” and that Huawei would not answer government requests for intelligence.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In May 2019, Huawei commissioned a <a href="https://thechinacollection.org/wp-content/uploads/2019/03/Huawei-Declaration.pdf%22%20%5Co%20%22thirty-six-page%20legal%20report%22%20%5Ct%20%22_blank" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">thirty-six-page legal report</a> from a Chinese law firm supporting its argument that it cannot be forced to spy, but <a href="https://www.ft.com/content/282f8ca0-3be6-11e9-b72b-2c7f526ca5d0%22%20%5Co%20%22other%20lawyers%22%20%5Ct%20%22_blank" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">other lawyers</a> in China and around the world said the law has never been tested.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese government has also gone to bat for Huawei, saying it would “<a href="https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2511_665403/t1664498.shtml%22%20%5Co%20%22take%20all%20necessary%20measures%20to%20safeguard%22%20%5Ct%20%22_blank" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">take all necessary measures to safeguard</a>” Chinese companies and pressuring Canada to release Meng from house arrest.’  </li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">How did Huawei become so dominant?</h5>‘Huawei became the world’s largest telecommunications company over three decades, reporting $100 billion in revenue in 2018, a 20 percent jump from the previous year.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This success has helped drive suspicion that the Chinese government has played a role in the company in recent years.’</li></ul><img width="100%" src="https://cfrd8-files.cfr.org/sites/default/files/styles/large_xl/public/image/2019/06/patents.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">‘In 1996, both the government and military began treating Huawei as an official “national champion,” a status reserved for firms that bolster China’s strategic aims.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The move highlighted a shift in official policy. From then on, Beijing explicitly supported domestic telecom companies—and Huawei even more than others[PDF]—to prevent foreign domination of the industry.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese government ensured Huawei had easy access to financing and high levels of government subsidies—$222 million in government grantsin 2018 alone.’</li></ul>‘This cushion has allowed Huawei to price its network equipment below other companies’ rates.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the Netherlands, Huawei underbid Swedish firm Ericsson by 60 percent to provide network equipment for the national 5G network.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Experts said that Huawei’s prices would not have even covered the cost of producing their parts without subsidies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Chinese state banks also provide countries low-interest loans to use Huawei’s equipment.’</li></ul>‘Huawei says its low prices are the result of technological expertise—a claim with some merit, according to industry experts.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Huawei’s annual research and development (R&D) budget is among the world’s largest, and Ren says his firm spends more on it than most publicly listed firms can.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At <a href="https://www.bloomberg.com/news/articles/2019-04-25/huawei-s-r-d-spending-balloons-as-u-s-tensions-flare-over-5g" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">$15.3 billion in 2018</a>, Huawei’s R&D expenditures rank alongside those of Alphabet (Google’s parent company) and Amazon.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">How has the United States banned Huawei?</h5>‘The United States has taken many steps to ban Huawei.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In 2018, the Trump administration banned U.S. federal agencies from using the telecom giant’s equipment. (Huawei has since sued the United States over the restriction.)’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That same year, following pressure from regulators, AT&T walked away from a deal to sell Huawei’s smartphones.’</li></ul>‘U.S. actions against Huawei culminated with the Commerce Department adding the company to its “entity list” in May 2019, essentially banning Huawei from buying U.S. goods without the government’s permission.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Huawei relies on American software, chips, specialty lasers, and other products.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Days after the announcement, Google said it would restrict Huawei’s access to its products, including its Android operating system.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">Can Huawei survive the bans?</h5>‘It’s not just the United States that has banned Huawei. Washington has pressured its allies to prevent Huawei from developing 5G infrastructure in their countries, even threatening to stop sharing intelligence with countries that use Huawei.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Australia and Japan effectively banned the company from building 5G networks in 2018.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Other countries, such as Canada, the Netherlands, and New Zealand, are considering bans.</li></ul>Experts expect that Huawei will survive the bans, including the U.S. blacklisting, but not without suffering damage.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“It certainly will cause massive dislocations and probably loss of markets in the short term, but it’s unlikely to basically kill the company,” says CFR’s Segal.’</li></ul>‘At the same time, analysts say, U.S. companies could also be hurt by the bans.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘About 1,200 U.S. companies are Huawei suppliers, and U.S. telecom firms have said that banning Huawei products would set back the development of 5G in the United States by several years.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">Why are some countries resisting the bans?</h5>‘Other countries, especially those participating in China’s <a href="https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Belt and Road Initiative</a>, are already using or have agreed to use Huawei’s equipment.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The company has dominated 5G, providing high-quality networks for prices estimated to be 30 percent less than those of its competitors.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is also a leader in innovation, owning more patents[PDF] for 5G infrastructure than any of its competitors.’</li></ul>‘Russia’s 5G network will be built with Huawei’s help, and Malaysia’s prime minister, Mahathir Mohamad, has said the country will <a href="https://www.cnbc.com/2019/05/30/mahathir-we-try-to-use-huawei-technology-as-much-as-possible.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">use Huawei’s technology</a>.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The company’s equipment had also been used by some smaller <a href="https://www.nytimes.com/2019/05/25/technology/huawei-rural-wireless-service.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">rural telecom companies</a> in the United States.’</li></ul>‘Authorities in potential markets, such as Germany and the United Kingdom, have argued that any 5G supplier comes with certain risks, given the nature of the networks.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘These governments claim that they can minimize national security concerns and manage the risks of using Huawei.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Officials in these countries also say they prefer to keep their auctions for 5G construction open to all firms and tighten security measures in general.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“Our approach is not to simply exclude one company or one actor,” said German Chancellor Angela Merkelin March 2019, “but rather we have requirements of the competitors for this 5G technology.”’</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. Mao Redux: The Enduring Relevance of Self-reliance in China</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://macropolo.org/wp-content/uploads/2019/04/analysis-1200x600.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">MarcoPolo<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">For the CCP, political independence and economic independence are inseparable’.NOTE: If you not a regular consumer of <a href="https://macropolo.org/" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">MacroPolo</a>’s China research and analysis, you are missing some of the best some of the best work being produced today.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="https://macropolo.org/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">MacroPolo</a> is relatively new think tank, part of the [Hank] Paulson Institute at the University of Chicago – and the analysis is terrific.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The site is a little difficult to navigate, so you have to look into the nooks and crannies. But the effort is worth the result.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">So, go to <a href="https://macropolo.org/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">MacroPolo</a> and BOOKMARK NOW!</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And be sure to subscribe to the <a href="https://macropolo.org/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">MacroPolo</a> mailing list.</li></ul>‘Pundits are particularly fond of likening Xi Jinping to Chairman Mao,’ writes <a href="https://macropolo.org/author/neilthomas/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Neil Thomas</a> of MarcoPolo, in <a href="https://macropolo.org/analysis/china-self-reliance-xi-jin-ping-mao/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Mao Redux: The Enduring Relevance of self-reliance in China.’</a>’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Xi’s accumulation of personal political power, purging of opponents, and removal of presidential term limits all lend credence to the comparison.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some of the latest evidence that “Xi is the new Mao” is his supposed “revival” of the Maoist concept of “self-reliance” (zili gengsheng).’</li></ul>‘But talk of a rapid revival of Maoism under Xi is off the mark.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Xi is hardly the first head of the Chinese Communist Party (CCP) to be inspired by Mao Zedong Thought.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In fact, self-reliance is a good case study of the abiding relevance of certain ideas in CCP thought.’</li></ul>‘Whileself-reliance was championed by Mao, it is a concept that has been supported by all subsequent leaders, even if its application has evolved over time.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That’s becauseself-reliance fundamentally means that the CCP will retain ultimate control over China’s economic development—an enduring consensus that has heavily influenced policy across generations of leaders.’</li></ul>‘In many ways, Xi has built upon longstanding CCP principles that are larger than himself.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Misinterpreting such concepts as merely “Xi issues” actually diminishes their importance as core “CCP issues” that would likely be pursued irrespective of who holds power in Zhongnanhai.’</li></ul>‘As the US-China trade war and technology competition escalated during 2018, Xi, on an inspection tour of China’s northeast “rust belt” in September 2018, complained that rising “protectionism” means that “key technology is becoming harder to obtain internationally” and that China was thus “forced to take the road of self-reliance.”’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Xi reiterated this call for self-reliance several times over the next few months: at a visit to an exhibitionto celebrate 40 years of Reform and Opening in Guangdong in October, at the China International Import Expo in November, and also in his 2019 New Year speech.’</li></ul>‘For many, this was a stunning admission of Xi’s true political colors.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘His invocation of the concept was described variously as a “long-discarded Maoist slogan,” a “<a href="https://asia.nikkei.com/Editor-s-Picks/China-up-close/Xi-Jinping-makes-a-Maoist-bet-on-China-s-economy" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Maoist bet”</a> on the Chinese economy, or even a turn toward becoming like “isolationist North Korea.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some worried that Xi’s emphasis on self-reliance might lead China “toward stagnation” by undoing the openness that enabled its economic progress.’</li></ul>‘Among the commentariat, self-reliance was often equated with autarky, or complete self-sufficiency in producing goods and services.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Butself-reliance is not the same as autarky and the concept has never been discarded by the CCP.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Even at the height of Maoist self-reliance, it did not translate into autarky, and ideology was not divorced completely from economic reality.’</li></ul>self-reliance was borne out of wartime necessity.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Mao proclaimed the virtues of self-reliance as early as January 1945, when the CCP was forced to operate out of the remote Shaan-Gan-Ning border region while fighting both Japanese invaders and Nationalist forces under Chiang Kai-Shek.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Anxious to assert his patriotic credentials in the Chinese Civil War, Mao framedthe CCP’s self-reliance as “the very opposite” of Chiang’s dependence on US military aid.’</li></ul>‘The continued salience of self-reliance during Reform and Opening highlights the common confusion between self-reliance and self-sufficiency.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese forself-reliance—zili gengsheng—literally means “regeneration through one’s own efforts.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Kenneth Lieberthal, renowned China specialist, described self-reliance as the CCP’s desire to “keep the initiative in one’s own hands” by minimizing China’s economic dependence on any particular country or bloc.’</li></ul>‘Like any political concept, the meaning of “self-reliance” in China has evolved over time, as leaders adapted the conceptual framework to fit new economic and political realities.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Mao, while receptive to some essential foreign trade and technology, often dialed up self-reliance into a push toward autarky.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Deng chose to preserveself-reliance in CCP thought but used it as a foundation to anchor the widescale yet measured opening of China’s economy to the world.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘After this phase of opening peaked under Jiang, Hu then linked self-reliance to a concerted push for indigenous innovation, which has continued and intensified under Xi.’</li></ul>‘Xi is carrying the torch of this long-established connection between self-reliance and technological advancement.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In June 2014, Xi vowedthat China would not be “the technological vassal of other countries.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And said in October 2018 that: “The starting point for the struggle of the Chinese nation is self-reliance, the only way to ascend the commanding heights of the world of science and technology is indigenous innovation…”’</li></ul>‘Xi likely chose to spotlight self-reliance in late 2018 as a response to the imminent threat the US-China trade war posed to high-tech supply chains.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the CCP’s emphasis on self-reliance has nonetheless increased throughout Xi’s tenure, as Beijing used indigenous innovation as a broad platform to bolster domestic production and manufacturing to achieve parity with foreign technological leadership (see Figure 4).’</li></ul><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d12c21699bb70292a0adffa_Figure%204%20Self-Reliance%20Mentions.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">‘Still, nationalism is not the only reason why a Chinese leader might favor greater self-reliance.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This trend fits with a long-term economic objective—of which “<a href="https://www.ft.com/content/63430718-e3cb-11e8-a6e5-792428919cee" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Made in China 2025</a>” was just one manifestation—of moving domestic manufacturing up the value-added chain, a prescription that economists have long deemed necessary for China to <a href="https://www.adb.org/sites/default/files/publication/322961/adbi-wp749.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">avoid the middle-income trap.</a>’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For the CCP, “political independence and economic independence are inseparable.”’</li></ul>self-reliance happens to be one of a handful of Maoist concepts that still held political currency after Reform and Opening.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it is also larger than Mao or Xi—the idea is a defining feature of the CCP’s worldview and may also partly explain why China is something of a lonely superpower bereft of true allies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Xi may have found it expedient to emphasize self-reliance amid the trade war, but it will continue to inform Chinese economic strategy long after he leaves office.’</li></ul></td></tr></div></div></div>

