Chinese Boycotts are the Least of Your Worries
3/31/2021
<table height="100%" width="100%" cellpadding="0" cellspacing="0" border="0"><tbody><tr><td align="center" valign="top"><table class="mob-w-full" border="0" cellpadding="0" cellspacing="0" width="100%" style="max-width:767px; margin:0; padding: 0;"><tbody><tr><td width="0"><div><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#f6f6f6" style="font-size: 15px" class="onecolumn_5CPQqv"><tbody><tr class="col-payload"><td class="" width="0" bgcolor="#f6f6f6" valign="top" style="; color: #001544"><div><table class="mob-w-full postlist_8norTt" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="font-size: 15px; color: #001544;"><tbody><tr><td style="padding:0 20px;"><p><strong style="font-weight: bold">‘For chief executives [and boards] around the world,</strong> watching the Chinese government go after Swedish clothier Hennes & Mauritz AB is excruciating — facing the evaporation of your hard-won China business over political issues largely out of your control,’ writes Michael Schuman in Bloomberg.’</p><ul><li><strong style="font-weight: bold">‘But it could be </strong>the new normal.’</li><li><strong style="font-weight: bold">‘As relations between China and the U.S.</strong> and its allies deteriorate, Western businesses could increasingly get dragged into the fray.’</li></ul><p><strong style="font-weight: bold">Mr. Schuman</strong> is of course right.</p><ul><li><strong style="font-weight: bold">His comments</strong> though only capture one aspect of the challenges facing companies doing business in or with China or relying on Chinese supply chains.</li></ul><p><strong style="font-weight: bold">George Mangus</strong> of Oxford gets a little closer. Writing in the Financial Times,</p><ul><li><strong style="font-weight: bold">‘Business risks</strong> for foreign companies in China are increasing after the recent exchange of sanctions between Beijing and western governments.’</li></ul><p><strong style="font-weight: bold">‘For foreign companies in China,</strong> the options seem delicately balanced.’</p><ul><li><strong style="font-weight: bold">‘If they stand up for principles,</strong> they may put revenues at risk and will incur extra costs as they develop new supply chains.’</li><li><strong style="font-weight: bold">‘Yet if they prioritise their China profits,</strong> they could do irretrievable damage to their brands at home and in other markets, falling foul of shareholders and changing governance requirements.’</li><li><strong style="font-weight: bold">‘It is an invidious choice</strong> but the latter is likely to be far more damaging to longer term performance and earnings, and corrosive of trust in the brand.’</li></ul><p><strong style="font-weight: bold">Matt Pottinger,</strong> former Deputy National Security Advisor, broadens Mr. Magnus’ point in a Wall Street Journal op-ed, ‘Beijing Targets American Business’:</p><ul><li><strong style="font-weight: bold">‘American businessmen,</strong> wishing for simple, lucrative commercial ties, have long resisted viewing U.S.-China relations as an ideological struggle.</li><li><strong style="font-weight: bold">‘But strategic guidance</strong> issued by the leaders of both countries make clear the matter is settled: The ideological dimension of the competition is inescapable, even central.</li></ul><p><strong style="font-weight: bold">Mr. Pottinger </strong>also captures an additional dimension<strong style="font-weight: bold">: </strong>‘Another notable element of Beijing’s approach is its explicit goal of making the world permanently dependent on China, and exploiting that dependency for political ends.’</p><ul><li><strong style="font-weight: bold">‘In a speech Mr. Xi</strong> delivered early last year, published only in late October in the party’s leading theoretical journal, Qiu Shi, he said China “must tighten international production chains’ dependence on China” with the aim of “forming powerful countermeasures and deterrent capabilities.” ’</li></ul><p><strong style="font-weight: bold">Drawn into an ideological struggle;</strong> threatened with boycotts or worse; caught between the China market on the one hand and shareholders and consumers on the other; faced with the possibility of weaponized supply chains – that’s a lot of new stuff for CEOs and directors to integrate into their strategic planning.</p><ul><li><strong style="font-weight: bold">But it’s even</strong> tougher – and more uncertain - than that.</li></ul><p><strong style="font-weight: bold">A lot of what China</strong> is doing just doesn’t make sense for China itself.