6/22/2019

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">Roubini on the U.S.-China trade war, the impact on the global economy, and the stakes at the coming G20</h1><div class="date">June 22, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. Roubini – ‘Dr. Doom’ - on the U.S.-China trade war</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://webapi.project-syndicate.org/library/a96ed691e9acbd26e97ea8d3f59f378c.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Project SyndicateOn June 14, Nouriel Roubini – ‘Dr. Doom’ – published an essay, <a href="https://www.project-syndicate.org/commentary/trade-war-recession-crisis-2020-by-nouriel-roubini-2019-06" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘The Growing Risk of a 2020 Recession and Crisis,’</a> (included here last) that received immediate and widespread attention.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">In it he writes, ‘Among the risks that could trigger a recession in 2020, the Sino-American trade and technology war deserves <a href="https://www.project-syndicate.org/commentary/united-states-china-cold-war-deglobalization-by-nouriel-roubini-2019-05" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">special attention</a>.’</li></ul>Stemming from that essay is a June 20 Financial Times podcast: <a href="https://www.ft.com/content/b584ca45-a722-4eb0-86c2-653bcfdde1f0" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Nouriel Roubini on the US-China Thucydides Trap.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A number of geopolitical and financial risks are stalking the global economy, pointing to a possible recession in 2020.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘According to Nouriel Roubini, what is key among these risks is the US-China trade war and general protectionism in the global market.’</li></ul><iframe style="margin-top:1em;" src="https://play.acast.com/s/ft-alphachat/b584ca45-a722-4eb0-86c2-653bcfdde1f0" height="420px" width="100%" scrolling="no"></iframe><a href="https://www.ft.com/content/b584ca45-a722-4eb0-86c2-653bcfdde1f0" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">FT</a>Nouriel Roubiniis a professor of economics at New York University’s Stern School of Business and CEO of Roubini Macro Associates, LLC. And, he his analyses are worth considering.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Roubini is one of few economists who predicted the housing bubble crash of 2007-2008.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He warned about the crisis in an IMF position paper in 2006.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Roubini's predictions have earned him the nicknames "Dr. Doom" and "permabear" in the media.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In 2008, Fortune magazine wrote, "In 2005 Roubini said home prices were riding a speculative wave that would soon sink the economy. Back then the professor was called a <a href="https://en.wikipedia.org/wiki/Cassandra_(metaphor)" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Cassandra</a>. Now he's a sage."’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">This issue of CHINADebate InDepth is devoted to Dr. Roubinin’s China analyses.</h6><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Presented here are the podcast, above, and excerpts from three of his recent essays on the U.S.-China trade war, the impact on the global economy, and the stakes at the coming G20.</li></ul></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. ‘The Global Consequences of a Sino-American Cold War’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://webapi.project-syndicate.org/library/5db1c9013fccc31640f11dc6d64dd1e9.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘What started as a trade war between the United States and China is quickly escalating into a death match for global economic, technological, and military dominance.  If the two countries' leaders cannot manage the defining relationship of the twenty-first century responsibly, the entire world will bear the costs of their failure.’‘The US blames China for the current tensions.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Since joining the World Trade Organization in 2001, China has reaped the benefits of the global trading and investment system, while failing to meet its obligations and free riding on its rules.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘According to the US, China has gained an unfair advantage through intellectual-property theft, forced technology transfers, subsidies for domestic firms, and other instruments of state capitalism.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At the same time, its government is becoming increasingly authoritarian, transforming China into an <a href="https://www.project-syndicate.org/onpoint/the-ai-threat-to-open-societies-by-george-soros-2019-01" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Orwellian surveillance state</a>.’</li></ul>‘For their part, the Chinese suspect that the US’s real goal is to prevent them from rising any further or projecting legitimate power and influence abroad.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In their view, it is only reasonable that the world’s <a href="https://www.imf.org/external/datamapper/NGDPD@WEO/OEMDC/ADVEC/WEO/JPN/FRA" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">second-largest economy</a> (by GDP) would seek to expand its presence on the world stage.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And leaders would argue that their regime has improved the material welfare of 1.4 billion Chinese far more than the West’s gridlocked political systems ever could.’</li></ul>‘Regardless of which side has the stronger argument, the escalation of economic, trade, technological, and geopolitical tensions may have been inevitable.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘What started as a trade war now threatens to escalate into a permanent state of mutual animosity.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This is reflected in the Trump administration’s <a href="https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">National Security Strategy</a>, which deems China a strategic “competitor” that should be contained on all fronts.’</li></ul>‘Accordingly, the US is sharply restricting Chinese foreign direct investment in sensitive sectors, and pursuing other actions to ensure Western dominance in strategic industries such as artificial intelligence and 5G.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is pressuring partners and allies not to participate in the Belt and Road Initiative, China’s massive program to build infrastructure projects across the Eurasian landmass.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And it is <a href="https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">increasing</a> US Navy patrols in the East and South China Seas, where China has grown more aggressive in asserting its dubious territorial claims.’</li></ul>‘The global consequences of a Sino-American cold war would be even more severe than those of the Cold War between the US and the Soviet Union.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Whereas the Soviet Union was a declining power with a failing economic model, China will soon become the world’s largest economy, and will continue to grow from there.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Moreover, the US and the Soviet Union traded very little with each other, whereas China is fully integrated in the global trading and investment system, and deeply intertwined with the US, in particular.’</li></ul>‘A full-scale cold war thus could trigger a new stage of de-globalization, or at least a division of the global economy into two incompatible economic blocs.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In either scenario, trade in goods, services, capital, labor, technology, and data would be severely restricted, and the digital realm would become a “splinternet,” wherein Western and Chinese nodes would not connect to one another.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Now that the US has imposed sanctions on <a href="https://www.justice.gov/opa/pr/zte-corporation-agrees-plead-guilty-and-pay-over-4304-million-violating-us-sanctions-sending" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">ZTE</a> and <a href="https://abcnews.go.com/Technology/wireStory/us-economic-sanctions-huawei-backfire-63084711" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Huawei</a>, China will be scrambling to ensure that its tech giants can source essential inputs domestically, or at least from friendly trade partners that are not dependent on the US.’</li></ul>‘In this balkanized world, China and the US will both expect all other countries to pick a side, while most governments will try to thread the needle of maintaining good economic ties with both.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘After all, many US allies now do more business (in terms of trade and investment) with China than they do with America.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet in a future economy where China and the US separately control access to crucial technologies such as AI and 5G, the middle ground will most likely become uninhabitable.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Everyonewillhave to choose, and the world may well enter a long process of de-globalization.’</li></ul>‘Whateverhappens, the Sino-American relationship will be the key geopolitical issue of this century.’</td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. The Coming Sino-American Bust-Up</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://webapi.project-syndicate.org/library/184e67b6b98d82b3d98469b28a189c72.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Whether or not US President Donald Trump and his Chinese counterpart, Xi Jinping, agree to another truce at the upcoming G20 summit in Osaka, the Sino-American conflict has already entered a dangerous new phase. Though a negotiated settlement or a managed continuation of the status quo are possible, a sharp escalation is now the most likely scenario.’‘The nascent Sino-American <a href="https://www.project-syndicate.org/commentary/united-states-china-cold-war-deglobalization-by-nouriel-roubini-2019-05" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">cold war</a> is the key source of uncertainty in today’s global economy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘How the conflict plays out will affect consumer and asset markets of all kinds, as well as the trajectory of inflation, monetary policy, and fiscal conditions around the world.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Escalation of the tensions between the world’s two largest economies could well <a href="https://www.project-syndicate.org/commentary/trade-war-recession-crisis-2020-by-nouriel-roubini-2019-06" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">produce</a> a global recession and subsequent financial crisis by 2020, even if the US Federal Reserve and other major central banks pursue aggressive monetary easing.’</li></ul>‘Much, therefore, depends on whether the dispute does indeed evolve into a persistent state of economic and political conflict.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the short term, a planned meeting between US President Donald Trump and his Chinese counterpart, Xi Jinping, at the G20 Summit in Osaka on June 28-29 is a key event to watch.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A truce could leave tariffs frozen at the current level, while sparing the Chinese technology giant Huawei from the crippling sanctions that Trump has put forward; failure to reach an agreement could set off a progressive escalation, ultimately leading to the balkanization of the entire global economy.’</li></ul><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">JAW-JAW OR WAR-WAR?</h5>‘Viewed broadly, there are three scenarios for how the situation might develop between now and the end of 2020, when the United States will hold its next presidential election.’<ol style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One possibility is that Trump and Xi will find a truce or modus vivendi in Osaka, paving the way for a negotiated settlement toward the end of this year.’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘On the trade front, the US wants China to buy more American goods, reduce tariff and non-tariff barriers, open more financial and service sectors to foreign direct investment, and commit to maintaining currency stability and transparency with respect to foreign-exchange data.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘On technology, the US is demanding that China strengthen intellectual-property protections, cease making the transfer of technology to Chinese firms a condition of market entry for US (and other) companies, and crack down on corporate cyber espionage and theft.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A temporary deal could include any of the above, with the US offering medium-term (through the end of 2020, and possibly longer) exemptions to Chinese tech firms that use US components, semiconductors, and software.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This would leave Huawei severely constrained, but not dead in the water.’</li></ul></li></ul><ol start="2" style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The second possibility is a full-scale trade, tech, and cold war within the next 6-12 months.’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In this scenario, the US and China would adopt rapidly diverging positions after failing to successfully restart negotiations (with or without a truce).’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The US would follow through with import tariffs – starting at 10% but increasing to 25% – on the remaining $300 billion worth of Chinese goods that have so far been spared.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the Trump administration would pull the trigger on Huawei and other Chinese tech firms, barring them from purchasing components and software from US companies.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China, meanwhile, would take steps to protect its economy through macro-level stimulus, while retaliating against the US through measures that go beyond tariffs (such as expelling American firms).’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Huawei might survive within the Chinese market, but its growing global business would effectively be crippled, at least for the time being.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Beyond trade and technology, this scenario also implies increased geopolitical and military tensions.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The possibility of some type of conflict over the East and South China Seas, Taiwan, North Korea, Xinjiang, Iran, or Hong Kong could not be ruled out.’</li></ul></li></ul><ol start="3" style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Finally, in the third scenario, China and the US would fail to reach a deal on trade and technology, but they would forego rapid escalation.’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Instead of plunging into a total trade and technology war, the two powers might ratchet up their conflict more gradually.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The US would impose new tariffs, but keep them at 10%, while renewing only temporarily exemptions that allow Huawei and other Chinese firms to continue purchasing key US-made inputs, while retaining the option of pulling the plug on Huawei at its discretion.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Negotiations could continue, but the US would essentially hold a veto over Huawei’s bid to develop 5G and other key technologies of the global economy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Given that Trump could suddenly pull the plug on the company whenever it suits him, China’s leaders would probably abstain from blatant full-scale retaliation, but would still intervene to minimize the economic damage.’</li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">THE GOLDILOCKS OPTION…</h5>‘The third scenario is the most likely for now, because China is playing a waiting game until November 2020, to see if the US elects a more even-keeled president.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Even with a truce, therefore, any negotiations that are relaunched after the G20 summit will probably drag on indefinitely, with no real signs of progress.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the meantime, the Trump administration will want to apply additional pressure on China, while keeping its options open.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Better, then, to start with a 10% tariff on that remaining $300 billion worth of exports.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The US could always hike the rate to 25%, but at the risk of raising the costs of goods that many of Trump’s own lower-income voters rely on.’</li></ul>‘In the absence of a trade deal, the same modulated escalation is likely on the tech front.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With Chinese firms already on a tight leash, the US could convince European countries and other allies not to grant Huawei tenders or licenses relating to 5G and consumer products such as smartphones, thereby undercutting Huawei’s current advantage in this market.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That would buy the US a couple of years to cultivate its own national champions in 5G and related technologies, and to get a head start on 6G.’</li></ul>‘Moreover, a managed escalation has potential political advantages for Trump, and even for Xi.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Trump will not be exposed to charges from Democrats that he got suckered or went soft on China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At the same time, the lingering uncertainty from an unresolved conflict will probably prompt the Fed to start cutting its policy rate in July – or September at the latest.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Those cuts could reach 150 basis points if the slow rise in tensions starts to take a toll on business confidence.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In fact, if the conflict is managed well, the US could avoid a recession altogether, albeit with a deceleration of annual growth from 2% toward the 1-1.5% range.’</li></ul>‘Whether the stock market would suffer a correction (a decline of 10% or more) or merely a sideways shift in the third scenario would depend on a variety of factors, such as investor confidence, growth trends, and monetary-policy measures.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One also cannot rule out some type of fiscal stimulus in the US and other advanced economies.’</li></ul>‘The “managed-warfare” scenario also has advantages for Xi.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese economy, after all, can be backstopped with monetary, fiscal, and credit stimulus, not to mention a weakening of the renminbi (above CN¥7 to the dollar).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The government could also make a modest show of retaliation, such as by threatening to restrict (but not ban) exports of rare-earth metals, which are used in a wide range of high-tech products.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At the same time, the authorities could make life harder for the hundreds of US firms with business and investments in China, not with a full boycott, but through a thousand small cuts and abuses.’</li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">… ISN’T REALLY AN OPTION</h5>‘Because China and the US both know that they are in for a decades-long rivalry, they may well conclude that it is better not to risk a full-scale conflict and global recession in the short run.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Only through proper preparation over the medium term can the two powers manage a long-term cold war and the de-globalization that will be necessary to protect their respective supply chains.’</li></ul>‘The sequencing of a potential deal also matters.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As matters stand, persistent uncertainty will lead the Fed to loosen its monetary policy one way or another.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Suppose that Trump and Xi restart negotiations that then drag on until late fall or early winter of this year.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Fed would have to cut its policy rate by at least 50 basis points, after which point the Trump administration may agree to a deal.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Because the impact of monetary easing takes time, the Fed would have to remain on hold until November 2020.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘(Even if the economy and inflation were to rebound, monetary policymakers would be hesitant to reverse course before the election, lest they appear to be acting politically.)’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In this sequence, Trump’s re-election prospects would be doubly improved. The Fed would have locked in rate cuts as insurance, and a new agreement would have bolstered investor confidence and the stock market.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But, of course, this could happen only by chance. Trump’s “art of the deal” does not involve such multistep, multidimensional thinking, after all.’</li></ul>‘As for China, an agreement would, at a minimum, prevent further damage to its economy, and particularly its tech sector.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The government would secure a few more years with which to prepare for a longer-term conflict over trade, investment, artificial intelligence, 5G, and geopolitical dominance in Asia and beyond.’</li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">THUCYDIDES RETURNS</h5>‘Unfortunately, an even more likely course of events is that the third scenario – a managed trade and tech war, which is my baseline of how the rivalry will evolve over the next few months – would then devolve into the second (a full-scale confrontation).’‘Even if the Americans and Chinese can overcome differences in their negotiating style, the US will still want legislative commitments from China, and China will still view such demands as a violation of its national sovereignty.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese are highly sensitive to anything resembling the imperial interference that weakened China in the nineteenth century.‘</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Like Trump, Xi cannot afford to lose face.’</li></ul>‘Moreover, as the war of words has escalated over the last month, the spillover of trade frictions into the technology domain has intensified.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Once kept formally separate, the two issues are now inextricably intertwined, which will make a resolution even harder to achieve.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese cannot agree to any deal that does not rescue Huawei.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But now that Huawei has become a bargaining chip, national-security hawks in the Trump administration and Congress will force Trump to take a hard line on the company.’</li></ul>‘Each side seems to think that the other will blink first.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For example, the US assumes it can inflict more economic pain on China than China is capable of returning, because US exports to China ($130 billion) are a fraction of China’s exports to the US ($560 billion).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hence, when it comes to tariffs, China seems to have more to lose.’</li></ul>‘Yet, as we have seen, the conflict is about much more than tariffs, and China can retaliate in a number of ways.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In addition to imposing new non-tariff barriers, it can strike a blow against major US firms that rely on Chinese supply chains and consumer markets, while allowing the renminbi to weaken.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And if tensions escalate too far, China could even resort to the nuclear option of dumping its massive holdings of US Treasuries; it has already started to reduce its holdings of such US assets.’</li></ul>‘Moreover, US leaders may be underestimating the costs of the conflict.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘According to the prevailing narrative, the tariffs now in place have had only a modest impact on US growth and inflation.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the latest economic data suggest otherwise, as the US and global economy are slowing.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In fact, one reason why the Fed has started considering preemptive interest rate cuts – likely to start in July – may be that it is worried that tariffs are hurting the US economy more than was initially anticipated.’</li></ul>‘Making matters worse, the US has nowhere near as many tools to respond to macroeconomic shocks as China does.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In addition to massive stimulus and currency depreciation, China’s government can bail out private and public enterprises at will.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The US, by contrast, must rely on traditional monetary and fiscal tools, all of which are already severely constrained.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And while Trump must worry about re-election, Xi has abolished presidential term limits, faces few constraints on his power, and presides over a sprawling apparatus of social control, including the Great Firewall of online censorship.’</li></ul>‘Politically, then, it is much easier for China to take the long view, which is what Xi has done by announcing a “new Long March.”’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘By wrapping himself in the Chinese flag and fomenting nationalism at home, Xi is preparing Chinese society for a protracted struggle.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If a full-scale cold war ensues, he will be able to remind the Chinese of the need to suffer today to achieve glory tomorrow.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In fact, it is possible that Xi actually wants a full-scale economic war as a means of damaging Trump’s re-election chances.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the parlance of the foreign-policy establishment, Xi may see de facto escalation as the quickest route to regime change in the US.’</li></ul>‘Moreover, Xi is not an absolute ruler.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘While he controls most of the levers of power, there are still factions within the Communist Party of China (CPC) that could turn on him if he does not ‘mount a sufficiently aggressive response to the US.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He is not in a position to accept a deal in which he – or China – loses face or power.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If America’s medium- to long-term goal is to contain China, as the Trump administration’s <a href="https://www.project-syndicate.org/commentary/united-states-china-cold-war-deglobalization-by-nouriel-roubini-2019-05" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">National Security Strategy</a> clearly suggests, Xi cannot agree to anything in the short term that advances that agenda.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the grand scheme of things, it might be better to start a full-scale conflict now than to grant the US a tactical advantage for the next two years.’</li></ul>‘The danger is that Trump, too, would prefer a partial or full-scale trade and technology war to a weak deal.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If Trump makes any notable concessions, he will be accused by both Democrats and right-wing pundits of appeasing China and betraying American blue-collar workers.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Even if he can’t secure a favorable deal, at least he can say he remained tough.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Among those who have Trump’s ear are national-security hawks – some of them modern-day Dr. Strange loves – who believe that China is so fragile that an economic shock could precipitate a political collapse, and even regime change.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This is a dangerous game to play, because it could lead to actions that turn a cold war into a hot war.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The mere presence of such extreme voices in Trump’s orbit suggests that the administration’s intent is to contain China at any cost.’</li></ul></td></tr></tbody></table></td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. The Growing Risk of a 2020 Recession and Crisis</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d0d5c37e5d1e7080d2f5484_Brunello%20Rosa.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Among the risks that could trigger a recession in 2020, the Sino-American trade and technology war deserves special attention.’‘Last summer, my colleague Brunello Rosa and I <a href="https://www.project-syndicate.org/commentary/financial-crisis-in-2020-worse-than-2008-by-nouriel-roubini-and-brunello-rosa-2018-09" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">identified</a> ten potential downside risks that could trigger a US and global recession in 2020. Nine of them are still in play today.’‘Many involve the United States.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Trade wars with China and other countries, along with restrictions on migration, foreign direct investment, and technology transfers, could have profound implications for global supply chains, raising the threat of stagflation (slowing growth alongside rising inflation).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the risk of a US growth slowdown has become more acute now that the stimulus from the 2017 tax legislation has run its course.’</li></ul>‘Meanwhile, US equity markets have remained frothy since our initial commentary.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And there are added risks associated with the rise of newer forms of debt, including in many emerging markets, where much borrowing is denominated in foreign currencies.’</li></ul>‘With central banks’ ability to serve as lenders of last resort increasingly constrained, illiquid financial markets are vulnerable to “flash crashes” and other disruptions.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One such disruption could come from US President Donald Trump, who may be tempted to create a foreign-policy crisis (“<a href="https://www.project-syndicate.org/commentary/trump-populist-plutocracy-by-nouriel-roubini-2017-12" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">wag the dog</a>”) with a country like Iran.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That might bolster his domestic poll numbers, but it could also trigger an oil shock.’</li></ul>‘Beyond the US, the fragility of growth in debt-ridden China and some other emerging markets remains a concern, as do economic, policy, financial, and political risks in Europe.’‘Worse, across the advanced economies, the policy toolbox for responding to a crisis remains limited.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The monetary and fiscal interventions and private-sector backstops used after the 2008 financial crisis simply cannot be deployed to the same effect today.’</li></ul>‘The tenth factor that we considered was the US Federal Reserve’s interest-rate policy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘After hiking rates in response to the Trump administration’s pro-cyclical fiscal stimulus, the Fed <a href="https://www.project-syndicate.org/commentary/fed-interest-rate-pause-by-nouriel-roubini-2019-03" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">reversed course</a> in January.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Looking ahead, the Fed and other major central banks are more likely to cut rates to manage various shocks to the global economy.’</li></ul>‘While trade wars and potential oil spikes constitute a supply-side risk, they also threaten aggregate demand and thus consumption growth, because tariffs and higher fuel prices reduce disposable income.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With so much uncertainty, companies will likely opt to reduce capital spending and investment.’</li></ul>‘Under these conditions, a severe enough shock could usher in a global recession, even if central banks respond rapidly.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘After all, in 2007-2009, the Fed and other central banks reacted aggressively to the shocks that triggered the global financial crisis, but they did not avert the “Great Recession.”</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Today, the Fed is starting with a benchmark policy rate of 2.25-2.5%, compared to 25% in September 2007.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In Europe and Japan, central banks are already in negative-rate territory, and will face limits on how much further below the zero bound they can go.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And with bloated balance sheets from successive rounds of quantitative easing (QE), central banks would face similar constraints if they were to return to large-scale asset purchases.’</li></ul>‘On the fiscal side, most advanced economies have even higher deficits and more public debt today than before the global financial crisis, leaving little room for stimulus spending.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And, as Rosa and I argued last year, “financial-sector bailouts will be intolerable in countries with resurgent populist movements and near-insolvent governments.”</li></ul>‘Among the risks that could trigger a recession in 2020, the Sino-American trade and technology war deserves <a href="https://www.project-syndicate.org/commentary/united-states-china-cold-war-deglobalization-by-nouriel-roubini-2019-05" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">special attention</a>. The conflict could escalate further in several ways.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Trump administration could decide to extend tariffs to the $300 billion worth of Chinese exports not yet affected.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Or prohibiting Huawei and other Chinese firms from using US components could trigger a full-scale process of de-globalization, as companies scramble to secure their supply chains.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Were that to happen, China would have several options for retaliating against the US, such as by closing its market to US multinationals like Apple.’</li></ul>‘Under such a scenario, the shock to markets around the world would be sufficient to bring on a global crisis, regardless of what the major central banks do.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With the current tensions already denting business, consumer, and investor confidence and slowing global growth, further escalation would tip the world into a recession.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And, given the scale of private and public debt, another financial crisis would likely follow from that.’</li></ul>‘Both Trump and Chinese President Xi Jinping know that it is in their countries’ interest to avoid a global crisis, so they have an incentive to find a compromise in the next few months.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet both sides are still ratcheting up nationalist rhetoric and pursuing tit-for-tat measures. Trump and Xi each seem to think that his country’s long-term economic and national security may depend on his not blinking in the face of a new cold war.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And if they each genuinely believe the other will blink first, the risk of a ruinous clash is high indeed.’</li></ul>‘Trump and Xi will meet for talks during the G20 summit on June 28-29 in Osaka.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But even if they do agree to restart negotiations, a comprehensive deal to settle their many points of contention would be a long way off.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As the two sides drift further apart, the space for compromise is shrinking, and the risk of a global recession and crisis in an already fragile global economy is rising.’</li></ul></td></tr></div></div></div>

6/19/2019

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">'Trump Has Gotten China to Lower Its Tariffs. Just Toward Everyone Else.'</h1><div class="date">June 19, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. ‘America Must Prepare for the Coming Chinese Empire’: Robert Kaplan, Eurasia Group</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="http://geotekno.asia/marine-equipment/cplot-nav/indian-ocean-and-south-china-sea/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="http://geotekno.asia/wp-content/uploads/2018/08/Indian-Ocean-and-South-China-Sea.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Geo Tekno Asia<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘But the last thing American policymakers or strategists should assume is that somehow we are superior to the Chinese, or worse: that somehow we have a destiny that they do not.’Robert Kaplan, managing director of the Eurasia Group, presents clear-eyed analyses and excellent suggestions, along with provocative and debatable assertions.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">That I don’t agree with some of those assertions doesn’t mean they’re wrong – or that the analyses are either.</li></ul>Here is a portion of the essay devoted to China’s ‘imperial’ expansion.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">But the entire essay is worth pondering.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="https://nationalinterest.org/feature/america-must-prepare-coming-chinese-empire-63102" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Read it here.</a></li></ul><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">An Imperial World</h5>‘We still inhabit (in functional terms, that is) an imperial world,’ writes Robert Kaplan, managing director of the Eurasia Group, in <a href="https://nationalinterest.org/feature/america-must-prepare-coming-chinese-empire-63102?page=0%2C1" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘America Must Prepare for the Coming Chinese Empire.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Make no mistake: America, since the end of World War II, and continuing into the second decade of the twenty-first century, was an empire in all but name.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That is no longer the case. European and Asian allies are now, with good reason, questioning America’s constancy.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Meanwhile, as one imperium-of-sorts declines, another takes its place.’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">The New Chinese Empire</h6>‘China is not the challenge we face: rather, the challenge is the new Chinese empire.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is an empire that stretches from the arable cradle of the ethnic Han core westward across Muslim China and Central Asia to Iran; and from the South China Sea, across the Indian Ocean, up the Suez Canal, to the eastern Mediterranean and the Adriatic Sea.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is an empire based on roads, railways, energy pipelines and container ports whose pathways by land echo those of the Tang and Yuan dynasties of the Middle Ages, and by sea echo the Ming dynasty of the late Middle Ages and early-modern period.’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">Indian Ocean</h6>‘Because China is in the process of building the greatest land-based navy in history, the heart of this new empire will be the Indian Ocean, which is the global energy interstate, connecting the hydrocarbon fields of the Middle East with the middle-class conurbations of East Asia.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This new Indian Ocean empire has to be seen to be believed.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘While America’s bridges and railways languish, it is a great moment in history to be a Chinese civil engineer.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China has gone from building these ports, to having others manage them, and then finally to managing them themselves.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It has all been part of a process that recalls the early days of the British and Dutch East India companies in the same waters.’</li></ul>‘Newspaper reports talk of some of these projects being stalled or mired in debt.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That is a traditionally capitalist way to look at it.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘From a mercantile and imperialist point of view, these projects make perfect sense.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In a way, the money never really leaves China: a Chinese state bank lends the money for a port project in a foreign country, which then employs Chinese state workers, which utilize a Chinese logistics company, and so on.’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">South China Sea</h6>‘And because the Indian Ocean is connected to the South China Sea through the Malacca, Sunda and Lombok straits, Chinese domination of the South China Sea is crucial to Beijing.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China is not a rogue state, and China’s naval activities in the South China Sea make perfect sense given its geopolitical and, yes, its imperial imperatives.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The South China Sea not only further unlocks the Indian Ocean for China, but it further softens up Taiwan and grants the Chinese navy greater access to the wider Pacific.’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">Middle East and the Horn of Africa</h6>‘The South China Sea represents one geographical frontier of the Greater Indian Ocean world; the Middle East and the Horn of Africa represent the other.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The late Zbigniew Brzezinski once wisely said in conversation that hundreds of millions of Muslims do not yearn for democracy as much as they yearn for dignity and justice, things which are not necessarily synonymous with elections.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This is a world tailor-made for the Chinese, who do not deliver moral lectures about the type of government a state should have but do provide an engine for economic development.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘To wit, globalization is much about container shipping: an economic activity that the Chinese have mastered.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese military base in Djibouti is the security hub in a wheel of ports extending eastward to Gwadar in Pakistan, southward to Bagamoyo in Tanzania, and northwestward to Piraeus in Greece, all of which, in turn, help anchor Chinese trade and investments throughout the Middle East, East Africa and the eastern Mediterranean.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Djibouti is a virtual dictatorship, Pakistan is in reality an army-run state, Tanzania is increasingly authoritarian and Greece is a badly institutionalized democracy that is increasingly opening up to China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In significant measure, between Europe and the Far East, this is the world as it really exists in Afro-Eurasia.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese empire, unburdened by the missionary impulse long prevalent in American foreign policy, is well suited for it.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">Chinese Model</h5>‘Of course, there are all sorts of political and social tensions inside China.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the unrest among the middle classes we see today in Brazil and the rest of Latin America could well be a forerunner to what we will see in China in the 2020s, undermining Belt and Road and the whole Chinese imperial system altogether.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s over-leveraged economy may well be headed for a hard, rather than a soft, landing, with all the attendant domestic upheaval which that entails.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I have real doubts about the sustainability of the Chinese political and economic model.’</li></ul>‘But the last thing American policymakers or strategists should assume is that somehow we are superior to the Chinese, or worse: that somehow we have a destiny that they do not.’</td></tr></tbody></table></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. 'Trump Has Gotten China to Lower Its Tariffs. Just Toward Everyone Else.'</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://piie.com/sites/default/files/styles/header_image_1x/public/featured-image/rtx6yoww-wo.jpg?itok=N2PvLyg-" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">PIIE<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;"><a href="https://piie.com/blogs/trade-investment-policy-watch/trump-has-gotten-china-lower-its-tariffs-just-toward-everyone" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Trump Has Gotten China to Lower Its Tariffs. Just Toward Everyone Else,’</a> by <a href="https://piie.com/experts/senior-research-staff/chad-p-bown" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Chad P. Bown</a>, <a href="https://piie.com/experts/research-analysts/euijin-jung" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Euijin Jung</a>, and <a href="https://piie.com/experts/research-analysts/eva-yiwen-zhang" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Eva (Yiwen) Zhang</a> of the Peterson Institute for International Economics (PIIE). ‘While Trump shows other countries nothing but his tariff stick, China has been offering carrots.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China has increased tariffs on imports from US to an average 20.7 percent.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">At the same time,‘Beijing has repeatedly cut its duties on imports from America’s commercial rivals, including Canada, Japan, and Germany to an average of only 6.7 percent.’</li></ul>‘As recently as early 2018, firms in both the United States and the rest of the world competed in China with each other on a level playing field, facing an average Chinese tariff of 8.0 percent.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Figure 1 summarizes how the Chinese tariff differential has arisen over the course of Trump’s <a href="https://piie.com/blogs/trade-investment-policy-watch/trump-trade-war-china-date-guide" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">trade war</a>.’</li></ul><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d0936bce2f0f250397df5c5_PIIE%202019June19-figure%201.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">Looked at another way‘a substantial gap has emerged between Chinese duties facing US exporters and those facing exporters in the rest of the world (figure 3).’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The difference has arisen even though China has not simply followed Trump’s lead and imposed a 25 percent tariffs on US exports.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With the exception of autos, aircraft, and pharmaceuticals, there is now a sizable difference between the tariffs facing US exporters and those facing exporters elsewhere.’</li></ul><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d0936bc01ceb43aa0118628_PIIE%202019June19-figure%203.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">‘China’s choice of products and tariff levels are likely the result of a complex calculation.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Like Trump, Beijing may be acting strategically in an attempt to inflict political-economic pain on the other side.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the nuance of its choices may also signal that it is wary of self-harm.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And one potential way to offset the cost of its higher tariffs on US exporters is to lower its tariffs on everyone else.’</li></ul>‘China’s tariff reduction is not a violation of any WTO rules.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So long as it keeps a tariff below the “binding” rate it has submitted to the WTO, China is well within its legal rights to reduce its applied MFN tariffs to whatever level it chooses.’</li></ul>At the same time, ‘China is shifting some of its imports away from the United States and toward the rest of the world.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As China’s economic growth has <a href="https://www.imf.org/en/Countries/CHN" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">slowed</a> during the trade war, its imports from both the United States and the rest of the world have also fallen (figure 4).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s tariff reductions toward the rest of the world are likely to have helped stem the decline in imports from those countries.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Nevertheless, the drop in US exports to China—due to slowing domestic demand, the retaliatory tariffs, as well as the incentive to switch to other foreign sources—is much more severe.’</li></ul><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d0936bce2f0f218347df5c6_PIIE%202019June19-figure%204.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">‘China is likely minimizing the economic harm to itself by limiting the product coverage and levels of its tariff retaliation,’ as seen in Figure 2.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s retaliatory tariffs currently do not target aircraft, oil products, autos, and parts.’</li></ul><img width="100%" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d0936bccb43f25cbdff9908_PIIE%202019June19-figure%202.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;">In the end,‘this is not good news for US exporters.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For one thing, ‘China’s retaliatory tariffs put them at a disadvantage relative to local firms, which obviously don’t have to pay any border taxes.’</li></ul>But ‘reducing tariffs on imports from other countries means US exporters face an increasing disadvantage relative to competitors in Canada, Japan, Europe, and elsewhere.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For example, the American lobster industry saw its exports fall by 70 percent after China imposed its retaliatory tariff of 25 percent on July 6, 2018.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Things are so bad that the industry has sought federal assistance, though it has not been eligible for the subsidy programs the Trump administration’s US Department of Agriculture (USDA) has provided <a href="https://www.usda.gov/media/press-releases/2019/05/23/usda-announces-support-farmers-impacted-unjustified-retaliation-and" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">to date</a>.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘On the other hand, Canada’s lobster exports to China nearly doubled as it benefited from a 3 percentage point tariff cut in 2018.’</li></ul>‘In other instances, the new tariff on the United States was the only thing needed for China’s consumers to make the switch.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China shifted much of its imports of US soybeans in 2018 to <a href="https://www.tradetalkspodcast.com/podcast/73-soybeans-and-the-trade-war-fallout/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">imports</a> from Brazil and Argentina without further reducing its existing 3 percent tariff on soybean imports from those countries.’</li></ul></td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘Services are ½ of the value-added in global trade- we just don’t see them or count them.’: David Dollar, Brookings</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d0938a2e2f0f2b5cb7e006d_David%20Dollar%20copy.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Viewed from this value-added perspective, bilateral trade imbalances look quite different.’ ‘The contentious US trade deficit with China, for example, is roughly cut in half when the analysis shifts from gross value to value added because China tends to be at the end of many value chains.’‘From smartphones and autos to TVs and computers, more than two-thirds of international trade now takes place within global value chains,’ writes Brookings’ David Dollar in <a href="https://www.imf.org/external/pubs/ft/fandd/2019/06/global-value-chains-transforming-manufacturing-dollar.htm" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Invisible Links’</a> in the IMF’s Finance & Development June magazine.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet decades-old methods of gathering trade data, developed in the pre-value-chain world, fail to reflect this transformation, giving rise to a skewed picture of the movement of goods and services around the world.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The result: acrimonious debates over job losses blamed on trade are rooted in inadequate data, amplifying misguided calls for protectionism.’</li></ul>‘Take the case of a smartphone exported by China.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘When it is shipped to the United States, official trade statistics record its full value as an import from China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it would be more accurate to say the United States imports different types of value added from different partners, including labor-intensive assembly from China and more sophisticated manufacturing inputs from South Korea.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That is because official trade statistics measure the gross value of trade, not the value added at each link in the chain.’</li></ul>‘What is more, official statistics don’t capture the growing importance of services, such as computer coding, logistics, and marketing, that are contained in the value of manufactured goods.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">For example,‘much of the value added in a nominally Chinese-made smartphone, such as computer coding and marketing, originates in the United States and other advanced economies.’</li></ul>‘Official statistics tell us that about 80 percent of world trade consists of manufactured goods and primary products such as food, oil, and minerals.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The remaining 20 percent consisting of services such as tourism, overseas college education, and international finance.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This ratio has changed little in 40 years.’</li></ul>‘The picture looks very different when the analysis shifts to value added in trade.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The share of services in trade, measured in value-added terms, rose by more than a third from 1980 to 2009—from 31 percent to 43 percent.’</li></ul>‘This means that the services content in merchandise was increasing.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some of the increase reflects the growing use of software.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Another ‘factor is that prices of services have risen, while manufacturing prices have declined because of the sector’s more rapid productivity growth.’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">From David’s IMF podcast</h6><iframe title="David Dollar on the Value of Value Chains" src="https://www.podbean.com/media/player/byrur-6544350-dir?from=share&skin=1&share=1&fonts=Helvetica&download=1&version=1&vjs=1&skin=1" height="315" width="100%" style="border: none;" scrolling="no" data-name="pb-iframe-player"></iframe>‘How do value chains work? Most modern products have long value chains.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It starts with someone's idea. If you think about some of the products that have really transformed our lives like smartphones - someone came up with this idea and often they patented, or they start producing it under a brand name.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That’s some of the first value that goes into the product: the brand, the trademark or patent’</li></ul>‘Most modern products have a mix of sophisticated inputs and more simple ones.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">So a lot of modern products involve the integration of advanced economies in developing economies.’</li></ul>‘You’ve got, for example, the smartphone.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Taiwan produces some of the more sophisticated components particularly advanced semiconductors.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China is increasingly producing value-added somewhere in the middle of the value chain - somewhat less sophisticated products, but more than just assembly, which China used to specialize in.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China still does a lot of assembly but increasingly that’s shifting to Vietnam, Bangladesh - countries that have lower wages in China,’</li></ul>‘Traditional trade data is just looking at the gross value of trade.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A smartphone’s wholesale value when it comes in from China might be $200 - that gets reported as a $200 export from China to the U.S.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it may very well already have $25 of U.S. value-added starting in brands and patents.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It's got some Taiwan value-added; it may have been finally assembled in China plus some of the intermediate inputs.’</li></ul>‘But remember most of this stuff ends up in Europe and in the United States.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If you actually look at a lot of long value chains, you start out with very sophisticated inputs from, say, the U.S.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Then you have the other things I mentioned.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And eventually it comes back into the U.S., where again you have shipping and insurance, and sophisticated marketing, distribution and sales.’</li></ul>‘So the point of this whole new strand of value chain research is to break down the production - try to see where all the value-added is coming from - which gives you a somewhat different perspective than those traditional trade statistics.’‘A lot of the jobs that are being created in the advanced economies are in the service sectors - in science and technology but also finance.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘People are not seeing the positives for an advanced economy because they are not that visible.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They just see the product coming in from China, for example.’</li></ul>‘We used to call services “non-tradable.”’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Now, what we're learning is they are almost ½ the value-added in global trade.’</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. HK Protests: ‘An analysis of events’ by Nuri Vattachi + a response from a noted Greater China expert</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.scmp.com/news/hong-kong/article/1734654/new-hong-kong-book-prize-set-recognise-asian-writers" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://cdn1.i-scmp.com/sites/default/files/styles/1200x800/public/2015/03/11/vittachi-n.jpg?itok=ZvGZ6SV1" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">South China Morning Post<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The real story of this amendment begins as a mundane tale of civil servants trying to fix a shortcoming they’d spotted in a rather technical ordinance.’ ‘But perhaps the heart of the story is something else—evidence of a deep well of mistrust of China.’One of my close friends, a resident of Hong Kong for decades, responded to the last InDepth on the Hong Kong protests:‘Sorry, Malcolm.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The US is not doing anything to help HK - it’s the 3 million that came out onto the streets on 16 June.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And what is being threatened by the US (to review HK’s special treatment under the HK Relations Act) will only hurt HK, not China.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Please keep out of our affairs if this is all you can offer!’ </li></ul>Today, the same friend sent me report by Nuri Vattachi, a journalist, humorist, and author likewise based in Hong Kong for many decades.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Nuri’s report paints a very different picture of the events leading to the protests:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The real story of this amendment begins as a mundane tale of civil servants trying to fix a shortcoming they’d spotted in a rather technical ordinance.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But perhaps the heart of the story is something else—evidence of a deep well of mistrust of China.’ </li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Read his report below, and following that a response from a leading expert on Greater China.</li></ul><table class="nl-quote-intable" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;margin: 20px 30px 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-quote-border" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;border-left: 20px solid rgba(0,85,128,0.09);padding: 0 20px;">‘China’s leader Xi Jinping was not behind the attempt to introduce an extradition law in Hong Kong, well-placed sources say.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Nor did it originate with Hong Kong’s leader Carrie Lam Cheng Yuet-ngor.’ </li></ul>‘The real story is quite different.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And although I’m sorry I can’t name the sources for the report below, this account rings true to me.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For a start, it indicates that a lot of what journalists like me have been saying was not correct.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Read it if you wish, and make up your own mind.’ </li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">‘PROLOGUE: HANDS OVER A WALL’</h6>‘In 1994, an extraordinary meeting was held between police detectives from British Hong Kong, Portuguese Macau, and communist Guangzhou.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They talked about the possibilities of working jointly on cross-border crime.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It seemed a tall order: the future was full of political uncertainties.’ </li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">‘1) MIRACLE CITY’</h6>‘A quarter of a century later, in 2019, Hong Kong had blossomed into a genuine oddity: a city in China with a world-class, independent legal system.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Civil servants were proud that the city was repeatedly rated number one for judicial independence in Asia by the Global Competitiveness Report of the World Economic Forum.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the World Justice Project’s Rule of Law Index, Hong Kong was ranked 16th for its rule of law—higher than many Western countries. In the World Bank’s Worldwide Governance Indicators project, Hong Kong scored an impressive 93 for rule of law.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But there was a little problem.’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">‘2) A SMALL DIFFICULTY’</h6>‘The community’s lawyers knew Hong Kong was weak on international co-operation against crime, having few extradition treaties.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This was awkward as the Chinese coastal city had signed a United Nations pledge to “significantly reduce illicit financial and arms flows [and] strengthen the recovery and return of stolen assets”.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And then Hong Kong was criticized by the G7’s Financial Action Task Force, which said it had a significant deficit in this area and was undermining international collaboration.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Critics of Hong Kong’s weakness pointed to the UN Model Treaty on Extradition which made it clear that in the name of justice, states had an obligation to extend extradition treaties.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the entire 22-year history of Hong Kong, China, only 100 people had been extradited, mostly fugitives put on planes to the United States.’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">‘3) THE EXTRADITION PARADOX’</h6>‘This needed fixing. Hong Kong civil servants reviewed the literature.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Jurisdictions which claim to uphold the rule of law need extradition treaties as a social justice issue, said the writers of an influential 2011 UK report on extradition.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Extradition must NOT be limited to places with similar legal systems. “States have increasingly recognized that effective extradition should operate on the basis of mutual trust and confidence (not suspicion and disrespect)."</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Extradition treaties forced other places to follow rule-of-law procedures in handling fugitives.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Extradition treaties and were particularly necessary for places which shared borders, such as “neighbouring states”, it said.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Britain signed extradition treaties with numerous countries with abysmal human rights records, such as Iraq and Zimbabwe. America signed deals with the Congo, Myanmar and El Salvador.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In Hong Kong, Department of Justice staff prepared to follow the leads of Western countries in this area.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Simple, right?’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">‘4) MEANWHILE IN BEIJING’</h6>‘Under the surface in China’s capital, the internal enemies of Premier Xi Jinping were slamming him hard on two fronts, Beijing sources say.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One was the China-US trade war, which was now causing easily detectable damage to their country’s economic indicators.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the other was the rise in illegal capital outflows, often through underground banks to Hong Kong, where it distorted the property markets.’</li></ul>‘At some stage, it’s clear that Xi’s people (but likely not Xi himself) would have been told about routine legal developments in Hong Kong, as a part of periodic briefings.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some people say that China’s illegal cash outflow problem to Hong Kong would have been mentioned at this time, but that remains speculation.’ </li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">‘5) CHANGES ARE TABLED’</h6>‘In Hong Kong, the civil servants’ proposal for the lengthening of the extradition countries list was filed in February. At this point, the job was under the remits of Justice secretary Teresa Cheng and Security secretary John Lee.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Then, in March, there was a moment of high drama. A man in Hong Kong confessed to murder overseas but could not be arrested for it. The incident wasn’t just dangerous, worrying, and embarrassing – but it made real the glaring hole in Hong Kong’s ability to manage international crime.’</li></ul>‘But as the expansion of extradition treaties was discussed, activists noticed that China was NOT excluded in the proposals—and saw red.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Just two years earlier, a decision to allow co-operation between Chinese and Hong Kong immigration channels at a railway station in Kowloon had caused dire predictions of doom.’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">‘6) THE LAW IS EXPLAINED’</h6>‘In the face of criticism from activists, Chief Executive Carrie Lam encouraged security minister Lee to explain the amendment better.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hong Kong’s extradition law, based on the UN model used in the west, was simple at heart, he said.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It targeted fugitives suspected of one or more of a limited list of serious crimes, including murder and rape.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The caseload was expected to be very small.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Offenders accused of crimes related to politics and religion would automatically be untouchable. Tax-related matters were added to the exemptions list.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘ALL decisions would be made by Hong Kong’s legal community.’</li></ul>‘Reviewing the proposal, some lawyers felt the built-in safeguards (such as right of appeal) were strong, while others felt they were not.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some lawyers at the Bar Association pointed to weaknesses in the wording which needed to be changed.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This was not unusual for new laws or amendments.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Lawyers with an anti-government stance made dire predictions which were not necessarily impossible—but were highly unlikely.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A number of activists interpreted this discussion as proof that the legal community agreed that the amendment was a ploy by a CCP puppet government who wanted to silence them.’</li></ul>‘The media, hungry for drama, overwhelmingly featured the angriest, most negative interpretations.’ <h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">‘7) CONSPIRACY OVERLOAD’</h6><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘On May 1, China critic Gordon C. Chang (known for his 2002 book The Coming Collapse of China) wrote a widely circulated essay claiming that Beijing was behind the amendment.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“Beijing, with methodical ruthlessness, is trying to bring Hong Kong to heel,” he wrote. “Many believe new rules facilitating the sending of suspects to China would effectively allow Beijing to grab people at will and thereby completely control the city.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Grab people at will? Frustrated pro-extradition lawyers said: “If this was true, tourists could not visit UK without being in danger of being snatched by Zimbabwe and tourists visiting the United States could be snatched by the Congolese government—but who could believe that?”’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">‘8) INTERPRETATIONS ESCALATE’</h6>‘The fears fanned by Chang and others spread fast. Soon, the main narrative for much of the Western media was that a corrupt Hong Kong civil service was following Beijing’s secret orders to destroy the city’s rule of law, with brave youths nobly resisting.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Typical was’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Vox’s headline:“The Fight to Save Hong Kong.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Time magazine had: “Hong Kong's Extradition Law Would be a Victory for Authoritarianism Everywhere.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Quartz had“Hong Kong is in the fight of its life.’</li></ul></li></ul>‘Perhaps the root of the misunderstanding was the problem of scale.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hong Kong’s existing extradition arrangements only handled four or five cases a year.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Even if the amendment caused the number to double or triple, it would still be a tiny number.’</li></ul>‘Yet activists gave the impression that tens of thousands of people were in imminent danger of being dragged over the border to mainland jails: a genuinely terrifying prospect.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“Hong Kong’s end game: why the extradition bill is an ‘infinity stone’ that could decimate half of society,” said a headline in the Hong Kong Free Press over a melodramatic call to action by lawyer-activist Jason Ng.’ </li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">‘9) REPORTED AND UNREPORTED’</h6>‘The number of complaints, from sensible suggestions to fantastical allegations, were so large they could not be ignored.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Carrie Lam took the ball from Lee’s court and headed north. (Mrs Lam periodically reports to Zhongnanhai in Beijing in the same way that Hong Kong’s British leaders periodically reported to Whitehall in London.)’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In May, she reported to Central People’s Government representatives that Hong Kong people had significant anxieties about the extradition amendment her people were trying to introduce.’ </li></ul>‘But she said that she felt it was worth continuing.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A significant portion of society was in in favor of the amendment, although their positive declarations went largely unreported.’</li></ul>‘Her complaint was fair. News articles blithely implied that businesses, diplomats and lawyers were all united against the law, but this was not the case.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘All five of Hong Kong’s biggest business organizations (The Hong Kong General Chamber of Commerce, The Chinese General Chamber of Commerce, The Chinese Manufacturers’ Association of Hong Kong, The Federation of Hong Kong Industries, and The Hong Kong Chinese Importers’ and Exporters’ Association) were in favor of the legislation, and most urged the government to pass it as soon as possible.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hong Kong’s consular officials, after a detailed briefing on the amendment, came on side, recognizing the positive intentions and close similarity to their own extradition laws.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Many senior lawyers were in favor, too—although the mainstream media and social media preferred to give airtime only to the others.’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">‘10) WRONG AGAIN’</h6>‘Dramatic interpretations of what some people believed the amendment “really” meant, ie, the total loss of all “freedom” in Hong Kong, proliferated through social media.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This led, on June 9, to a peaceful protest march of hundreds of thousands of people (but probably not a million: no self-respecting journalist takes “the organizer’s estimate” as hard fact).’</li></ul>‘Afterwards, many journalists (including the present writer) confidently speculated that Hong Kong leader Carrie Lam would have spent the evening in deep consultation with her ultimate boss, Xi Jinping, over what to do next.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In fact, we appear to have been wrong again.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Xi Jinping was never involved, and there was no consultation that day between Mrs. Lam and Beijing.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘She told reporters she and her team spent the day monitoring events in Hong Kong and had no contact with the north.’ </li></ul>‘The media“portrayed the story as the Hong Kong government made this amendment [as a result of the] instruction of the Beijing government,” said Chinese official Liu Xiaoming on June 12.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“As a matter of fact, Beijing central government gave no instruction, no order about making amendment.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“This amendment was initiated by the Hong Kong government.”’</li></ul>‘On Saturday, 15 June, Mrs. Lam put the amendment plan on hold.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘She and her team remain undecided on next steps.’ </li></ul>‘The real story of this amendment begins as a mundane tale of civil servants trying to fix a shortcoming they’d spotted in a rather technical ordinance.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But perhaps the heart of the story is something else—evidence of a deep well of mistrust of China.’ </li></ul></td></tr></tbody></table> <hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"> <a class="nl-post-title" href="https://www.ft.com/content/1b38406c-91a6-11e9-aea1-2b1d33ac3271" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;display: block;font-size: 1.8em;line-height: 1.5em;font-weight: 700;padding: 30px 40px 20px;font-family: 'Lato',sans-serif;">Response to Nuri’s report</a><a href="https://www.ft.com/content/1b38406c-91a6-11e9-aea1-2b1d33ac3271" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://www.ft.com/__origami/service/image/v2/images/raw/http%3A%2F%2Fcom.ft.imagepublish.upp-prod-eu.s3.amazonaws.com%2F9e31acd6-91ad-11e9-aea1-2b1d33ac3271?fit=scale-down&source=next&width=700" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a>Financial Times<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">'Now that the trouble Carrie Lam stirred up has revealed the depth of public distrust of the CCP.'During an email exchange on Nuri’s report, another good friend wrote a response. It was in answer to my email and is written informally.The writer is a very well-known retired businessman and well-respected China expert, who also lived for several decades in Greater China.<table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;">‘The problem with the account that Nuri posted is the context of the PRC kidnapping the five book publishers and Xiao Jianhua (out of the HK Four Seasons in his case) and detaining in re-education camps over one million people in Xinjiang.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Those actions were without basis in HK, international or PRC law.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Add to that the decision of the HK government to expel a foreign journalist for presiding over a meeting where a dissident spoke, and to prosecute organizers of peaceful demonstrations for "incitement to incite", a dubious use of the common law precedents.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It's shocking but not surprising that Germany gave political asylum to organizers of the Umbrella movement who fled rather than face the HK courts.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The international community's view of the trend toward weakening the rule of law in the PRC and HK legal systems is quite clear.’</li></ul>‘Given this context, there is every reason to believe that the PRC would use an extradition law in exactly the way Jerry Cohen suggested and that the HK judiciary might cave under govt/political pressure.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘You represented the pro and con views well, and those in favor of the proposed law were not convincing to the HK public or the international community.’</li></ul>‘As to whether Carrie Lam consulted Beijing authorities or not, there is no way of knowing and no reason to believe the statements of either government one way or the other.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘No one believes the statements of the central government that she still has their full support.’</li></ul>‘My own guess is that she saw the Taiwan case as a justification for slipping through a law that would alleviate pressure from Beijing to pass a national security law, and expected the public to acquiesce because it's a fairly technical legal matter. ‘<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That's pure speculation and immaterial.’</li></ul>‘What does matter is that her judgment of the HK public was incorrect?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘After the first huge peaceful demonstration, she held to her course.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As I recall, she said that it was like a parent faced with an unreasonable child.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That dismissal of public opinion meant that only continued large and increasingly violent demonstrations had any chance of forcing her to change.</li></ul>‘Now that the trouble she stirred up has revealed the depth of public distrust of the CCP (very embarrassing to the Party), she may be able to complete her term, but a second term is unlikely despite what is being said in Beijing.’‘One interesting sidelight is that senior HK government officials continue to repeat the CCP talking point that the demonstrations were instigated by "foreign forces" and don't represent HK public opinion.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So now we have to wonder whether they really believe that, in which case they are even more out of touch than we might have imagined.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It's more likely that they have no idea how to respond when the HK public and the CCP have incompatible views and therefore cynically repeat whatever BJ says to protect themselves.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Not good either way.’</li></ul></td></tr></tbody></table></td></tr></div></div></div>