</p><ul><li><strong style="font-weight: bold">As John Promfret</strong> points out in a Washington Post op-ed:</li></ul><p><strong style="font-weight: bold">‘Across the globe,</strong> Xi’s diplomatic representatives in Europe, Beijing, Hong Kong, Canada, Australia and elsewhere, are lifting up rocks and smashing their own feet.’</p><ul><li><strong style="font-weight: bold">‘The moves are befuddling</strong> — with a buoyant economy and a practically covid-free country, China is poised to see its influence rise if it plays it smart.’</li><li><strong style="font-weight: bold">‘But it’s not;</strong> instead, it’s alienating individuals and nations across the world.’</li></ul><p><strong style="font-weight: bold">‘I’ve been studying China</strong> for my entire adult life and I have to admit to being bewildered by China’s performance.’</p><ul><li><strong style="font-weight: bold">‘But I’m in good company.</strong> Thirty-one years ago, the great political scientist Lucian Pye wrote, “Just when all appears to be going well, Chinese officials create problems for seemingly unaccountable reasons.” ’</li></ul><p><strong style="font-weight: bold">Because China </strong>seems so willing to smash its own feet for ‘seemingly unaccountable reasons,’ it’s hard to predict – and plan for - what China might do next.</p><p><strong style="font-weight: bold">All the while the environment</strong> that businesses are operating in globally is in flux.</p><ul><li><strong style="font-weight: bold">The battle lines</strong> between China and the U.S. and other countries are far from settled.</li></ul><p><strong style="font-weight: bold">For its part,</strong> China, after some advancing and retreating, seems to have decided to go full ‘Wolf Warrior.’</p><ul><li><strong style="font-weight: bold">‘Under Xi,</strong> China appears to have adopted the mantra that it is better to be feared than liked. China is committed to sending a message that it will not take a punch without throwing a counterpunch,’ says Ryan Hass of Brookings.</li><li><strong style="font-weight: bold">So much for </strong>Robert Zoellick's hopes for China's becoming a 'responsible shareholder' in the current world order.</li></ul><p><strong style="font-weight: bold">The U.S. appears</strong> to be firming up a policy of straight confrontation with a few pauses for issues like climate change.</p><ul><li><strong style="font-weight: bold">With China</strong> both ready to punch and counterpunch, expect rapid escalation in tensions.</li></ul><p><strong style="font-weight: bold">As for the EU,</strong> careful to preserve its distance between the U.S. and China, China has now, as the Financial Times puts it, ‘forced the EU to reassess its China strategy.’</p><ul><li><strong style="font-weight: bold">‘China’s response</strong> to the EU’s stand on Xinjiang abuses still feels like a turning point in EU-China ties.’</li><li><strong style="font-weight: bold">Which way will the EU turn? </strong>Stay tuned for the outcome.</li></ul><p><strong style="font-weight: bold">And across Asia,</strong> China’s aggressive attitude and actions are causing countries there to rethink their relations with China.</p><ul><li><strong style="font-weight: bold">At the same,</strong> with the Biden administration’s interest in firming up alliances, many of those countries – even unlikely ones, like Vietnam - are inching to closer to the U.S. as a counterweight to China.</li></ul><p><strong style="font-weight: bold">Until each of these</strong> settles into a discernible strategy for dealing with the others, flux will continue to equal uncertainty.</p><p><strong style="font-weight: bold">Finally, add</strong> to the mix flashpoints like Taiwan, the South & East China Seas, the Sino-Indian border, and North Korea.</p><ul><li><strong style="font-weight: bold">If any of these points flashes,</strong> commerce will collapse; or markets will tumble; or supply chains will be cut; or any and all of these.</li></ul><p><strong style="font-weight: bold">All by way of saying,</strong> CEOs and boards are encountering new, unprecedented levels of complexity and uncertainty.</p><ul><li><strong style="font-weight: bold">And with this,</strong> a nuts and bolts problem of developing systems and methods to track and understand each of these moving parts as it moves and how it interacts with the others.</li><li><strong style="font-weight: bold">Then </strong>adjust and adapt quickly - until the next part moves.</li></ul><p><strong style="font-weight: bold">And that goes </strong>for the rest of us too.