6/15/2019

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">Hong Kong Protests: 'If China doesn't back down, the U.S. will make it pay dearly.'</h1><div class="date">June 15, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">‘Unless the Chinese government backs down, the United States, in particular, will most likely take steps to make it pay dearly,’ write Minxin PeiBack down that is from the proposed Hong Kong extradition law that brought a million Hong Kongers into the streets..If passed, that law will weaken the rule of law and thus vastly diminish Hong Kong’s viability as an international business and financial center.To retaliate, the U.S.’s biggest weapon is revoking or unfavorably revising the U.S.-Hong Kong Policy Act. It is that act, probably more than anything else, which has allowed Hong Kong to prosper since the handover in 1997.If the U.S. does act, not just Hong Kong will suffer – so will China.I cover this many-faceted topic in four sections:I. The Law and the ProtestsII. Potential U.S. BacklashIII. Congress and the President ReactIV. Extradition Law: Pro & ConLet me know your take!</td></tr></div></div><div class="section_title">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. ‘People v power: The rule of law in Hong Kong’: The Economist</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.economist.com/leaders/2019/06/13/the-rule-of-law-in-hong-kong" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img style="width: 100%;margin: 0 auto;" src="https://www.economist.com/sites/default/files/imagecache/640-width/images/2019/06/articles/main/20190615_LDD001.jpg" alt="CHINADebate"></a></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The bill could throttle Hong Kong’s freedoms by raising the possibility that the party’s critics could be bundled over the border.’‘The prospect of losing the legal firewall between Hong Kong and China, in a bill that is being rushed with minimal debate, is what brought out vast crowds, many dressed in white, the colour of mourning,’ <a href="https://www.economist.com/china/2019/06/12/why-hong-kongs-protesters-are-braving-tear-gas-and-rubber-bullets" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">writes Chaguan in The Economist.</a>‘Three things stand out about the protesters who rocked Hong Kong this week,’ <a href="https://www.economist.com/leaders/2019/06/13/the-rule-of-law-in-hong-kong" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">says The Economist.</a><ol style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There were a great many of them. Hundreds of thousands took to the streets in what may have been the biggest demonstration since Hong Kong was handed back to China in 1997.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Most of them were young—too young to be nostalgic about British rule.’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Their unhappiness at Beijing’s heavy hand was entirely their own.’</li></ul><ol start="3" style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And they showed remarkable courage. Since the “Umbrella Movement” of 2014, the Communist Party has been making clear that it will tolerate no more insubordination—and yet three days later demonstrators braved rubber bullets, tear gas and legal retribution to make their point.’</li></ol>‘All these things are evidence that, as many Hong Kongers see it, nothing less than the future of their city is at stake.’‘When Chaguan last year met Benny Tai, a rumpled law professor from Hong Kong University and an Occupy Central leader, he sadly wondered when his city might witness large demonstrations again,’ <a href="https://www.economist.com/china/2019/06/12/why-hong-kongs-protesters-are-braving-tear-gas-and-rubber-bullets" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">writes Chaguan in The Economist.</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“People are concerned that it is not safe to protest, especially in the business sector,” he sighed.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He talked of “holding the line” while waiting for democracy in mainland China.’</li></ul>‘It would be interesting to hear Mr Tai’s views now, but he is currently in prison.’</td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. What is the proposed law that the protesters oppose?</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img style="width: 100%;margin: 0 auto;" src="https://listly-temp.s3.amazonaws.com/819038_Scott%20Kennedy.png" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘<a href="https://www.legco.gov.hk/yr18-19/english/counmtg/papers/cm20190612cb3-678-e.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">The bill</a>, introduced and sponsored by 22 Legco members, seeks to amend two ordinances: the Fugitive Offenders Ordinance and the Mutual Legal Assistance in Criminal Matters Ordinance,’ write Minda Qui and Scott Kennedy of the Center for Strategic and International Strategy in <a href="https://www.csis.org/analysis/whither-hong-kong" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Whither Hong Kong.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Those two laws ‘were introduced in 1997 right before Hong Kong was handed over to China to regulate the practices of extradition and legal assistance with other jurisdictions.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The two laws specifically deny the applicability of those laws to mainland China.’</li></ul>'Under the current legal framework, Hong Kong’s government is legally bound not to respond to extradition requests from mainland China.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'The amendments will change Hong Kong’s government’s extradition practice to a case-by-case scenario when such a request is made by a jurisdiction, including mainland China, that do not have extradition or legal assistance agreements with the city.'</li></ul>'It will also modify the list of crimes that are covered under the current ordinances.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'The original amendments included 46 categories of extraditable crimes, among which were commercial crimes related to bankruptcy, tax, and trading.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'In a revised bill, the government removed nine crimes on commerce and trade.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'The final proposed version covers 37 crimes that are eligible for extradition if the offenses are punishable by more than seven years under Hong Kong law.'</li></ul></td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘Plugging a loophole?’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.economist.com/china/2019/06/12/why-hong-kongs-protesters-are-braving-tear-gas-and-rubber-bullets" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img style="width: 100%;margin: 0 auto;" src="https://cna-sg-res.cloudinary.com/image/upload/q_auto,f_auto/image/11624260/16x9/991/557/ec3ff08d8081c80549a938f1a4616617/AV/hong-kong-chief-executive-carrie-lam-has-displayed-a-steely-resolve-even-in-the-face-of-mass-protests-1560414784721-6.jpg" alt="CHINADebate"></a></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘When drafting an extradition law before the handover in 1997 officials took a deliberate decision to maintain a firewall between Hong Kong’s justice system and that of the mainland,‘Hong Kong’s chief executive, Carrie Lam, appointed by a panel of local loyalists of the Communist Party in Beijing, talks of “plugging a loophole” with the extradition bill,’ <a href="https://www.economist.com/china/2019/06/12/why-hong-kongs-protesters-are-braving-tear-gas-and-rubber-bullets" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">writes Chaguan in The Economist.</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘She says opponents will leave the territory a refuge for fugitives.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That is to suggest that previous leaders somehow forgot to draft rules for sending criminal suspects to China.’</li></ul>‘In fact, there was no omission, says Margaret Ng, a barrister who represented the legal profession in Hong Kong’s legislature from 1995 to 2012, under first British then Chinese rule.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘When drafting an extradition law before the handover in 1997 officials took a deliberate decision to maintain a firewall between Hong Kong’s justice system and that of the mainland, “to protect the rule of law in Hong Kong and confidence in Hong Kong as an international hub free from China’s much mistrusted system.”’</li></ul></td></tr></div></div><div class="section_title">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. ‘Hong Kong’s proposed extradition law puts ties with America at risk’: The Economist</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img style="width: 100%;margin: 0 auto;" src="https://www.cecc.gov/sites/chinacommission.house.gov/files/styles/home_page_feature/public/wolf%20pelosi%20rubio%20wto%20hearing%20%283%29_0.jpg?itok=zFP1vzGu" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Transferring technology to Hong Kong may increasingly be seen as equivalent to passing it to China—not the intent of the Policy Act.’ ‘The framework for the U.S.-Hong Kong relationship is the U.S.-Hong Kong Policy Act of 1992, which established continued separate economic treatment for the territory beyond its handover to China in 1997,’ writes The Economist in <a href="https://www.economist.com/briefing/2019/06/15/hong-kongs-proposed-extradition-law-puts-ties-with-america-at-risk" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Hong Kong’s proposed extradition law puts ties with America at risk.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This boosted Hong Kong as a bridge between the rich world and a booming China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘More recently, it has meant freedom from America’s tariffs on China.’</li></ul>‘Even before the latest troubles in Hong Kong, however, concerns were growing that it would get caught in the crossfire of President Donald Trump’s trade war with China.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As restrictions on China led to the diversion of more transactions via Hong Kong, its privileged position has inevitably attracted attention.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Transferring technology to Hong Kong may increasingly be seen as equivalent to passing it to China—not the intent of the Policy Act.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Last year the US-China Economic and Security Review Commission, set up by Congress to report on the security implications of trade, recommended a fresh look at export controls for sensitive technology via the treatment of China and Hong Kong as separate customs areas.’</li></ul>‘A lot is at stake. Hong Kong is China’s conduit.’</td></tr></div></div><div id="article5" class="post-card"><div class="t2-block">5. ‘China Is Courting Disaster in Hong Kong’: Minxin Pei</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img style="width: 100%;margin: 0 auto;" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d1191a489e2713f7306d713_Minxin%20Pei-ps.png" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘If the US decides to withdraw Hong Kong’s privileges on the grounds that Chinese actions no longer justify treating it as a separate entity, the city’s value as a financial center will be fatally impaired.’ ‘China’s leaders should be aware that the outside world is watching current developments with great alarm, ’ <a href="https://www.project-syndicate.org/commentary/hong-kong-extradition-law-protests-china-mistakes-by-minxin-pei-2019-06" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">writes Minxin Pei</a>.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Unless the Chinese government backs down, the United States, in particular, will most likely take steps to make it pay dearly.’</li></ul>‘Since Hong Kong returned to Chinese rule in 1997, Western governments have maintained special economic privileges to help bolster confidence in the city.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In 1992, the US Congress passed the US-Hong Kong Policy Act, in order to continue treating the city as a separate entity from mainland China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The law grants Hong Kong economic and trading privileges, such as continued access to sensitive technologies and the free exchange of the US dollar with the Hong Kong dollar.’</li></ul>‘But such benefits are contingent upon China fulfilling its commitments under the 1984 Sino-British Joint Declaration on Hong Kong, which set out the terms of the city’s future handover.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Among other things, China pledged to maintain Hong Kong’s high degree of autonomy, freedom, and rule of law for 50 years.’</li></ul>‘The US-Hong Kong Policy Act has teeth to deter China from violating its commitments.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In particular, it <a href="http://uscode.house.gov/view.xhtml?path=/prelim@title22/chapter66&edition=prelim" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">explicitly empowers</a> the US president to issue an executive order suspending some or all of Hong Kong’s privileges if he or she determines that “Hong Kong is not sufficiently autonomous to justify treatment under a particular law of the United States.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In making such a determination, the president should consider “the terms, obligations, and expectations expressed in the Joint Declaration with respect to Hong Kong.”’</li></ul>‘Even a cursory reading of the US-Hong Kong Policy Act should make it clear to China’s leaders that their actions in recent years have already seriously jeopardized the city’s status as an autonomous entity.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Such actions include the abduction of five Hong Kong-based book publishers, the disqualification on dubious grounds of democratically elected city legislators, and the imprisonment of pro-democracy activists.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For the US, the passage of the extradition law could well be the last straw.’</li></ul>‘The unfolding confrontation between China’s leaders and Hong Kong’s citizens will provide fresh ammunition to US hardliners who have been advocating an aggressive stance against the Chinese government.’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="https://www.reuters.com/article/us-hongkong-extradition-usa/us-warns-extradition-law-changes-may-jeopardize-hong-kongs-special-status-idUSKCN1TB2EJ" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">'Revoking Hong Kong’s privileges</a> would advance that goal, because it would significantly hurt China.’</li></ul>‘After all, as the Sino-American economic cold war escalates, and rising regulatory and legislative hurdles make it harder for Chinese companies to raise capital in the US, Hong Kong will become immensely valuable to China as an offshore financial center.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But if the US decides to withdraw Hong Kong’s privileges on the grounds that Chinese actions no longer justify treating it as a separate entity, the city’s value as a financial center will be fatally impaired.’</li></ul>‘Even if the US does not take this punitive step, China will reap what it has sowed.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The likely passage of the extradition law will irrevocably tarnish the rule of law in Hong Kong and its attractiveness as an international commercial hub.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Unless China’s leaders are prepared to accept these disastrous consequences, they should withdraw the bill before it is too late.’</li></ul></td></tr></div></div><div class="section_title">III. CONGRESS & THE PRESIDENT REACT </div><div id="article6" class="post-card"><div class="t2-block">6. CONGRESS | ‘The reaction that really matters is in Washington, D.C.’: The Economist</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img style="width: 100%;margin: 0 auto;" src="https://listly-temp.s3.amazonaws.com/35296_nancy%20pelosi%20hong%20kong.png" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The deepening strategic rivalry between America and China will bring greater scrutiny of Hong Kong.’ ‘Under the Policy Act the president can suspend specific privileges by executive order if he deems Hong Kong insufficiently autonomous. ‘In the midst of a trade war with China, a big blow to Hong Kong’s future may be only a tweet away.’ ‘The reaction that really matters is in Washington, D.C., where the response could have big implications for Hong Kong’s future,’ writes The Economist in <a href="https://www.economist.com/briefing/2019/06/15/hong-kongs-proposed-extradition-law-puts-ties-with-america-at-risk" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Hong Kong’s proposed extradition law puts ties with America at risk.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Nancy Pelosi, the Speaker of the House, said on June 11th that if the “horrific” extradition bill passes, Congress would have to reassess whether Hong Kong was “sufficiently autonomous” to justify its current status in trade with America, which sets it apart from China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But support for Hong Kong’s protesters is bipartisan. The Senate majority leader, Mitch McConnell, and fellow Republicans such as Marco Rubio and Lindsey Graham, have joined a chorus of condemnation.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Plans are afoot to legislate for a review of America’s relationship with Hong Kong.’</li></ul></td></tr></div></div><div id="article7" class="post-card"><div class="t2-block">7. CONGRESS | Actions by the Congressional-Executive Commission on China (CECC)</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.cecc.gov/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img style="width: 100%;margin: 0 auto;" src="https://listly-temp.s3.amazonaws.com/670710_Congressional-Executive%20Commission%20on%20China%20(CECC).png" alt="CHINADebate"></a></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘If the extradition bill moves forward and Hong Kong’s autonomy and democratic institutions continue to erode due to interference from the Chinese government, the Congress has no choice but to reassess whether Hong Kong can receive preferential economic and trade benefits under U.S. law.’Commissioners Reintroduce ‘<a href="https://urldefense.proofpoint.com/v2/url?u=https-3A__www.rubio.senate.gov_public_-5Fcache_files_7030f464-2Dac78-2D4af9-2Da5d1-2D55151ca3b6f8_C89816EECDFDE0D75FB8EC98DDEC4803.mdm19812.pdf&d=DwMFAg&c=L93KkjKsAC98uTvC4KvQDdTDRzAeWDDRmG6S3YXllH0&r=j8FO1Dd9iuASwkXFRjP1PUESUryXcxjxoWZptW3mQKk&m=XgvTcwivrswDw7rRugLo3BPTy85Rjug4qYJxVNQ4YEk&s=Vk6t5tiFJQM23velAzvIVVP2MXfBcrvBilqvYvZXDFQ&e=" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Hong Kong Human Rights and Democracy Act</a>’On June 13 the Congressional-Executive Commission on China (CECC) ‘reintroduced the <a href="https://urldefense.proofpoint.com/v2/url?u=https-3A__www.rubio.senate.gov_public_-5Fcache_files_7030f464-2Dac78-2D4af9-2Da5d1-2D55151ca3b6f8_C89816EECDFDE0D75FB8EC98DDEC4803.mdm19812.pdf&d=DwMFAg&c=L93KkjKsAC98uTvC4KvQDdTDRzAeWDDRmG6S3YXllH0&r=j8FO1Dd9iuASwkXFRjP1PUESUryXcxjxoWZptW3mQKk&m=XgvTcwivrswDw7rRugLo3BPTy85Rjug4qYJxVNQ4YEk&s=Vk6t5tiFJQM23velAzvIVVP2MXfBcrvBilqvYvZXDFQ&e=" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Hong Kong Human Rights and Democracy Act</a>, bicameral and bipartisan legislation that reaffirms the U.S. commitment to democracy, human rights, and the rule of law at a time when these freedoms and Hong Kong’s autonomy are being eroded through interference by the Chinese government and Communist Party.’“We introduce this legislation today because democracy and freedom are under assault in Hong Kong, and it is critical for the Congress to reaffirm the United States’ commitment to Hong Kong’s autonomy, to the human rights guaranteed the people of Hong Kong, and to those peacefully protesting the Chinese government’s increasingly rough oversight of Hong Kong,” said Chris Smith, Republican Congressman from New Jersey.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“It is in everyone’s interest that Hong Kong remain a free and prosperous bridge between China and the world.”</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“But if Beijing intends to force Hong Kong into becoming just another mainland Chinese city under authoritarian rule, we must reevaluate whether Hong Kong warrants the special status granted under U.S. law.”</li></ul>The CECC ‘sent a letter yesterday [May 23] to Hong Kong Chief Executive Carrie Lam expressing “concern” that proposed amendments to Hong Kong’s extradition law would “negatively impact the relationship between the United States and Hong Kong” and asked that the amendments be “withdrawn from consideration.”’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Full text of the letter can be found <a href="https://www.cecc.gov/sites/chinacommission.house.gov/files/documents/Hong%20Kong%20CE%20Letter.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">here</a>.’ </li></ul></td></tr></div></div><div id="article8" class="post-card"><div class="t2-block">8. PRESIDENT TRUMP | ‘So I hope it all works out for China and for Hong Kong.’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/_avBgoNyNgQ?t=2910"></iframe></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘But when you look at this demonstration - they said it was a million people, that was a million people. That was as big a demonstration as I've ever seen.’(President Trump’s complete comments)Reporter: ‘How do you react to the demonstrations in Hong Kong. Is China overplaying its hand?’President Trump: ‘Well, they're massive demonstrations. I looked today, and that really is a million people.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A lot of times people talk about they had 2,000 people, but it was really 1,000, or was it was 200. I see it all the time. I see it all the time.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But when you look at this demonstration - they said it was a million people, that was a million people. That was as big a demonstration as I've ever seen.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So I hope it all works out for China and for Hong Kong.’</li></ul>Reporter: ‘Are they sending a message to China with these demonstrations?’President Trump: ‘I don’t know what they’re sending them.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That’s a demonstration they’re having.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I understand the reason for the demonstration.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But I’m sure they will be able to work it out.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I hope they will able to work it out with China.’</li></ul>[from <a href="https://youtu.be/_avBgoNyNgQ?t=2910" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Watch: Trump meets with Poland's president at White House,’</a> starting at 48:30, Washington Post video, June 12, 2019]</td></tr></div></div><div class="section_title">IV. EXTRADITION LAW:PRO & CON </div><div id="article9" class="post-card"><div class="t2-block">9. PRO | ‘There Are Huge Misconceptions About Extradition Bill.’: Ronnie Tong</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/Md1diK40KDI"></iframe></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">Ronnie Tong is a non-official member of the <a href="https://en.wikipedia.org/wiki/Executive_Council_of_Hong_Kong" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Executive Council of Hong Kong</a>.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And the convenor of the pro-Beijing political group and think tank <a href="https://en.wikipedia.org/wiki/Path_of_Democracy" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Path of Democracy</a></li></ul>Q:‘We keep hearing from a lot of guests here that the public doesn't completely understand the revisions behind this extradition bill.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We have a viewer comment: “Is the government overly arrogant in believing that some of these international groups, the business community, the lawyers out there have misunderstood it all.”’</li></ul>Tong: ‘Well, I do think so. We are at a loss as to why there is such a huge misconception about the purpose in the effect of the bill,’ says Ronnie Tong in a <a href="https://youtu.be/Md1diK40KDI" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Bloomberg video interview</a>.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘First of all we just discovered that a leading newspaper did a survey of the mass march on Sunday, and they discovered that 90 percent of the people who took part in the March thought that the bill would mean people criticizing Beijing will be sent back to China to be tried.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That’s a huge misconception.’</li></ul>‘What the bill does - it's like any other extradition arrangement all over the world - it deals with people committing serious crimes outside Hong Kong.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Those serious crimes are well defined under the ordinance.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Not just any crime but serious crimes - crimes that do not involve any political element, and it doesn't involve political statements for sure.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It’s purely enacted for the purpose of fighting cross-border crime.’</li></ul>‘Now the Hong Kong model - the Hong Kong law - in fact was enacted by the British colonial government just before the handover in April 1997.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It was modeled after the United Nations Model Treaty on Extradition.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is basically contains the same safeguards – the same terms - as the US arrangement, the UK arrangement, Canadian arrangement, the Australian New Zealand arrangement.’</li></ul>‘We are at a loss as to why the UK and the U.S. can consider an extradition application from China, but we in Hong Kong cannot.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We are part of China, but we have no such arrangement with our own country with which we have the closest contact.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Each day we have over a million people travelling across the border, and yet we have no legal tool to fight cross-border crime here.’</li></ul>Q: ‘Ronnie, the point I think is that people are concerned that if they are returned to China they would not receive a fair trial. It's a legal system which is opaque - and I'm being kind.’Tong: ‘The more meaningful concession, which has been overlooked by the media, is that we would ensure - insist on - the minimum fair trial guarantees provided under Article 14 of the ICCPR - the International Covenant on Civil and Political Rights.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The gatekeeper basically is our own judiciary - we don't look to China or their judiciary to be the gatekeeper here.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If we are not satisfied that the prisoner would receive a fair trial or his human rights would be well respected, we simply would not accede to the application for extraction.’</li></ul>‘Our judiciary is famous for being independent and consists of very able judges with integrity.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We have judges from the UK, from Canada, from Australia sitting on our court of final appeal.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And I don't believe you can seriously suggest these judges can easily be bought by Beijing.’</li></ul> ‘I fully appreciate that people who are being apprehensive about you know China and China's influence on Hong Kong - that is perfectly understandable.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But this bill was not initiated by China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In fact the Chinese ambassador to the UK made it clear that the initiative came from our own chief executive Carrie Lam.’</li></ul> ‘We only have extradition arrangements with 20 countries in the world.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That means that we have no arrangement with over a hundred countries to deal with this matter of cross-border crime.’</li></ul></td></tr></div></div><div id="article10" class="post-card"><div class="t2-block">10. CON | ‘My take on Hong Kong's extradition bill’: Jerry Cohen</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img style="width: 100%;margin: 0 auto;" src="https://listly-temp.s3.amazonaws.com/145902_Jerome%20Cohen.png" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">Jerry Cohen is one of the leading China law scholars and lawyers.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He serves as the co-director of NYU’s S.-Asia Law Institute and a professor at the New York University School of Law.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And, as adjunct senior fellow for Asia Studies at the Council on Foreign Relations</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Before that, he was Jeremiah J. Smith professor, director of East Asian legal studies, and associate dean at Harvard Law School.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And, a partner at the Paul Weiss and Coudert Brothers law firms, focused on China.</li></ul>‘For many decades, every democratic government in the common law world has successfully resisted efforts by the People’s Republic of China to conclude an extradition treaty,’ <a href="http://www.jeromecohen.net/jerrys-blog/hong-kongs-extradition-law" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">writes  Jerry Cohen.</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘These democracies have refused to commit to forcibly delivering, for trial in China, people whom Beijing claims have violated Chinese criminal law.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"> ‘Even 22 years after its return to the motherland, the special administrative region (SAR) has made no extradition-type agreement with the central people’s government.’</li></ul><img style="display: block;width: 100%;padding: 10px 0;margin: 0 auto;" src="https://listly-temp.s3.amazonaws.com/14705_PRC%20has%20promulgated%20laws.png" alt="CHINADebate">Why? Even though the PRC has promulgated laws, regulations, and rules for its criminal justice system, ‘its criminal justice system can still not assure alleged offenders <a href="https://www.scmp.com/comment/insight-opinion/article/2054456/no-sign-change-chinas-deeply-flawed-criminal-justice-system" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">a fair trial</a>.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Despite the Chinese system’s legendary non-transparency, its failures to meet international standards of due process are well known.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Arbitrary, often lengthy, secret and incommunicado detention, widespread existence of <a href="https://www.scmp.com/news/china/policies-politics/article/2101819/chinas-human-rights-lawyers-continue-fight-victims-709" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">torture</a> and frequent denial of the effective help of defense counsel are hallmarks of the process.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The police, more powerful than prosecutors and judges, dominate China’s criminal justice officialdom, and all three departments operate subject to the dictates of the Communist Party political-legal committee and the new National Supervision Commission that control them.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A single party leader’s brief instruction can determine guilt or innocence, the duration of a sentence or even the death penalty.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This is true in cases not only of those perceived to be political opponents of the party-state but also those suspected of bribery and related offences in the context of an economy, government and society where <a href="https://www.scmp.com/news/china/policies-politics/article/2133251/xi-jinpings-anti-graft-drive-has-caught-so-many" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">corruption is endemic</a>.’</li></ul>‘Even more distorting to the legal system is the impact of guanxi, the network of interpersonal relationships that exercises far more influence over the administration of justice than even politics and corruption.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In my own experience practicing law relating to China for over 20 years, I often encountered situations where powerful local interests procured police cooperation in detaining and charging business personnel, foreign as well as Chinese, to compel hapless detainees to surrender their property or suffer serious punishment.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Key performance indicators also drive prosecutors and judges to fear the damage that not-guilty verdicts will do to their careers.’</li></ul>‘In these circumstances, is it any wonder that independent, democratic and knowledgeable foreign governments and legal experts resist extradition agreements with Beijing?’‘Why, then, should Hong Kong succumb to its demand for legislation authorizing extradition?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The argument that the proposed legislative amendment is required to extradite an <a href="https://www.scmp.com/news/hong-kong/politics/article/3003381/gruesome-taiwan-murder-lies-behind-hong-kong-leader-carrie" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">alleged murderer</a> to Taiwan for trial is specious.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That issue can be negotiated without changing arrangements relating to the mainland, and Taiwan <a href="https://www.scmp.com/news/hong-kong/politics/article/2187224/taipei-wont-sign-any-extradition-deal-hong-kong-if-it" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">does not support</a> the proposed amendment.’</li></ul>‘Once the amendment goes into effect, it will be easy for mainland authorities to extract from Hong Kong those who have drawn their ire.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There will be no further incentive for <a href="https://www.scmp.com/news/hong-kong/politics/article/2058000/one-year-hong-kong-bookseller-saga-leaves-too-many-questions" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">kidnapping</a> and its costly consequences for social stability and Beijing’s reputation.’</li></ul>‘Beijing need only file an extradition request claiming that the person sought is suspected of committing bribery, for example, and an affidavit alleging the existence of facts that, on their face, appear to contain the elements of the crime.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hong Kong courts will not be allowed to hold a trial to determine the truth of those “facts”.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That will be the task of China’s party-controlled courts, which lack the procedural protections Hong Kong people take for granted.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hong Kong courts will only confirm the legal formalities, including whether prescribed procedures have been followed, whether the SAR also punishes bribery (it does), whether bribery falls within the nine offences excepted from extradition (it does not), and whether the bribery alleged should be deemed a political offence and therefore excluded from extradition.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some of the affidavits filed in support of extradition may well be false.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A regime willing to use kidnapping to arrest its prey will not cavil at lying to do so.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As too many cases on the mainland – involving foreigners as well as Chinese – attest, long, incommunicado detentions marked by torture often yield false confessions, and the multiple pressures exerted on mainland witnesses and lawyers often produce <a href="https://www.scmp.com/comment/insight-opinion/article/1230704/china-must-stop-extracting-confessions-through-use-torture" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">false testimony</a>.’</li></ul>‘Perhaps the most frightening aspect of the impending amendment is its application, not only to all SAR citizens and foreign and Chinese residents of the SAR, but also to anyone who passes through Hong Kong.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This will lead to more than the reciprocating of Canada’s recent detention of <a href="https://www.scmp.com/news/china/diplomacy/article/3009440/huaweis-meng-wanzhou-back-court-us-pushes-extradite-her-bank" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Huawei’s CFO</a> at Vancouver airport for extradition based on alleged violations of American law while in Hong Kong.’</li></ul></td></tr></div></div><div id="article11" class="post-card"><div class="t2-block">11. CON | ‘A convenient legal tool to grab individuals deemed to be “enemies” of the Chinese state’: Minxin Pei</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img style="width: 100%;margin: 0 auto;" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d1191a489e2713f7306d713_Minxin%20Pei-ps.png" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘If the proposed law is adopted, the mainland authorities will be able to arrest anyone in Hong Kong easily, by charging the target with an extraditable crime.’ Minxin Pei is the Tom and Margot Pritzker Professor of Government and director of the Keck Center for International and Strategic Studies at Claremont McKenna College.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And, non-resident senior fellow for Asia at the German Marshall Fund of the United States.</li></ul> ‘The proposed extradition law would violate China’s pledge to adhere to the model of “one country, two systems” in Hong Kong,’ <a href="https://www.project-syndicate.org/commentary/hong-kong-extradition-law-protests-china-mistakes-by-minxin-pei-2019-06" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">writes Minxin Pei</a>.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And by giving the authorities in Beijing a convenient legal tool to grab individuals deemed to be “enemies” of the Chinese state, the legislation would imperil the liberty of Hong Kong’s citizens – and that of foreigners residing there.’</li></ul>‘Although the draft law does not formally apply to political offenses, this will offer no protection in practice.'<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Under the Chinese legal system – which is controlled by the Communist Party of China – the distinction between political offenses and conventional crimes is hopelessly blurred.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Increasingly, in fact, the Chinese party-state persecutes human-rights activists by accusing them of criminal, not political, offenses.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Common charges include “running an illegal business” and “picking quarrels and provoking trouble.”’</li></ul>‘If the proposed law is adopted, the mainland authorities will be able to arrest anyone in Hong Kong easily, by charging the target with an extraditable crime.’<ul style="margin-bottom: 0;margin-top: .625em;"><img style="display: block;width: 50%;float: right;right: 20px;padding-left: 20px;padding-top: 10px;margin: 0 auto;" src="https://www.economist.com/sites/default/files/imagecache/640-width/images/2019/06/articles/main/20190615_cnp502.jpg" alt="CHINADebate"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Given the low threshold of proof – prosecutors would not need to provide evidence beyond probable cause – the protection against politically motivated extradition requests is frighteningly slim.’</li></ul></td></tr></div></div><div id="article12" class="post-card"><div class="t2-block">12. CON | President Xi Needs to tell Carrie Lam ‘no amendment now’ : Michael Pillsbury</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/Dq2WYbHenZc"></iframe></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Let's think of the larger picture, the larger context of U.S.-China negotiations over trade issues and other issues.' ‘I just wonder if Carrie Lam is taking into account these larger geopolitical factors, and if she's listening to the right messages from Beijing.’Michael Pillsbury is Senior Fellow and Director for Chinese Strategy at the Hudson Institute.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He is a distinguished defense policy adviser, former high-ranking government official, and author of numerous books and reports on China. </li></ul>‘Rule of law, extradition to a country that doesn't really have fair trials - this all suggests the President Xi needs to resolve this somehow,’ <a href="https://youtu.be/Dq2WYbHenZc" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">says Michael Pillsbury </a> in a Bloomberg video interview.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He needs to get on the phone directly or through intermediaries with Carrie Lam and say, “Look we don't really need this amendment right now.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That will help U.S- China relations, and it will help the trade talks.’</li></ul>‘In my book,The Hundred Year Marathon, I talk about the Hawks versus the Reformers.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Hawks have very strong views up in Beijing about Hong Kong.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They want PRC textbooks, they want patriotic education.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They love the extradition concept.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They don't want Hong Kong to become a model – a model of economics and the rule of law.’</li></ul> ‘So you've got this debate going on in Beijing.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Carrie Lam frankly has to decide who is she going to listen to - the Hawks or the Reformers - I hope she listens to the Reformers.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And I hope President Xi sends a signal fairly soon that he doesn't want this kind of demonstration to go on.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He wants successful trade talks with his friend President Trump.’</li></ul> ‘I don't think there's a Cold War with China now.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But I can see how a series of events starting with major demonstrations that are suppressed in Hong Kong - that's my nightmare.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If the demonstrations are suppressed and the vote goes through, then we'll start to see more pressure here in Washington on the President to get tougher with China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He's not really been tough with China in the sense of a cold war – he seems to want to get to zero tariffs, more trade, more investment, much better relationship with China - that's what he's been saying for two years, and he's written onto this topic even before he became president.’</li></ul>‘A violent crackdown is certainly one scenario.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There's also an optimistic, happy ending scenario in which Carrie Lam gets new guidance - receives some sort of signal from Xi Jinping - that, “Hey, you don't have to do this right now.”’</li></ul>‘Let's think of the larger picture, the larger context of U.S.-China negotiations over trade issues and other issues.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I mean we are testing their territorial claims in the South China Sea with our armed Navy warships going through their claims; we're talking about a major armed sales package for Taiwan - there's just a number of things that are at stake in the overall U.S.-China relationship.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I just wonder if Carrie Lam is taking into account these larger geopolitical factors, and if she's listening to the right messages from Beijing.’</li></ul></td></tr></div></div></div>

6/12/2019

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">'Not another downturn in U.S.-China relations: a paradigm shift'</h1><div class="date">June 12, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. ‘China’s rise would have eroded any hegemon’s unrivaled power, no matter how skillful its diplomacy’: Fareed Zakaria</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.foreignaffairs.com/issues/2019/98/4" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img style="width: 100%;margin: 0 auto;" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d1800abdb08515a566de32e_fareed%20zakaria.png" alt="CHINADebate"></a></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘So which was it that eroded American hegemony—the rise of new challengers or imperial overreach? As with any large and complex historical phenomenon, it was probably all of the above.’The July/August issueof Foreign Affairs focuses on <a href="https://www.foreignaffairs.com/issues/2019/98/4" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘What Happened to the American Century.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><a href="https://www.foreignaffairs.com/issues/2019/98/4" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img style="display: block;width: 120px;float: right;right: 20px;padding-left: 20px;margin: 0 auto;" src="https://files.foreignaffairs.com/styles/issue-cover/s3/images/issues/2019/06/06/ja19_cover_small.jpg?itok=ihaLu7Ee" alt="CHINADebate"></a><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Goes without saying that China’s rise is prominent in the many of the essays.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Of these, Fareed Zakaria’s <a href="https://www.foreignaffairs.com/articles/2019-06-11/self-destruction-american-power" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘The self-destruction of American power’</a> intertwines China with other factors to answer his question: ‘So which was it that eroded American hegemony—the rise of new challengers or imperial overreach?’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Below are some Fareed’s key points. But his essay and the others are certainly worth your time.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Note: you will need a subscription to Foreign Affairs – and that too is worth it.</li></ul><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;">‘Just as American hegemony grew in the early 1990s while no one was noticing, so in the late 1990s did the forces that would undermine it, even as people had begun to speak of the United States as “the indispensable nation” and “the world’s sole superpower,”’ writes Fareed Zakaria.<h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">1. New Challengers</h6>🇨🇳 'First and foremost, there was the rise of China. It is easy to see in retrospect that Beijing would become the only serious rival to Washington, but it was not as apparent a quarter century ago.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Although China had grown speedily since the 1980s, it had done so from a very low base.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Few countries had been able to continue that process for more than a couple of decades.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s strange mixture of capitalism and Leninism seemed fragile, as the Tiananmen Square uprising had revealed.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But China’s rise persisted, and the country became the new great power on the block, one with the might and the ambition to match the United States.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s rise was one of those tectonic shifts in international life that would have eroded any hegemon’s unrivaled power, no matter how skillful its diplomacy.’</li></ul>🇷🇺 ‘Russia, for its part, went from being both weak and quiescent in the early 1990s to being a revanchist power, a spoiler with enough capability and cunning to be disruptive.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The return of Russia, however, was a more complex affair.'</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'It’s easy to forget now, but in the early 1990s, leaders in Moscow were determined to turn their country into a liberal democracy, a European nation, and an ally of sorts of the West.’</li></ul>‘With two major global players outside the U.S.-constructed international system, the world had entered a post-American phase.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Today, the United States is still the most powerful country on the planet.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it exists in a world of global and regional powers that can—and frequently do—push back.’</li></ul><h6 style="display: block;font-weight: 700;line-height: 1.9375em;margin: 1em 0;font-size: 1.0625em;font-style: italic;color: #0970b3;">2. Imperial Overreach</h6>‘The 9/11 attacks and the rise of Islamic terrorism played a dual role in the decline of U.S. hegemony.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At first, the attacks seem to galvanize Washington and mobilize its power.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘After 9/11, Washington made major, consequential decisions that continue to haunt it, but it made all of them hastily and in fear.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘American behavior abroad during the Bush administration shattered the moral and political authority of the United States, as long-standing allies such as Canada and France found themselves at odds with it on the substance, morality, and style of its foreign policy.’</li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;">‘So which was it that eroded American hegemony — the rise of new challengers or imperial overreach?<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'As with any large and complex historical phenomenon, it was probably all of the above.’</li></ul><ul style="margin-bottom: 0;margin-top: .625em;"></ul>But ‘the greatest error the United States committed during its unipolar moment, with Russia and more generally, was to simply stop paying attention.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘After the collapse of the Soviet Union, Americans wanted to go home, and they did.’ </li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;">‘The Trump administration has hollowed out U.S. foreign policy even further.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘<a href="https://www.foreignaffairs.com/articles/united-states/2017-01-20/jacksonian-revolt" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Trump’s instincts are Jacksonian</a>, in that he is largely uninterested in the world except insofar as he believes that most countries are screwing the United States.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He is a nationalist, a protectionist, and a populist, determined to put “America first.”’</li></ul>But truthfully, more than anything else, <a href="https://www.foreignaffairs.com/articles/2019-04-16/time-different" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">he has abandoned the field</a>.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Under Trump, the United States has withdrawn from the Trans-Pacific Partnership and from engaging with Asia more generally.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is uncoupling itself from its 70-year partnership with Europe.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It has dealt with Latin America through the prism of either keeping immigrants out or winning votes in Florida.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It has even managed to alienate Canadians (no mean feat).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And it has subcontracted Middle East policy to Israel and Saudi Arabia.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With a few impulsive exceptions—such as the narcissistic desire to win a Nobel Prize by trying to make peace with North Korea—what is most notable about Trump’s foreign policy is its absence.’</li></ul></td></tr></tbody></table><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;">🇬🇧 ‘Unlike the United Kingdom at the end of its reign, the United States is not bankrupt or imperially overextended.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It remains the single most powerful country on the planet.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It will continue to wield immense influence, more than any other nation.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it will no longer define and dominate the international system the way it did for almost three decades.’</li></ul></td></tr></tbody></table></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. ‘Not another downturn in U.S.-China relations: a paradigm shift’: Jim McGregor</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/yCyi53wElXI"></iframe></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘So you have to think about things differently - it's not the China you knew for the last 30 years.’‘What we're going through now is not another downturn in U.S.-China relations: it's a paradigm shift,’ says Jim McGregor in a short U.S.-China Business Council <a href="https://youtu.be/yCyi53wElXI" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">video interview</a>.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We're not sure where it's going to end up - I'm not saying things are going to be terrible, but things are going to be different.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So you have to think about things differently - it's not the China you knew for the last 30 years.’</li></ul>‘One of the reasons things are so different is that the business relationship that used to be the core, the balance, the ballast of U.S.-China relations has changed.’‘Before, while we had a lot of other conflicts, business still worked pretty well – China and the U.S. were complementary economies.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China needed capital, know-how, technology.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘American companies went to China and made a lot of money, mostly exporting inexpensive goods during a time of stagnant wages – and that kept inflation down.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘All of China’s Treasury purchases kept our mortgage rates down.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Things were working pretty.’</li></ul>‘That is now different.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China is now a very powerful country.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We are in a contest for all the technologies of the future - we both want to dominate AI, dominate chips, dominate new materials.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It’s a hot competition - more than a cold war - a hot competition between two countries that have very different systems.’</li></ul>‘China's system is different from the rest of the world.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China has authoritarian capitalism, which actually gives it a lot of advantages.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We used to think it was a disadvantage because we thought you couldn't become prosperous unless you had democracy, unless you had open information.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China has turned that on its head.’</li></ul>‘China’s system is actually an advantage for them in seeking the commanding heights of all these technologies.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It’s able to have companies that don't make money.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So China’s able to pump all kinds of money into technology without worrying about a profit.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It’s able to control its market.’</li></ul>‘All this has to be sorted out against a lot of geopolitical turbulence with a lot of countries right now.’</td></tr></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘China had America right where it wanted it - and they overreached’: Jim McGregor</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="http://nymag.com/intelligencer/2019/06/china-expert-james-mcgregor-on-trumps-haphazard-trade-war.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img style="width: 100%;margin: 0 auto;" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d180106f6e4ce104f307d32_James%20McGregor-AmCham%20CHIADebate%202017.jpg" alt="CHINADebate"></a></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘If the U.S. won’t treat this like a Sputnik moment, China will.’ <a href="https://jamesmcgregor-inc.com/about-me/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Jim McGregor</a> is chairman of APCO Worldwide - Greater China, past chairman of the American Chamber of Commerce in China, and has lived in China for more than 30 years. <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">He recently gave an interview to New York magazine, <a href="http://nymag.com/intelligencer/2019/06/china-expert-james-mcgregor-on-trumps-haphazard-trade-war.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Talking to China Expert James McGregor About Trump’s Haphazard Trade War.’</a></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Intelligencer spoke with him about Trump’s strategy, or lack there-of, and the reasons why China might treat this as a pivotal moment in their economic relationship with the U.S., while we are more likely to remain complacent.’</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><img style="width: 20px;margin-left: -25px;position: absolute;margin: 0 auto;" src="http://nymag.com/intelligencer/media/sites/intelligencer/icon.1500x1500.png" alt="CHINADebate">‘To start at the beginning, what does the U.S. want out of a trade war, and what does China not want to give up?’‘Well, the U.S. actually wants China to do away with state capitalism and its industrial policies,’ says Jim McGregor.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And, China just wants to move ahead in the way it’s been moving ahead in the past.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘To be really frank, the Chinese system is working for China better than the American system is working for America.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And that’s a real threat - we’ve got to make our system work better.’</li></ul>‘Basically it’s Trump’s impression that China is taking advantage of the American trade system, which is partly true.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In China, there are state companies and state funds and state regulators who can put products out at prices where companies that have to make money can’t compete.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They can control their own markets through their regulators and really hurt foreign companies in this market.’</li></ul>‘But there’s not a clear path for Trump to move forward.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘His idea is that America is so powerful that it can bring China to its knees and get China to change its system.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Good luck with that one.’</li></ul><e></e><img style="width: 20px;margin-left: -25px;position: absolute;margin: 0 auto;" src="http://nymag.com/intelligencer/media/sites/intelligencer/icon.1500x1500.png" alt="CHINADebate">‘You were recently <a href="https://www.nytimes.com/2019/05/21/opinion/china-trump-trade.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">quoted</a> by Thomas Friedman, saying that China “instead of reforming and opening, has been reforming and closing.” Could you expand on that concept?’‘I just returned from Washington and there’s one bipartisan thought in Washington: “China is a bad guy.” How did that come about?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Over the last decade, China made it harder and harder for foreign companies in their domestic market.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘When a Chinese company can do what a foreign company does, they start marginalizing a foreign company’s ability to get in a certain market.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At the same time, regarding trade deals, if the rules work for China, then they adhere to the terms.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If they don’t work for China, they ignore them.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The same thing with the WTO.’</li></ul>‘China has, over time, turned the American business community against it, which is not easy to do.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The American business community was China’s biggest supporter in Washington.’</li></ul><e></e><img style="width: 20px;margin-left: -25px;position: absolute;margin: 0 auto;" src="http://nymag.com/intelligencer/media/sites/intelligencer/icon.1500x1500.png" alt="CHINADebate">‘Do you think there’s any merit to Friedman’s claim that only a mad dog president could go head to head with China and make them compromise?’‘You need to go back to 2016 to answer that.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If Hillary Clinton were elected, she’d probably would have revived the Trans-Pacific Partnership.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If you really want to get China to change, TPP would have been a huge incentive, as it was a major trading block that – in order to become part of it, they would have had to conform to.’</li></ul>‘The unique thing about Trump is that he’s this orange wrecking ball, and the Chinese don’t know how to deal with him.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘All of their normal strategies — going to the investment bankers, trying to get the business community to do their bidding in Washington — none of that works because he doesn’t care.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He’s got an attitude and wants to push back, which has China discombobulated.’</li></ul>‘The unfortunate thing is that it doesn’t look like he’s thought through a strategic endgame.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He’s really withdrawn the U.S. from having an economic proposition for the Asia region for a generation maybe.’</li></ul><e></e><img style="width: 20px;margin-left: -25px;position: absolute;margin: 0 auto;" src="http://nymag.com/intelligencer/media/sites/intelligencer/icon.1500x1500.png" alt="CHINADebate">‘Does a discombobulated China give the U.S. an upper hand in any capacity, or is it just another unknown variable at this point?’‘It prevents China from using its normal mechanisms of influence in Washington: giving enough major corporations enough of a market share that they would lobby for not pushing back on China in D.C.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘None of that works anymore.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So China has been at a loss in how to deal with this guy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China is always looking for strategy and logic, and Trump never gets near either of those things.’</li></ul><e></e><img style="width: 20px;margin-left: -25px;position: absolute;margin: 0 auto;" src="http://nymag.com/intelligencer/media/sites/intelligencer/icon.1500x1500.png" alt="CHINADebate">‘Is there a strategy evolving in China, or is it up in the air over there as well?’‘The Chinese strategy is to treat this like a moment to regroup and protect themselves and to reduce and eventually eliminate their dependence on American technology, and reduce their dependence on American agriculture.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If the U.S. won’t treat this like a Sputnik moment, China will.’</li></ul>‘Especially in the actions on Huawei, which is the most important company in China by a factor of 100, because it’s part of China’s geopolitical strategy.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If they cut Huawei off from being able to have American technology components at this point, it really hurts the country.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But it also demonstrates to Chinese leadership that they better get off that dependence on American tech.’</li></ul><e></e><img style="width: 20px;margin-left: -25px;position: absolute;margin: 0 auto;" src="http://nymag.com/intelligencer/media/sites/intelligencer/icon.1500x1500.png" alt="CHINADebate">‘China has accused the U.S. of economic terrorism. Do you think there’s any truth to that?’‘That’s just rhetoric, but here’s the real worrisome thing.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In China, because of the strong propaganda apparatus and the state control of information, there’s basically nobody in the country that believes China has any blame for what’s going on.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There is a belief that China is finally on the rise, and America and the West are doing this to keep China down, to keep China poor.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘What’s really happening is “you reap what you sow.”’</li></ul><e></e><img style="width: 20px;margin-left: -25px;position: absolute;margin: 0 auto;" src="http://nymag.com/intelligencer/media/sites/intelligencer/icon.1500x1500.png" alt="CHINADebate">‘Are there any political implications for President Xi?’ ‘There’s all kinds of risk for President Xi.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Remember, he is a strongman leader, he makes all decisions, he cannot make any mistakes, he can’t be showing any weakness and now he has this trade war with the United States.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I imagine there’s some conversation at high levels in the party about who lost America.’</li></ul>‘Think about it, they’ve had America exactly where they wanted us.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They would steal technology from a major American corporation.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the corporation would tell the U.S. government, “Please don’t do anything about it. I don’t want to make China unhappy because I don’t want to lose the market share I have in China. I don’t want the regulators coming in and doing a dawn raid on my company for antitrust or pricing issues.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They were scared of China as much as they were focused on the market.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China had America in a really good position and they overreached.’</li></ul>‘Xi has to keep things going.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China has a lot of economic problems with debt and many other things and they have to grow out of their problems. It’s sort of the only solution they have.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If the trade war really hits Chinese growth, that’s a problem.’</li></ul><e></e><img style="width: 20px;margin-left: -25px;position: absolute;margin: 0 auto;" src="http://nymag.com/intelligencer/media/sites/intelligencer/icon.1500x1500.png" alt="CHINADebate">‘How does the threat of Mexican tariffs affect the squeeze the U.S. is already facing?’‘Just when we need allies to work with on China, Trump’s trying to alienate every country he can. It’s absolutely ridiculous.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘You’ve got to remember, a lot of these countries have the same problems with China that we do, and they would be very ready to work with us if we weren’t spending all of our time trying to push them away.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Companies are moving production out of China to Mexico – if they see that Mexico is going to have a tariff they can’t deal with, they’ll have to reconnoiter and focus on Indonesia or Thailand or the Philippines.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That business is not going to be coming to America.’</li></ul></td></tr></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. ‘China's Private Firms Continue to Struggle’: Nick Lardy</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://piie.com/blogs/china-economic-watch/chinas-private-firms-continue-struggle?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+ChinaEconomicWatch+%28PIIE+China+Economic+Watch%29" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d11a317695b56026131e29e_Nicholas%20R.%20Lardy%20copy.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The plight of China’s private firms, which produce about two-thirds of China’s GDP, has received widespread attention, as private credit to these firms has lagged behind the flow to state-owned enterprises,’ writes PIIE’s Nick Lardy in <a href="https://piie.com/blogs/china-economic-watch/chinas-private-firms-continue-struggle?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+ChinaEconomicWatch+%28PIIE+China+Economic+Watch%29" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China’s Private Firms Continue to Struggle.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The latest data show that this trend has continued despite pledges by Chinese leadership to support lending to private sector enterprises.'</li></ul>‘One metric commonly taken as a proxy for private firm access to credit is bank lending to micro and small enterprises (MSEs).’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But this measure is flawed.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For years in which the central bank has presented bank borrowing by firm size cross-classified by ownership, only about a quarter of new loans to MSEs are to private companies while two-thirds are to state companies.’</li></ul>‘A better proxy metric is lending to “people-run” (民营) firms, frequently mistranslated as private.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The People’s Bank of China’s coverage of people-run entities includes lending to private, collective, as well as foreign firms, with private accounting for about two-thirds of the total.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘On this metric, the flow of loans to private firms continues to lag.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Loans to people-run firms in the first quarter of 2019 rose only 6.7 percent, according to a <a href="https://finance.sina.com.cn/money/bank/bank_hydt/2019-05-28/doc-ihvhiqay1984304.shtml" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">statement by central bank deputy governor Chen Yulu</a>.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This is half the 13.7 percent pace of growth of overall bank lending.’</li></ul>‘The flow of bank credit to private firms collapsed after 2013, shortly after President Xi Jinping came to power (see figure below).’<a href="https://piie.com/blogs/china-economic-watch/chinas-private-firms-continue-struggle?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+ChinaEconomicWatch+%28PIIE+China+Economic+Watch%29" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d18026cf3be3c823e8a2e92_PIIE-Flow%20of%20loans%20tononfinancial__.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a>‘Private firms partially compensated by turning to shadow banks.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But starting in 2017, China’s deleveraging campaign reduced lending by these less well-regulated institutions.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Consequently, the growth of private firms has slowed relative to state firms, dampening China’s growth.’</li></ul>‘And as shadow banks called in their loans, many private listed companies were left with no choice but to sell shares, in many cases to better financed state firms.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In the process, some private firms were nationalized as state entities became majority owners.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And large numbers of non-listed private firms exited, many through bankruptcy.’</li></ul></td></tr></div></div><div id="article5" class="post-card"><div class="t2-block">5. ‘Why is China so interested in building and buying ports?’: Deborah Bräutigam</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.the-american-interest.com/2019/04/04/misdiagnosing-the-chinese-infrastructure-push/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img style="width: 100%;margin: 0 auto;" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d1801c48eb894775c2be110_Deborah%20Bra%CC%88utigam.jpg" alt="CHINADebate"></a></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘Port projects were one of China’s top priorities when the country began to turn away from Mao’s isolated communism. Between 1980 and 2000, China built more than 184 new ports in China to support its rapidly expanding economy.’ ‘Port projects were one of China’s top priorities when the country began to turn away from Mao’s isolated communism. Between 1980 and 2000, China built <a href="https://ideas.repec.org/a/eee/trapol/v11y2004i3p237-250.html" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">more than 184 new ports</a> in China to support its rapidly expanding economy.’ China has been building and investing in ports around the world.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And there has been a lot of handwringing – some justified, some not.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="https://www.sais-jhu.edu/deborah-brautigam" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Deborah Bräutigam</a> gives context to the debate by asking and answering the question: Why is China so interested in building and buying ports?</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">This is just one section of her excellent analysis, <a href="https://www.the-american-interest.com/2019/04/04/misdiagnosing-the-chinese-infrastructure-push/" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Misdiagnosing the Chinese Infrastructure Push,’</a> – you should read it all!</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">For a deep analysis of China maritime strategy and Europe, see <a href="https://www.ecfr.eu/publications/summary/blue_china_navigating_the_maritime_silk_road_to_europe" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Blue China: Navigating the Maritime Silk Road to Europe,’</a> from the European Council on Foreign Relations.</li></ul><a href="https://www.sais-jhu.edu/deborah-brautigam" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Deborah Bräutigam</a> is the Bernard L. Schwartz Professor of International Political Economy and Director of the International Development Program, and the China Africa Research Initiative at Johns Hopkins University’s School of Advanced International Studies (SAIS).<e></e>Some ‘believe that China is predominately interested in the strategic payoffs of the BRI: using its economic muscle for political leverage, rewriting business rules and practices developed by the West, even military expansion,’ writes <a href="https://www.sais-jhu.edu/deborah-brautigam" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Deborah Bräutigam</a>.‘China’s interest in overseas ports is central to many of these concerns.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Investment by Chinese companies in ports in Greece and elsewhere in southern Europe is portrayed as a “<a href="https://www.the-american-interest.com/2018/11/29/chinas-trojan-ports/" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Trojan Horse</a>” entering through Europe’s “<a href="https://foreignpolicy.com/2018/02/02/why-is-china-buying-up-europes-ports/" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">soft underbelly</a>.”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Though port investments with the potential for dual commercial and military use, China may be trying to “<a href="https://static1.squarespace.com/static/566ef8b4d8af107232d5358a/t/5ad5e20ef950b777a94b55c3/1523966489456/Harbored+Ambitions.pdf" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">stealthily expand</a>” its military presence along the ancient trading routes and vital shipping lanes.’</li></ul>‘There are valid reasons for heightened concern about Chinese engagement.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Most pressingly, in July 2017, the Chinese opened their first overseas military base in the strategic country of Djibouti on the Bab el-Mandeb Strait, the gateway to Egypt’s Suez Canal.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Only seven miles from the U.S. base at Camp Lemonnier, the Chinese naval base has raised suspicions about whether China’s rise will remain peaceful.</li></ul>‘However, the evidence so far shows little reason for alarm regarding the security implications of Chinese companies’ advance into maritime and associated infrastructure projects across the Belt and Road and beyond.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With very few exceptions, the logic of China’s growing presence in this arena can be explained primarily as commercial activities, albeit with an East Asian twist of “crony capitalism” that is at the heart of the BRI’s actual risks.’</li></ul>So ‘why is China so interested in building and buying ports?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s own history provides insight here.’</li></ul>‘Port projects were one of China’s top priorities when the country began to turn away from Mao’s isolated communism.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Between 1980 and 2000, China built <a href="https://ideas.repec.org/a/eee/trapol/v11y2004i3p237-250.html" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">more than 184 new ports</a> in China to support its rapidly expanding economy.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Most of these came to have industrial parks and special economic zones nearby, where manufacturers could cluster and easily export.’</li></ul>‘Because new ports are usually capital-intensive and have low rates of return due to their lengthy start-up periods, China gave preference to joint ventures with foreign firms expected to bring in capital and operating efficiencies.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Since then, Chinese ports have hosted numerous foreign investors, including the Danish firm Maersk, British firms P&O and Swire, CSX World Terminals (once upon a time an American firm), and the Port of Singapore Authority.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As early as 2001, the year that China joined the WTO, 25 container terminals in China were jointly owned, managed, or operated by transnational corporations.’</li></ul>‘Over the past several decades, ports in many nations have been privatized and globalized, so Chinese port business is not remotely an outlier in the present international environment.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Even in the United States foreign companies operate <a href="https://www.cfr.org/backgrounder/uae-purchase-american-port-facilities" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">most container terminals</a>.’</li></ul>‘Global shipping is increasingly concentrated.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Danish shipping firm <a href="https://www.apmterminals.com/en/operations" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Maersk</a> and its subsidiary APM Terminals have investments in 172 ports and inland terminals in 57 countries.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Switzerland’s<a href="https://www.msc.com/7-campaign-landing-pages/terminal-investment-limited-til" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"> Mediterranean Shipping Co (MSC)</a> runs 54 terminals in 29 countries. Dubai’s DP World operates 77 ports in 40 countries.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘A French firm, Bolloré Ports, has <a href="https://www.bollore-transport-logistics.com/en/business-lines/bollore-ports.html" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">21 port concessions in Africa</a>.’</li></ul>‘As growth slows in their home ports, Chinese shipping and port management corporations are looking abroad.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘One of the largest, China Merchants Port Holdings (CMPort), became a global company in 2012 through a joint venture—Terminal Link—with French firm CMA CGM, the world’s third largest container shipping company.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘‘Through its shares in Terminal Link, CMPort now has port <a href="http://www.cmport.com.hk/UpFiles/bpic/2018-09/20180920044241438.pdf" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">investments in 15 countries</a>.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘“Our growth engine will and must come from overseas,” <a href="https://www.scmp.com/business/china-business/article/1810907/china-merchants-eyes-lithuanian-port" target="_blank" rel="noopener" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">CMPort observed in 2015</a>.’</li></ul><e></e>'In most cases, Chinese investors in European ports have <a href="https://www.npr.org/2018/10/09/642587456/chinese-firms-now-hold-stakes-in-over-a-dozen-european-ports" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">minority positions</a> in joint ventures with European and other firms.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Rare exceptions include the Piraeus Container Terminal in Greece and the Zeebrugge Terminal in Belgium, both of which are 100 percent owned by the Chinese firm COSCO.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It “makes good business sense for Chinese players to acquire overseas port assets,” Neil Davidson, a senior analyst at Drewry, a London-based maritime research consulting firm, <a href="https://www.scmp.com/news/china/diplomacy/article/2165341/why-china-buying-ports-worrying-europe" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">told a reporter</a>. “I don’t think European countries feel threatened because in almost all cases the landlord function remains in the hands of the local countries.”’</li></ul><img style="width: 100%;margin: 0 auto;" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d1840c3db0851ef5d6e3fc0_china%27s%20port%20investing%20spree.png" alt="CHINADebate">‘Just as China needed to learn from foreign firms, other countries are now eager for Chinese capital and operational know-how.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘CMPort and other Chinese firms are now poised to be the foreign firms bringing this in.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese group China Harbor Engineering Corporation (CHEC) has a joint venture with CMA CGM to operate a new container terminal in Kribi, Cameroon.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And CMPort has partnered with another French firm—Bolloré Ports—to run <a href="https://www.bollore-ports.com/en/worldwide-network/africa/port-of-lagos-nigeria.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Tin Can Island Port</a>, the second busiest port in Nigeria.’</li></ul>‘A Chinese company runs one of the terminals at the Port of Los Angeles, the busiest container port in the United States.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Another Chinese firm owns a third of the largest container terminal in Taiwan.’</li></ul></td></tr></div></div></div>

6/7/2019

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">'The Middle East has its oil, China has rare earths.’ Deng Xiaoping</h1><div class="date">June 7, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0 solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. The trade war is paralyzing business decision making.</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://player.cnbc.com/p/gZWlPC/cnbc_global?playertype=synd&byGuid=7000082551"></iframe></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Steve Okun | McLarty Associates<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘There has never been greater anxiety in the business community when it comes to U.S. China relations than right now.’‘There has never been greater anxiety in the business community when it comes to U.S. China relations than right now,’ says <a href="https://maglobal.com/team/steven-okun/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Steve Okun</a> of McLarty Associates in a <a href="https://youtu.be/fuOnaK61k7I" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">CNBC video interview</a>.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There’s a better than 50/50 chance the next 300 billion in tariffs are going to come.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But the trade war is expanding beyond tariffs now, and businesses are caught in the crossfire.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It’s paralyzing decision making until the business gets a better understanding of what's going to happen from both sides.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And ‘there isn't going to be clarity anytime soon.’</li></ul>‘It used to be,“Well, we're going to take our supply chain outside of China.”<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But then when the president decides to put tariffs on Mexico - that's not a supply chain that's going be safe to move to out of China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And you potentially have tariffs coming on auto and auto parts out of the EU in Japan.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So businesses are paralyzed because they don't know where to go: do you stay in China? Do you go outside of China?’</li></ul>‘What’s even worse now is you have to worry about whether you're going to be hit by the U.S. for doing business with Huawei and potentially other companies, oryou're going to be considered unreliable by the Chinese.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And perhaps be put on a Chinese blacklist of “unreliable” companies.</li></ul>‘You've always had that pressure between both China and U.S.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Now companies have to figure out how to do business with both China and the U.S.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And you can't pick - China is not an option: China's essential, businesses have to be there.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Now the question is: not how do you choose, but how are you going to balance?’</li></ul></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. Impact of tariffs on U.S. businesses in China: AmCham China chairman</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://player.cnbc.com/p/gZWlPC/cnbc_global?playertype=synd&byGuid=7000083339"></iframe></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Tim Stratford | AmCham China chairman<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The overwhelming feeling among the business community in China is one of uncertainty,’On the same theme as Steve Okun is AmCham China chairman Tim Stratford with analysis from an on-the-ground in China in a <a href="https://youtu.be/Kozyfk-z0Gw" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">CNBC video interview</a>.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">You can read the key findings of the AmCham survey Tim mentions in the last item here, number 6.</li></ul>Q: ‘What is the status of being an American company in China right now.’A: ‘The overwhelming feeling among the business community in China is one of uncertainty,’ says AmCham China chairman Tim Stratford.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'It's not so clear that the two sides can come to an agreement.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Even if they do come to an agreement, it's not so clear that they could implement it very smoothly.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And even if they can implement it smoothly, it's not so clear that there might not be some other actions in the bilateral relationship that would still undermine the environment for doing business in China.’</li></ul>‘We conducted a survey together with the Shanghai AmCham two or three weeks ago.’ [The key findings from the survey, published May 22, are in the item below.]<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We found that 40% of our companies are either moving some manufacturing outside of China, or they're considering doing so.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Note: In a similar AmCham survey last September, only 30% said they were considering partial relocation.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They're looking to do at least some change so that they aren't as susceptible to things that might continue to unfold in the bilateral relationship that would affect their business.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Risk mitigation is very much on people's minds.’</li></ul>‘And we have other issues in the bilateral relationship that flow into the economic relationship.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Huawei matter - Huawei been putting it on put on the entity list - is a great example of that. That puts a lot of uncertainty into supply chains.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There's also concern that China has also come up with their own list of “unreliable entities,” and we don't yet know how that's going to unfold.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It's hard to see how in a short period of time the U.S. and the Chinese governments will develop so much trust and so much understanding on how to deal with these issues that these risks will go away anytime soon</li></ul>Q: ‘Whatis the “In China for China” policy that your report talks about?’A: ‘“In China for China” has been an approach that American and other foreign companies have taken for a long time.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I used to work in the auto industry, and automakers liked to manufacture and supply the manufacturing base in countries where they do business.’ because they can be a more efficient and more responsive to domestic needs.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Chinese market is big enough that it merits very careful thought from a company of what's the most efficient way to supply that market.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘To the extent that that's your strategy, you're somewhat immune from tariffs and other things that each country may be imposing on each other.’</li></ul>‘But what we're also concerned about now is that if you're sitting in China, and you don't really hear a full articulation of what the U.S. interests are, it's very easy for people here to get the feeling that China is simply being targeted by the United States - that the U.S. government's objective is to contain China's technological and economic development.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The U.S., candidly, hasn't done a great job of rebutting that message by articulating a comprehensive strategy that explains what it's doing and at the same time holds out an olive branch for the kinds of things that are very constructive between the two countries.’</li></ul>Based on the survey, the <a href="https://www.scmp.com/business/companies/article/3011259/us-china-trade-war-hurting-american-companies-china-tariffs-cut" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">South China Morning Post</a> created a chart of where U.S. companies are thinking of relocating outside China:<img style="width: 100%;margin: 0 auto;" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d1841c7db085182cc6e40b6_US-China%20trade%20war%20%E2%80%98hurting%20American%20_business.png" alt="CHINADebate"></td></tr></tbody></table></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘The Middle East has its oil, China has rare earths.’ Deng Xiaoping</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://nationalinterest.org/blog/buzz/china%E2%80%99s-rare-earth-dominance-how-usable-weapon-61307" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img style="width: 100%;margin: 0 auto;" src="https://nationalinterest.org/sites/default/files/styles/desktop__1486_x_614/public/main_images/C20%20%281%29.jpg?itok=2oEoyWct" alt="CHINADebate"></a></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">National Interest<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">“There is oil in the Middle East, and China has rare earths. China's rare earth resources account for 80% of the world's known reserves, and its status is extremely important compared with oil in the Middle East. Strategically, we must do a good job of rare earths." Deng Xiao Ping, 1992‘A China National Radio’s website shows a photo of “Deng noting in a speech he made January 1992 during his Southern Tour,<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“The Middle East has its oil, China has rare earths” “中东有石油, 中国有稀土.’”</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Today, ‘Chinese sources increasingly discuss the potential for weaponizing the Middle Kingdom’s major mineral advantage’ in the trade war, writes Andrew Erickson, professor at the Naval War College andvisiting scholar at the Harvard Fairbank Center for Chinese Studies, and Gabe Collins of Rice University, in <a href="https://nationalinterest.org/blog/buzz/china%E2%80%99s-rare-earth-dominance-how-usable-weapon-61307" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China’s Rare Earth Dominance: How Usable a Weapon?’</a></li></ul>‘So exactly what options does China have for potentially weaponizing its rare earth (REE) advantage?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In theory, Chinese mineral might is fearsome as Beijing is the world’s leading REE producer.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Despite global consumers’ attempts to diversify supply sources, PRC suppliers remain the dominant players—particularly in the area of processing ores into actual usable materials.’</li></ul>‘Now, Beijing appears to be pressing this advantage, while Washington seeks to mitigate risks.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China has already raised tariffsfrom 10 percent to 25 percent on REE ores that MP Materials, the sole American REE producer, sends to China for processing.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Meanwhile, Washington has left REEs off the list of its next set of prospective tariffs covering roughly $300 billion in Chinese goods.’</li></ul>‘So far, however, this is still an initial posturing. How has Beijing wielded REEs as a tool of geoeconomic influence in the past, and how might it do so today?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The extant signature example came in the fall of 2010 when the Chinese government restricted exports of rare earths to Japan.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Thisfollowed Tokyo’s detention of a Chinese fishing boat captain after he collided with two Japan Coast Guard vessels near the disputed Senkaku Islands.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s ban fanned fears of over-dependence on Chinese suppliers for critical commodity inputs.’</li></ul>‘Yet the Japan REE embargo saga illustrates at least three factors that would seriously undermine a Chinese attempt to weaponize REEs against the United States.<ol style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘First, a new attempt to wield REEs aggressively would turbocharge diversification measures.’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Some observers argue that China’s present processing preeminence locks in its strategic position in rare earths markets for “years” to come.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet if Beijing weaponizes the minerals against American interests, thiscould galvanize and accelerate existing plans to build U.S.-based REE processing capacity.’</li></ul><ol start="2" style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Second, an REE embargo would reinforce the narrative that China-based commodity supply chains are inherently untrustworthy.’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This would not only reinforce REE supply diversification measures such as those described above, but could also prompt companies to re-think China-based sourcing more broadly.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If a sufficient mass of foreign firms decided that sourcing higher-end products and critical input materials from China posed unacceptable risks, a rolling exodus of such operations would set back Beijing’s ability to realize many of its key industrial development objectives, such as moving higher up the global manufacturing value-added chain.’</li></ul><ol start="3" style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Third, an REE embargo could lead to much more damaging reciprocal American responses—such as more severe restrictions on the export of semiconductors and other critical technology subcomponents that many Chinese firms literally cannot survive without.’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In contrast to the dozens of China-based rare earth producers and refiners (and the attendant likelihood of embargo leakage), the highest-end semiconductors and semiconductor production equipment are controlled by a handful of firms that guard the intellectual property of their high-added-value products jealously.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘These are predominantly domiciled either in the United States, Western Europe, or close U.S. allies in Asia such as Japan and South Korea.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Such high concentration and political alignment would likely make enforcement of tighter restrictions highly feasible.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And without certain levels of chip performance, many tech products will either perform at a much lower level—or in some cases, not work at all.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In other words, semiconductors are generally much less fungible than are rare earths.’</li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Jay Huang Jie, a former Intel Managing Director in China, notedthat if China seeks to build its own chip industry, it “…should be prepared for a marathon of at least a decade, which will also be loss-making [along the way].”’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘During those ten years, it is also possible that foreign firms could further extend their technological lead over China’s homegrown champions, especially if the negative effects of a technological “bamboo curtain” fell disproportionately on China’s semiconductor sector.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The impacts of falling further behind and having to settle for “good enough” technology goods would be momentous.’</li></ul>‘In addition, an embargo would likely raise REE prices, which would give Chinese suppliers strong economic incentives to smuggle REEs into the market.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Even if the metals were not sold “directly” to American customers, simply by making their way into the market at a premium price they would help ensure that necessary supplies are available.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And the premium price would likely not be overly burdensome to manufacturers or the final consumers of REE-containing products.’</li></ul>‘Whereas a motor vehicle literally contains hundreds of kilograms of steel, and is thus very exposed to changes in steel commodity prices and physical availability, REE are more like “vitamins of chemistry.”’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In other words, a product often cannot function without them, but a given phone, computer, etc., only needs a very small quantity to achieve its functionality goals.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘An iPhone, for instance, may contain as little as one-fourth of a gramof rare earths.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This means that for neodymium, one of the densest rare earths, a piece of metal the size of an easily smuggled Coca-Cola can would be sufficient to produce at least 10,000 iPhones.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Thus, the effects of even significant price increases would be diluted by the rare earths’ small share of overall production materials input.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This dynamic ultimately helps underpin market adaptability in the face of politically-motivated supply restrictions.’</li></ul>‘China is either bluffing or has not fully factored in the downsides it faces, were it to impose such an embargo.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China’s REE weapon is a crude weapon to detonate at best, with theself-inflicted fallout likely prohibitively harmful to the country’s economic well-being.’</li></ul></td></tr></tbody></table></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. Trade war: How lawyers vs economists as negotiators lead to the breakdown in talks</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d11acc189e27161c7072f70_Zhiwu%20Chen.png" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Zhiwu Chen | Director of the Asia Global InstituteTim Stratford | AmCham China chairman<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘The rise in trade tensions between the US and China may be due to the American side’s failure to appreciate the implications of China’s not being a rule-of-law country – that administrative action, not laws on the books, get things done in China.’Much is written about why the U.S. China trade talks broke down.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">One of the best explanations is in ‘Why the US and China See Negotiations Differently,’ by Shang-Jin Wei, former Chief Economist of the Asian Development Bank, now Professor of Finance and Economics at Columbia University, which was highlighted here a few ago in <a href="https://www.chinadebate.com/newsletter/the-30-year-detour-the-path-from-tiananmen-to-xi-jinping#article2" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">the 3rd item of May 18 newsletter</a>.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Now, Zhiwu Chen, Director of the Asia Global Institute (AGI) and former professor of economics at Yale, comes at the question from a different and equally useful angle in <a href="https://www.asiaglobalonline.hku.hk/could-the-us-and-china-have-avoided-escalating-their-trade-war/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Could the US and China Have Avoided Escalating Their Trade War?’</a></li></ul>‘As widely reported, a key trigger for the falling out was the US side’s insistence that some agreed terms be cemented in Chinese law, whereas the China side was only willing to abide by the terms through regulatory and administrative action,’writes Zhiwu Chen.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Was that difference in position worth the resulting dramatic reversal, with both countries pulling back from making a deal?’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Not from the Chinese perspective.’</li></ul>‘The core American team consists mostly of experienced lawyers.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Well trained and highly experienced practitioners, these lawyers are particularly skilled at imagining all possible scenarios and specifying corresponding remedies and actions as a complex agreement is worked out.’</li></ul>‘By contrast, all known members of the Chinese team majored in economics and related fields when in college or graduate school and none of them has formal legal training or practiced law.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is thus not surprising that they are professionally more comfortable speaking in general terms than about detailed and nuanced scenarios and contingencies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Lawyerly talk is like a foreign language to them.’</li></ul>‘This difference in professional background between the two teams led to a large gap in understanding of the importance of legislative action to enforce terms.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘To American lawyers, regulatory and administrative action does not mean as much as laws that are a result of a long legislative process and that are enforced by the judiciary.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The US team probably did not fully appreciate the implications of China’s not being a rule-of-law country – that administrative action, not laws on the books, get things done in China.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Ask any Chinese on the street whether laws or administrative action is more effective in enforcing trade agreements, and without doubt most if not all would say the latter.’</li></ul>‘Failure to understand the asymmetry in governance structure and political culture between the US and China has to some extent fueled the distrust between the two sides’:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The US side interpreted China’s refusal to change relevant laws as evidence of a lack of sincerity and commitment.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The China side viewed the American insistence on legislative action as putting emphasis on something that would be less useful for enforcement but more publicly humiliating.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hence, the breakdown.’</li></ul>‘Over the past four decades, China’s legislature, the National People’s Congress, has passed hundreds of statutory laws, many of which contradict each other.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It is impractical to take all these laws on the books at face value.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As the Constitution of the People’s Republic of Chinastates, the nation is based on the rule of the Communist Party, not the rule of law.’</li></ul>‘Against this institutional background and governance culture, the Chinese trade negotiators understandably put more faith in enforcement via administrative and regulatory action than on laws passed by the legislature.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The American negotiators can, of course, push China to implement market reforms faster.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As for the legislation they have been demanding China pass, even if such laws were agreed and made it on to the statute books, they would deliver less compliance than administrative and regulatory measures, which are still the mainstay of Chinese governance.’</li></ul></td></tr></tbody></table></div></div><div id="article5" class="post-card"><div class="t2-block">5. A primer on how Chinese law might enforce a US-China trade deal</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.brookings.edu/blog/order-from-chaos/2019/05/15/a-primer-on-how-chinese-law-might-enforce-a-us-china-trade-deal/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d11acfc5a662a4d7584f737_Jamie%20P.%20Horsley.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></a></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;">Brookings<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">‘If the other substantive issues can be resolved, would an agreement be enforceable even if it falls short of being codified in national laws?’‘A key point of contention is U.S. insistence that Chinese commitments be “codified by law in China, not just a State Council announcement,” writes Jamie Horsley of Yale Law School and Brookings in <a href="https://www.brookings.edu/blog/order-from-chaos/2019/05/15/a-primer-on-how-chinese-law-might-enforce-a-us-china-trade-deal/" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘A primer on how Chinese law might enforce a US-China trade deal.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘TheS. seeks“very strong enforcement provisions” to correct past Chinese behavior on trade, which he characterized as unfair, nonreciprocal, and sometimes unlawful.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘TheChinese side was averse to the idea of a foreign country dictating Chinese law.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Instead, negotiators from Beijing reportedly offered to codify the agreement through regulatory and administrative actions.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The standoff raises an important question: If the other substantive issues can be resolved, would an agreement be enforceable even if it falls short of being codified in national laws?’</li></ul>‘The difference between“laws,” “regulations,” and “rules.” National laws, local regulations, State Council regulations, and rules are all part of what is collectively called “legislation” (lifa).’ <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘National laws (falü) are adopted by China’s National People’s Congress (NPC) and the NPC Standing Committee pursuant to formal procedures—including public notice and comment—set forth in the Legislation Law.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Similarly, local regulations (difangxing fagui) are adopted by the people’s congress operating in a particular province or autonomous region.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘State Council regulations (xingzheng fagui), which are legally binding and enforceable, are also governed by the Legislation Law and subject to public comment and other procedures stipulated in State Council implementing regulations(colloquially, the “Rulemaking Regulations”).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The same applies to rules (guizhang), which are promulgated by central departments and local governments.’</li></ul>‘Although less authoritative than laws, State Council regulations are still national in scope, extending from the central government down to township-level governments.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘State Council regulations are superior to local regulations and rules. They are used both to implement and fill gaps in national law.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But they must not conflict with superior law or make provisions for criminal matters, deprivation of citizens’ political rights, compulsory measures or penalties restricting a citizen’s personal freedom, or the judicial system.’</li></ul>‘As it relates to U.S.-China trade talks, Chinese commitments that are codified in NPC laws would clearly be the most authoritative and meaningful.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But if other issues are satisfactorily resolved, well-drafted State Council regulations might be an acceptable alternative for some issues.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They apply nationwide (not only at the center but also at local levels of government), they are generally more detailed than laws, they are subject to notice and comment procedures, and they are enforceable in Chinese courts.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Moreover, regulations can always be upgraded into NPC law later, which may make them at least a reasonable stepping-stone to a final agreement in the trade dispute.’</li></ul></td></tr></tbody></table></div></div><div class="section_title w-condition-invisible">III. CONGRESS & THE PRESIDENT REACT </div><div id="article6" class="post-card"><div class="t2-block">6. Impact of tariffs on U.S. businesses in China: AmCham survey</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="pdf-container" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;max-width: 100%;padding: 0 2%;background-color: #ccc;"><iframe src="https://docs.google.com/viewer?url=https://www.amchamchina.org/uploads/media/default/0001/11/8ff21b4b6efac1163c9072c6569fe96250f3a8dd.pdf&embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato',sans-serif;">Approximately 40.7% of respondents are considering or have relocated manufacturing facilities outside China.’Read the 9-page survey results <a href="https://www.amchamchina.org/uploads/media/default/0001/11/8ff21b4b6efac1163c9072c6569fe96250f3a8dd.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">here</a>‘From May 16-20, 2019, AmCham China and AmCham Shanghai conducted a joint survey of our member companies to assess the impact of the increase in U.S. and Chinese tariffs on companies operating in China.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The survey received nearly 250 responses, with companies represented as follows’:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘manufacturing-related6%,’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘services5%,’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘retail and distribution8%, and’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘other industries6%.’</li></ul></li></ul>‘The key findings from the survey are’:<ol style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">IMPACT OF TARIFFS.‘The negative impact of tariffs is clear and hurting the competitiveness of American companies in China.’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The vast majority (74.9%) of respondents said the increases in U.S. and Chinese tariffs are having a negative impact on their businesses.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The impact was higher for manufacturers at 81.5% for U.S. tariffs and 85.2% for Chinese tariffs. The impact of the tariffs is felt through lower demand for products (52.1%), higher manufacturing costs (42.4%), and higher sales prices for products (38.2%).’</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><ol start="2" style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">“IN CHINA FOR CHINA.”‘To cope with the impact of the tariffs, companies are increasingly adopting an “In China, for China” strategy (35.3%), or delaying and canceling investment decisions (33.2%).’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In China for China is a strategy to localize manufacturing and sourcing within China to mainly serve the China market.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Such strategy constitutes a rational choice for many companies to insulate themselves from the effects of tariffs while maintaining their ability to pursue domestic market opportunities.’</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><ol start="3" style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">CHINA RETALIATION. ‘Over half of respondents (53.1%) have not seen any increase in non-tariff retaliatory measures by the Chinese government.’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Roughly one in five have experienced increased inspections (20.1%) and slower customs clearance (19.7%).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Members also experienced slower approval for licenses or other applications (14.2%) and other complications from increased bureaucratic oversight or regulatory scrutiny (14.2%).’</li></ul><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><ol start="4" style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">RELOCATION PLANS.‘Approximately 40.7% of respondents are considering or have relocated manufacturing facilities outside China.’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">For those that are moving manufacturing out of China,’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Southeast Asia (24.7%) and Mexico (10.5%) are the top destinations.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Fewer than 6% of members said they have or are considering relocation of manufacturing to the U.S.’</li></ul></li></ul>Based on the survey, the <a href="https://www.scmp.com/business/companies/article/3011259/us-china-trade-war-hurting-american-companies-china-tariffs-cut" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">South China Morning Post</a> created a chart of where U.S. companies are thinking of relocating outside China:<img style="width: 100%;margin: 0 auto;" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d1841c7db085182cc6e40b6_US-China%20trade%20war%20%E2%80%98hurting%20American%20_business.png" alt="CHINADebate"><hr style="border: 0;border-top: 3px solid #f5f5f5;height: 5px;margin: 10px auto;text-align: center;"><ol start="5" style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">BILATERAL RELATIONS CONCERNS.‘If no agreement to resolve the trade frictions is reached within the next two months, members are most concerned about a deterioration of the bilateral relationship (52.7%).’</li></ol><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘As a reflection of this sentiment,7% of members supported a return to the status quo, showing that members want a deal and a return to the pre-tariff predictability and stability of the U.S.-China trade relationship.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At the same time, this would suggest that 53.3% of members favor negotiations continuing towards a deal that addresses structural issues allowing them to operate on a more level playing field.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Additionally, members are also concerned about an increase in operating costs (45.6%) and being forced to find alternative sources for items currently produced in either the U.S. (22.2%) or China (22.2%).’</li></ul></td></tr></tbody></table></div></div></div>

6/4/2019

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">The 30-year detour: The path from Tiananmen to Xi Jinping</h1><div class="date">June 4, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0px solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. ‘Tiananmen divides PRC history into before and after’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/NK9bU7Rol0k"></iframe></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;">FT<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">‘The Tiananmen event divides the PRC history into before and after.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And what's before? The people still trusted the Communist party.’</li></ul>‘There were a million people on the streets just enjoying freedom of speech.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They didn’t think the Party and the Chinese government would send the tanks and shoot them.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This was before.’</li></ul>‘But after that event that trust has been broken.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The enduring legacy of Tiananmen is a fundamental deficit of trust.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And that hurts.’</li></ul>Bao Pu, son of Bao Tong, a senior official who was imprisoned because of his support for the students, in the FT video <a href="https://youtu.be/NK9bU7Rol0k" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Tiananmen Square: China 30 years on.’</a></td></tr></tbody></table></div></div><div id="article2" class="post-card"><div class="t2-block">2. The 30-year detour: The path from Tiananmen to Xi Jinping</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.project-syndicate.org/commentary/tiananmen-massacre-30-year-legacy-by-minxin-pei-2019-05" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img style="width: 100%;margin: 0 auto;" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d1191a489e2713f7306d713_Minxin%20Pei-ps.png" alt="CHINADebate"></a></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;">Minxin Pei | Claremont McKenna College<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">‘Looking back, it is clear that the Tiananmen tragedy altered the course of Chinese history decisively, foreclosing the possibility of a gradual and peaceful transition to a more liberal and democratic political order,’ writes Minxin Pei of the Claremont McKenna College in <a href="https://www.project-syndicate.org/commentary/tiananmen-massacre-30-year-legacy-by-minxin-pei-2019-05" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘The Lasting Tragedy of Tiananmen Square.’</a>‘It is worth remembering that the decade before the Tiananmen massacre was filled with a sense of possibility. China had a choice.’<ol style="font-size: 1em;line-height: 1.875em;margin: .625em 0;margin-left: -1.1em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It could revert to the more orthodox Stalinist – but not Maoist – model that had prevailed in the 1950s, a path favored by the regime’s conservatives.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It could embrace gradual reforms to develop a market economy, the rule of law, and a more open political process, as moderate liberals wanted.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Or it could emulate Taiwan and South Korea’s neo-authoritarian model by modernizing the economy under one-party rule, as Deng Xiaoping had long advocated.’</li></ol>‘These three factions – conservatives, reformers, and neo-authoritarian modernizers – were in a stalemate before the PLA’s tanks and troops entered the square.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The massacre, the fall of the Berlin Wall later that year (by sheer coincidence), and the eventual collapse of the Soviet Union in December 1991 changed that: Only the neo-authoritarian option remained.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘While the political purge following the Tiananmen crackdown had decimated the liberals, the conservatives – demoralized and panicking after the fall of communism – could offer no viable survival strategy.’</li></ul>‘And yet, the stage had been cleared for the neo-authoritarians.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘By early 1992, when an 87-year-old Deng embarked on his historic tour of southern China in an effort to save the regime and redeem himself for the crackdown, the neo-authoritarians and the conservatives had merged.’</li></ul>‘While no single label accurately describes the post-1989 order, its defining features were pragmatism, crony capitalism, and strategic restraint.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Pragmatism, in particular, served the CPC well in the years after Tiananmen.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘At home, a flexible approach to policy allowed the regime to pursue pro-growth experiments, co-opt social elites, and respond to challenges to its authority.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In foreign policy ‘Deng’s dictum to keep a “low profile” became the guiding principle.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The CPC continued to view the West as an existential ideological threat, which it countered by ceaselessly nurturing nationalist sentiment.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But China’s leaders knew that they were free-riding on the liberal international order, and thus studiously avoided any real conflict with the United States.’</li></ul>‘For about two decades, Deng’s survival strategy was wildly successful.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">'The so-called Chinese economic miracle boosted the CPC’s legitimacy and soon made China the world’s second-largest economy.’</li></ul>‘But that post-Tiananmen order suffered an abrupt and premature death in late 2012, when Xi Jinping became the CPC’s general secretary.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘By restoring strongman rule, reviving Leninism, re-imposing authoritarian social control, and, above all, directly challenging the US, Xi has done away with the pragmatism, elite power-sharing, and strategic restraint that defined the post-1989 era.’</li></ul>‘In fairness, though, Deng’s neo-authoritarian model always had fatal flaws that made its demise inevitable.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Deng’s own aversion to political reform left the regime bereft of mechanisms to prevent the return of a Mao-like figure.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In a way, the CPC simply got lucky with Deng’s two immediate successors, Jiang Zemin and Hu Jintao, who were checked by strong rivals and couldn’t revive personalistic rule even if they had wanted to.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Because economic development had spawned a virulent form of crony capitalism, most elites presided over murky patronage networks within the regime, and were thus vulnerable to “anti-corruption” purges.’</li></ul>‘Under Xi, the political gulf between China and the West has continued to widen, even as economic integration has deepened.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The CPC’s method of stoking Chinese nationalism to burnish its own legitimacy proved spectacularly effective.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And its bulging coffers underwrote the development of a vast repressive apparatus, including the infamous Great Firewall.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘If China had not acquired so much wealth and power, these other developments might not have mattered.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But by reverting to hard authoritarianism, doubling down on state capitalism, and giving free rein to its geopolitical ambitions, the CPC has finally turned the West against China.’</li></ul>‘In many ways, today’s China is starting to resemble that of the 1950s’:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The CPC is led by a strongman who openly calls on the party “not to forget its original commitment” (buwang chuxin).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Ideological indoctrination has returned with a vengeance;’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The US has again become the enemy, while Russia has re-emerged as a friend.’</li></ul>‘After a 30-year detour, China is headed in the direction that those responsible for the Tiananmen Square crackdown would have wanted.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The country is in the grip of a hardline Leninist regime that is fortified by a hybrid economy and bent on ruthless repression.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That is the lasting tragedy of Tiananmen.’</li></ul></td></tr></tbody></table></div></div><div id="article3" class="post-card"><div class="t2-block">3. ‘The Party has relied on brute force since its inception’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><a href="https://www.project-syndicate.org/commentary/china-tiananmen-square-anniversary-warning-by-brahma-chellaney-2019-05" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;"><img style="width: 100%;margin: 0 auto;" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d11ac46f9a609022163e43f_Brahma%20Chellaney.png" alt="CHINADebate"></a></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;">Brahma Chellaney | Professor, Strategic Studies at the New Delhi-based Center for Policy Research<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">‘The 30th anniversary of the Tiananmen Square massacre of at least 10,000 people is significant for several reasons,’ writes Brahma Chellaney, Professor of Strategic Studies at the New Delhi-based Center for Policy Research, in <a href="https://www.project-syndicate.org/commentary/china-tiananmen-square-anniversary-warning-by-brahma-chellaney-2019-05" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China’s Tiananmen Reckoning.’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For one thing, the deadly assault on student-led demonstrators remains a dark and hidden chapter in China’s communist narrative.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘For another, the Chinese government’s arbitrary exercise of power against its own citizens has not only continued since the massacre, but has become more methodical, sophisticated, and <a href="https://www.project-syndicate.org/commentary/china-growth-experiment-40-years-by-eloi-laurent-2018-12?barrier=accesspaylog" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">efficient</a>.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The country’s internal-security budget now officially <a href="https://www.heritage.org/asia/commentary/china-copes-insecurity-boosting-national-security-spending" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">surpasses</a> its mammoth defense spending.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet at the same time, this reliance on brute force carries an ominous message for the Communist Party of China (CPC) itself.’</li></ul>‘China’s many anniversaries in 2019 are making this a politically sensitive year.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The Tiananmen Square protests in 1989 were inspired by the watershed May 4, 1919, student demonstrations against Western colonialism at the same site.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But whereas Xi recently <a href="https://edition.cnn.com/2019/04/30/asia/xi-jinping-may-4-anniversary-intl/index.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">extolled</a>the May Fourth Movement in a speech marking the centenary of that event, he and the CPC are <a href="https://www.project-syndicate.org/commentary/china-may-fourth-tiananmen-student-protest-anniversaries-by-denise-y-ho-2019-05" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">edgy</a> about the Tiananmen anniversary.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This year also marks the 60th anniversary of a failed uprising in Tibet against Chinese occupation.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And it is ten years since a Uighur revolt killed hundreds in the Xinjiang region, where more than one million Muslims have now been <a href="https://www.project-syndicate.org/commentary/xi-china-gulag-uighur-muslims-xinjiang-by-brahma-chellaney-2019-04" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">incarcerated</a>as part of a Xi-initiated effort to “cleanse” their minds of extremist thoughts.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Then, on October 1, the People’s Republic of China will celebrate its 70th birthday.’</li></ul>‘The massacre was carried out because the party has relied on brute force since its inception, including to seize power.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘During the rule of the PRC’s founder, Mao Zedong, tens of millions died in the so-called Great Leap Forward, the Cultural Revolution, and other state-engineered disasters.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Adolf Hitler was responsible for an estimated11-12 million civilian deaths, and Joseph Stalin for at least six million.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But Mao, with some 42.5 million, was the undisputed champion butcher of the twentieth century.’ </li></ul>‘The CPC fears that it could meet the same fate as its Soviet counterpart, especially if it fails to prevent small incidents from spiraling into major defiance of its authority.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This explains Xi’s emphasis on enforcing strict Leninist discipline.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet Xi himself is undermining the CPC by building a cult of personality around his one-man rule and by inviting international pushback through his overemphasis on China’s strength and power.’</li></ul>‘The anniversary of the Tiananmen Square massacre is a reminder that the free ride China has enjoyed internationally over the past 30 years is ending.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It should also serve as a warning to the CPC that its continued reliance on brute power to keep China’s citizens in line could eventually leave it on the ash heap of history.’</li></ul></td></tr></tbody></table></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block">4. Tiananmen: Reporting from ABC World News Tonight 1989</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/CAJNgWpiP3Q"></iframe></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;">"World News" report from May 19, 1989: People's Army trucks could not reach China's Tiananmen Square because demonstrators block roads.<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;"><a href="https://youtu.be/CAJNgWpiP3Q" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">A terrific 6m 34s video compilation</a> of ABC News reporting on the lead up to and beginning of the Tiananmen massacre.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Captures events as they unfolded.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And the feel of what we experienced as we watched on TV.</li></ul></td></tr></tbody></table></div></div><div id="article5" class="post-card"><div class="t2-block">5. ‘Assignment: China - Tiananmen Square’</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="embed-responsive embed-responsive-16by9" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;position: relative;display: block;height: 100%;padding: 0;overflow: hidden;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/ho8vAFlCeFQ"></iframe></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;">USC U.S.-China Institute<p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;"><a href="https://www.youtube.com/watch?v=ho8vAFlCeFQ" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Assignment: China - Tiananmen Square’</a> isa fast-paced and riveting 1h 30m documentary that ‘tells the behind-the-scenes story of the American reporters who covered the tumultuous events of spring 1989 in Beijing.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With video footage and still photos, some never shown before in public.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And interviews with journalists who were there, including Nicholas Kristof of the New York Times, Daniel Southerland of the Washington Post, Dan Rather of CBS, Dorinda Elliott of Newsweek, and many others,’</li></ul>‘The documentary is the an episode in a series on the history of American correspondents in China produced by the U.S.-China Institute at the University of Southern California's Annenberg School for Communication and Journalism.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="http://china.usc.edu/ShowFaculty.aspx?articleID=27" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Mike Chinoy</a>, the distinguished former CNN Asia correspondent and USC U.S.-China Institute Senior Fellow, is the writer and reporter for the series.</li></ul>My friend and classmate,<a href="https://en.wikipedia.org/wiki/Sheryl_WuDunn" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Sheryl WuDunn</a>, and her husband, NYT’s opinion writer, Nick Kristof, were reporters for the New York Times posted in Beijing at the time of Tiananmen.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">They won the Pulitzer Prize for their reporting on the massacre.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Here are <a href="https://www.nytimes.com/2019/06/03/world/asia/tiananmen-massacre-anniversary-archive.html?rref=collection%2Ftimestopic%2FTiananmen%20Square&action=click&contentCollection=world®ion=stream&module=stream_unit&version=latest&contentPlacement=4&pgtype=collection" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">excerpts</a> of their on-the-ground reporting.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And, they are among the journalists speaking about their experiences in <a href="https://www.youtube.com/watch?v=ho8vAFlCeFQ" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Assignment: China - Tiananmen Square’</a></li></ul><img style="width: 100%;margin: 0 auto;" src="https://pbs.twimg.com/media/DsS8pjOVAAIA1ak.jpg" alt="CHINADebate"></td></tr></tbody></table></div></div><div class="section_title w-condition-invisible">III. CONGRESS & THE PRESIDENT REACT </div><div id="article6" class="post-card"><div class="t2-block">6. The story behind the ‘Tank Man’ photo</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img style="width: 100%;margin: 0 auto;" src="https://www.thoughtco.com/thmb/SeB7keEHtko6Fdd3WjyJFFYpmDE=/768x0/filters:no_upscale():max_bytes(150000):strip_icc()/030-56a040383df78cafdaa0adf6.JPG" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;"><p class="excerpt" style="font-size: 1.125em;line-height: 1.75em;margin: .625em 0;margin-bottom: 1.5em;font-style: italic;text-align: center;color: #c80000;padding: 10px 5%;font-family: 'Lato', sans-serif;">On June 4, 1989, I was visiting Hong Kong from my home in Taipei and on my way to China.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">On that day, news of the massacre began to come out. Reports said scores of demonstrators had been injured or killed. The number 10,000+ dead was decades away.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Still, we went to donate blood. But the line was long. And it appeared that there would be more than enough to cover the casualties. So we left.</li></ul>Months ago, and after many years, I got interested again in the stories surrounding the Tiananmen Massacre.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">What prompted my interest was <a href="https://youtu.be/5lvIiPUaLNc" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">a terrific Leica commercial</a> - the ‘Hunt’ -that featured a dramatic, if somewhat fictionalized, version of how the Tank Man photo was taken.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">If you watch The Hunt, pay attention to the lens in the last scene, and you’ll see the Tank Man reflected in the lens. (I missed it the first two times.)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Even though it wasn’t intended to be shown into China, the ad still went viral on the Chinese Internet - and the government promptly took it down and banned all reference, including searches for ‘Leica.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And just as promptly – to mitigate damage to its China business – Leica disavowed any connection. ‘It was a rogue ad agency in Brazil.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The whole saga is brilliantly laid out in a video on <a href="https://youtu.be/fQ7mw8Zlv5Q" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘China Uncensored.’</a></li></ul>This led me to wonder about the Tank Man photographer,Jeff Widener, and the story behind the photo. I found this, an excerpt from his description of his entire Tiananmen experience:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The sounds of diesel engines woke me from a sound sleep and I jumped up groggy and grabbed my camera and the 400mm lens.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I went out to the balcony and crouched behind the metal railing.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘There was a long line of tanks approaching from the Square and I thought it might be a nice compression shot.’</li></ul>‘Then suddenly a man in a white long sleeved shirt with two shopping bags, walked into the middle of the Chang'an Boulevard directly in front of the tanks.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I complained to Kirk and said “This guy is going to screw up my composition.”</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Kirk yelled “They are going to kill him!”</li></ul>‘My head was still in a daze [from a concussion] so compared to what I had witnessed over the previous day, a guy standing in front of a row of tanks seemed normal. The unfolding drama was very far away.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I waited for the instant the man would be shot or run over.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘But nothing happened.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘He unbelievably crawled up on the tank and I looked back at the bed where my teleconverter was.’</li></ul>‘I had to make a quick decision as to whether to risk getting a closer, clearer image or possibly miss a photo completely.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I made one of the biggest gambles in my life and dived for the bed.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘I grabbed the teleconverter.’</li></ul>‘Since the next hotel room wall jutted out, I was partially blocked.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So I had to risk exposing myself to gunfire by leaning over the balcony and shooting around the wall.’ </li></ul>Jeff describes this and the rest of his work during Tiananmen <a href="https://www.jeffwidener.com/stories/2016/09/tankman/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">on his website</a> and in a video interview on <a href="https://www.youtube.com/watch?v=ho8vAFlCeFQ" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Assignment: China - Tiananmen Square’</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">And in a great interview with <a href="https://charlierose.com/videos/17111" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Charlie Rose.</a></li></ul>BTW Jeff was nominated for the 1990 Pulitzer Prize in Spot News Photography, but didn’t win.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">The winner was the Photo Staff of The Tribune, Oakland, CA for photographs of devastation caused by the Bay Area earthquake of October 17, 1989.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Also BTW, Jeff was apparently using a Nikon, not a Leica.</li></ul></td></tr></tbody></table></div></div></div>

6/1/2019

<div id="NLpost" class="nl-post-wrapper" style="margin:0 auto;"><div id="NLHeader" class="post-card"><div id="Page-header" class="mainheader"><h1 class="t1">Peter Navarro talks tariffs on CNBC</h1><div class="date">June 1, 2019</div><a href="https://www.linkedin.com/in/malcolmriddell/" target="_blank" class="date" style="color: inherit;border-bottom: 0px solid #008dc8;text-decoration: none;">by Malcolm Riddell</a></div><div class="table-block w-condition-invisible w-dyn-bind-empty w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"></div></div><div class="section_title w-condition-invisible">I. THE LAW AND THE PROTESTS</div><div id="article1" class="post-card"><div class="t2-block">1. Peter Navarro talks tariffs on CNBC 💣</div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0;position: relative;display: block;padding-bottom: 56.25%;"><iframe class="embed-responsive-item" src="https://www.youtube.com/embed/2CSE4Op-G38"></iframe></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;">CNBC TelevisionAfter the Trump administration announced tariffs on Mexico, Dr. Peter Navarro, Director of Trade and Manufacturing Policy, went on CNBC to explain the reasons and rationale.<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">As part of that <a href="https://www.youtube.com/watch?v=2CSE4Op-G38" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">CNBC video interview</a>, he began at the 5m mark to correct our misconceptions about how tariffs work, echoing President Trump.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">President Trump has put forth such views about tariffs – but in sound bites.</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">To hear these conveyed all together woven into arguments is stunning.</li></ul>Here is a lightly edited transcript from Dr. Navarro’s CNBC interview beginning at five minutes in. <a href="https://www.youtube.com/watch?v=2CSE4Op-G38" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Watch for yourself here.</a><table class="intable" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;margin: 2.5em auto;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="intable-border" style="border-collapse: separate;width: 100%;color: #001544;letter-spacing: 0px;border-spacing: 0;border: 5px solid #f0f0f0;border-radius: 12px;background-color: #f4f4f4;padding: 1.5em;"><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">White House advisor Navarro on Trump's tariff threats against Mexico</h5>CNBC: ‘Tariffs hurt the American consumer.’‘This is one of the most misunderstood aspects of the Trump tariffs.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘China bears the burden of the tariffs in the form of lower exports, lower prices for their products, lower profits for their companies.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The government of China has borne the burden of those tariffs in the form of lower tax revenues and a lower rate of growth.’</li></ul>CNBC: ‘But so has the American consumer – importers pay the tariffs.’‘‘The governments of China and Mexico will pay for it and the producers in Mexico and China pay for this.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Here's how it works. A tariff goes on that puts pressure on the Chinese or the Mexican producers to lower their prices – otherwise they can't sell.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘With China, when we put the tariffs on China, we could buy the competing products in places like Vietnam or produce them here – that forced the Chinese to lower the prices.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So we bear a very small burden of these tariffs.’</li></ul>‘If you just look at this from the macro level.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘We’ve had tariffs on dishwashers and solar panels - half of Chinese exports to this country – steel and aluminum, and we see virtually no inflation in our data yet.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So these people who say that somehow American consumer is going to pay. for this that's simply not true.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘These countries are paying for the tariffs.’</li></ul>‘Corporate executives are recognizing that the supply chain is better off in other places in the globe or better yet bring that here.’</td></tr></tbody></table>What follows here in separate items are Dr. Navarro’s key points – on tariffs:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘So these people who say that somehow American consumer is going to pay for this – that's simply not true.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"> ‘The producers in Mexico and China pay for this. Here's how it works. A tariff goes on that puts pressure on the Chinese or the Mexican producers to lower their prices – otherwise they can't sell.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Corporate executives are recognizing that the supply chain is better off in other places in the globe or better yet bring that here.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"> ‘We’ve had tariffs on dishwashers and solar panels – half of Chinese exports to this country - steel and aluminum and we see virtually no inflation yet.’ [dishwashers/solar panels and steel are covered in two separate items.]</li></ul>The counter arguments. The problem with finding sources that counter Dr. Narvarro’s assertions (and implicitly President Trump;s) is there just too many of them. So, I’ve limited these here to three:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">New York Fed (discussed in an earlier post)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Center forStrategic & International Studies (CSIS)</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Peterson Institutefor International Economics (PIIE)</li></ul>If you would like to see more, just let me know.Also, see the note from an earlier edition on Peter Navarro and his ‘Death by China’ book and movie, <a href="https://www.chinadebate.com/newsletter/how-china-sees-trumps-trade-war#article3" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">here.</a><ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">You might the views expressed in the CNBC interview less surprising.</li></ul></td></tr></div></div><div id="article2" class="post-card"><div class="t2-block">2. Navarro : ‘The producers in Mexico and China pay for this. Here's how it works. A tariff goes on that puts pressure on the Chinese or the Mexican producers to lower their prices – otherwise they can't sell.’ </div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d11a7625a662ab1e784e317_david%20e%20weinstein%20Columbia.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;">David E. Weinstein | Columbia UniversityThe counter from the NY Fed:‘The magnitude of these costs depends on how a tariff affects the prices charged by foreign exporters and the U.S. demand for imported goods.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="http://www.econ.ucla.edu/pfajgelbaum/RTP1.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Studies</a>, including our own, have found that the tariffs that the United States imposed in 2018 have had complete passthrough into domestic prices of imports, which means that Chinese exporters did not reduce their prices.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Hence, U.S. domestic prices at the border have risen one‑for-one with the tariffs levied in that year.’ </li></ul>Read the full analysis: <a href="https://libertystreeteconomics.newyorkfed.org/2019/05/new-china-tariffs-increase-costs-to-us-households.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘New China Tariffs Increase Costs to U.S. Households,’</a> Liberty Street Economics, New York Fed, by<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Mary Amiti (NY Fed), Stephen J. Redding (Princeton), and David E. Weinstein (Columbia)</li></ul></td></tr></tbody></table></div></div><div id="article3" class="post-card"><div class="t2-block"> 3. Navarro : ‘Corporate executives are recognizing that the supply chain is better off in other places in the globe or better yet bring that here.’ </div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d11a7cb89e27159670729a9_Stephen%20Redding%20(Princeton).png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;">Stephen J. Redding | Princeton UniversityThe counter from the NY Fed. ‘Some firms may also reorganize their supply chains in order to purchase their products from other, cheaper sources.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">This tariff-induced shift in supply chains is therefore called a deadweight or efficiency loss.’ </li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">(wait ‘til you see the impact of deadweight loss on the U.S. economy and on consumers in the next item)</li></ul>Read the full analysis: <a href="https://libertystreeteconomics.newyorkfed.org/2019/05/new-china-tariffs-increase-costs-to-us-households.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘New China Tariffs Increase Costs to U.S. Households,’</a> Liberty Street Economics, New York Fed, by<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Mary Amiti (NY Fed), Stephen J. Redding (Princeton), and David E. Weinstein (Columbia)</li></ul></td></tr></tbody></table></div></div><div class="section_title w-condition-invisible">II. POTENTIAL BACKLASH FROM THE U.S. </div><div id="article4" class="post-card"><div class="t2-block"> 4. Navarro : ‘So these people who say that somehow American consumer is going to pay for this - that's simply not true.’ </div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;">The counter from the NY Fed: ‘Our <a href="https://www.nber.org/papers/w25672.pdf" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">recent study</a> found that the 2018 tariffs imposed an annual cost of $419 for the typical household.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This cost comprises two components’: <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">the first, an added tax burden faced by consumers, and’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">the second, a deadweight or efficiency loss.’ </li></ul></li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Tariffs amount to a cost of $52.8 billion, or $414 per household.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Of this cost, $282 per household per year was flowing into government coffers as a tax increase and could theoretically be rebated.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">However, deadweight losses accounted for an additional $132 to households per annum and represent a net loss to the U.S. economy that is in excess of any tariff revenue collected by the government.’ </li></ul></li></ul>25%/$200 billion tariffs.‘The likely cost of increasing the tariff rate from 10 percent to 25 percent on $200 billion of Chinese imports’:<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The tax portion of the cost to households actually falls, from $282 to $211 per annum, because the tariff-inclusive price for Chinese imports becomes so high that consumers start to purchase substitute goods from countries like Vietnam instead.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The annualized deadweight loss increases from $132 to $620 per household.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘This brings the total annual cost of the new round of tariffs to the typical household to $831.’</li></ul>Here’s the chart summarizing the findings:<img style="width: 100%;margin: 0 auto;" src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d11aa0f96e64045eb8cf45c_New%20China%20Tariffs%20Increase%20Costs%20to.png" alt="CHINADebate">Read the full analysis: <a href="https://libertystreeteconomics.newyorkfed.org/2019/05/new-china-tariffs-increase-costs-to-us-households.html" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘New China Tariffs Increase Costs to U.S. Households,’</a> Liberty Street Economics, New York Fed, by<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">Mary Amiti (NY Fed), Stephen J. Redding (Princeton), and David E. Weinstein (Columbia)</li></ul></td></tr></div></div><div id="article5" class="post-card"><div class="t2-block">5. Navarro : ‘We’ve had tariffs on dishwashers and solar panels - half of Chinese exports to this country - steel and aluminum and we see virtually no inflation.' — DISHWASHERS & SOLAR PANELS </div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d11a843f9a609627c63d3c6_William%20Reinsch.png" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;">Bill Reinsch | CSISThe counter from CSIS:‘The question of who pays for the consequences of the tariffs is also interesting, and there are a couple of recent studies that provide some guidance.’<h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">Washing Machines</h5>‘<a href="https://bfi.uchicago.edu/working-paper/the-production-relocation-and-price-effects-of-us-trade-policy-the-case-of-washing-machines/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">One study by the University of Chicago and the Federal Reserve</a> looked at the president’s 2018 tariffs on washing machines, a result of the domestic industry’s section 201 “safeguard” case.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That study concluded that while the tariffs are giving the U.S. Treasury an additional $82.2 million, the price increases associated with the tariffs cost U.S. consumers $1.5 billion per year.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘That works out to an increase of $86 for each washing machine and, interestingly, an increase of $92 for each dryer.’</li></ul>‘That latter statistic provides a useful lesson in protection.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The price of dryers went up even though there were no additional tariffs on them.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Why? Because most consumers buy washers and dryers together, and manufacturers realized they could get away with increasing the price of both and simply pocket the extra money.’</li></ul>‘Note also that these numbers refer to all washers and dryers, not just imports, which illustrates the central point of protection—to allow domestic producers to raise prices and make more money so they can recover from the damage done to them by the imports.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The point of the exercise, after all, is ostensibly to help the U.S. producers, so if their prices don’t go up in tandem with the prices of imports, they are not benefitting.’</li></ul><h5 style="display: block;font-weight: 700;line-height: 1.8em;margin: 1em 0;font-size: 1.3125em;margin-top: 1.5em;padding-bottom: .2em;border-bottom: 2px solid #c80000;">Solar Panels</h5> ‘Another <a href="https://www.usenergyjobs.org/" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">study</a>, this one on solar panels, also shows that the outcome of trade protection is not always what one expects.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Solar panels also benefitted from tariffs because of the same kind of section 201 case; they were 30 percent in 2018 and this year will decline to 25 percent and by 2021 will be 15 percent.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The data suggests that the tariffs so far added about 10 percent to the cost of solar installations, which, in turn, has contributed to the reduction in the number of those installations.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In addition, according to the Energy Futures Initiative, solar manufacturing jobs <a href="https://subscriber.politicopro.com/trade/article/2019/04/us-solar-manufacturers-shed-jobs-despite-tariffs-1378629" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">declined </a>from 51,410 in 2017 to 46,539 in 2018, the opposite of what one would expect.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘It appears that declines in demand, in part related to the tariffs, had something to do with that, along with the fact that new facilities are less labor-intensive than older ones.’</li></ul>Read the full analysis: <a href="https://www.csis.org/analysis/tariff-game-who-pays" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘The Tariff Game: Who Pays?’</a> Center for International and Strategic Studies (CSIS), April 29, 2019, by <ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="https://www.csis.org/people/william-alan-reinsch" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">William Reinsch,</a> Scholl Chair in International Business, former president of the National Foreign Trade Council, former Under Secretary Of Commerce For Export Administration.</li></ul></td></tr></tbody></table></div></div><div class="section_title w-condition-invisible">III. CONGRESS & THE PRESIDENT REACT </div><div id="article6" class="post-card"><div class="t2-block"> 6. Navarro : ‘We’ve had tariffs on dishwashers and solar panels - half of Chinese exports to this country - steel and aluminum. And we see virtually no inflation.’ — STEEL </div><div class="table-block w-richtext" data-ix="appear-on-load" style="opacity: 1; transition: opacity 1000ms ease 0s;"><table class="nl_card" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><table class="multi-block" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><tbody><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="bg-holder" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;max-width: 100%;margin: 0 auto;padding: 0;"><img src="https://assets.website-files.com/5c864c33af62620dca1373ac/5d11a87289e2710903072a70_gary%20hufbauer.jpg" alt="CHINADebate" style="width: 100%;margin: 0 auto;"></td></tr></tbody></table></td></tr><tr style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;"><td class="nl-post" style="border-collapse: collapse;width: 100%;color: #001544;letter-spacing: 0px;padding: 0 2.5em;overflow: hidden;">Gary Hufbauer | PIIEThe counter from PIIE:‘The underlying purpose of tariffs and quotas was to make imported steel far more expensive, permitting domestic US steel producers to raise their own prices to higher levels.’‘The argument that new restrictions could be imposed cost-free is no less dubious.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Calculations show that Trump’s tariffs raise the price of steel products by nearly 9 percent.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Higher steel prices will raise the pre-tax earnings of steel firms by $2.4 billion in 2018.’</li></ul> ‘How much more will steel-usingfirms pay owing to Trump’s gift to steel firms?’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The arithmetic suggests that US steel prices will be 8.9 percent higher in 2018 than in 2017 thanks to tariffs and quotas.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘In 2017, the value of steel sales was about $63 billion ($775 per ton times 81.6 million tons).’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘The 8.9 percent protectionist increase in US steel prices will deliver a hike in steel user costs of about $5.6 billion (8.9 percent of $63 billion).’</li></ul>‘Yes, these actions create 8,700 jobs in the US steel industry.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Yet for each new job, steel firms will earn $270,000 of additional pre-tax profits.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘And steel userswill pay an extra $650,000 for each job created. [total $920,000 per job]. Wow!’</li></ul>‘Whatever President Trump and his lieutenants may have said about guarding national security or creating steel jobs, the tariffs were never about military strength or American workers.’<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘Their purpose was to enrich steel firms.’</li><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;">‘They succeeded—but at an exorbitant price.’</li></ul>Read the full analysis:<a href="https://piie.com/blogs/trade-investment-policy-watch/steel-profits-gain-steel-users-pay-under-trumps-protectionism" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">‘Steel Profits Gain, but Steel Users Pay, under Trump’s Protectionism,’</a> Peterson Institute for Interational Economics (PIIE), December 20, 2018 by<ul style="margin-bottom: 0;margin-top: .625em;"><li style="font-size: 1em;line-height: 1.875em;margin: .625em 0;"><a href="https://piie.com/experts/senior-research-staff/gary-clyde-hufbauer" target="_blank" style="color: inherit;border-bottom: 1px solid #008dc8;text-decoration: none;">Gary Hufbauer,</a> Non Resident Senior Fellow, former Marcus Wallenberg Professor of International Finance Diplomacy at Georgetown University, and former Deputy Assistant Secretary For International Trade And Investment Policy of the U.S. Treasury. </li></ul></td></tr></tbody></table></div></div></div>

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