</p><p><strong style="font-weight: bold">For those of you</strong> who haven't kept up with the current Chinese boycotts, we start with short pieces from Bloomberg and The Economist.</p><ul><li><strong style="font-weight: bold">Then expanded insights</strong> from George Magnus, Matt Pottinger, and John Pomfret, all quoted above.</li></ul><p><strong style="font-weight: bold">Note:</strong> I especially like John Promfret's essay.</p><ul><li><strong style="font-weight: bold">Makes me feel better</strong> to know I'm not the only one who can't understand why doing what it's doing.</li></ul><p><strong style="font-weight: bold">Want to do deeper</strong> on these issues?</p><ul><li><strong style="font-weight: bold">Shoot me a note,</strong> and we can arrange to exchange views by email, phone, or Zoom: <a href="Malcolm.riddell@riddell-tseng.com" target="_blank">malcolm.riddell@riddell-tseng.com</a></li></ul><p><strong style="font-weight: bold">All the best,</strong></p><p><strong style="font-weight: bold">Malcolm</strong></p><p><br></p></td></tr></tbody></table></td></tr><tr class="w-mb" height="10"><td colspan="1" style="font-size:1px; line-height: 1px;"> </td></tr></tbody></table></div><div><table class="mob-w-full html_7IMQu9" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;width: 100%;"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="margin-top:40px;"><tbody><tr><td style="background-color: #c80000; padding:3px; border-top:40px solid $f6f6f6;"></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_9Mf7hJ" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#FFFFFF"><tbody><tr><td style="vertical-align: top; padding:20px;"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr><td style="vertical-align: top; padding-top: 5px; width: 50px;" width="50"><a href="https://www.bloomberg.com/news/articles/2021-03-26/xi-s-red-line-on-china-human-rights-makes-companies-pick-sides?sref=UNCdSoO2" style="border-bottom: none"><img src="https://img.scoop.it/Q7K3LvBpUHwYzkoXdXm2WalCLyWtmb0jKl3uQzE8FbY=" srcset="https://img.scoop.it/Q7K3LvBpUHwYzkoXdXm2WR10wIJwgQyzLwkcHqpJQsg= 2x" width="50" height="50" style="border: 1px solid #ddd; border-radius:10%;"></a></td><td style="vertical-align: top; padding-left: 20px; "><a href="https://www.bloomberg.com/news/articles/2021-03-26/xi-s-red-line-on-china-human-rights-makes-companies-pick-sides?sref=UNCdSoO2" class="post-title default-template" style="border-bottom: 0;"> 'H&M, Nike Pay With China Boycotts on Xinjiang Human Rights Stance'</a></td></tr></tbody></table></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_4hCfo1" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#FFFFFF" style="font-size: 15px; color: #001544;"><tbody><tr><td><img class="mob-w-full mob-h-auto" width="100%" height="auto" src="https://img.scoop.it/SyvQAMXm6YbbdcNHkiKDODl72eJkfbmt4t8yenImKBUrkZYC-qKAy-rC6LxShaqt" border="0"></td></tr><tr><td style="padding:20px;"><h3><strong style="font-weight: bold">Bloomberg</strong></h3><h3><br></h3><blockquote><strong style="font-weight: bold">BIG IDEA |</strong> ‘While both Western and Asian companies have frequently been targets of Chinese nationalism over the years, the latest flurry signals a shift in strategy by President Xi Jinping’s government as it confronts a more unified approach from the U.S. and its allies.’</blockquote><blockquote>'Foreign companies operating in China across a range of industries could find themselves in the geopolitical firing line, facing pressure from Beijing to keep quiet on human rights just as global investors put more weight on environmental, social and governance issues.’</blockquote><p><br></p><p><strong style="font-weight: bold">‘China has pushed a campaign</strong> to boycott Western retailers after the U.S., U.K., Canada and the European Union imposed sanctions over human-rights abuses against ethnic minority Uyghurs in Xinjiang.’</p><ul><li><strong style="font-weight: bold">‘The furor started</strong> when the Communist Youth League amplified a months-old statement from Sweden’s <a href="https://www.bloomberg.com/quote/HMB:SS" rel="nofollow">Hennes & Mauritz AB </a>expressing concern about reports of forced labor in the far west region, and quickly spread to other companies.’</li><li><strong style="font-weight: bold">‘Shares of H&M,</strong> Nike Inc. and others plummeted as Chinese government officials endorsed the boycotts and celebrities cut ties with brands including Adidas, New Balance and Japan’s Uniqlo.’</li></ul><p><strong style="font-weight: bold">‘While both Western and Asian companies</strong> have frequently been targets of Chinese nationalism over the years, the latest flurry signals a shift in strategy by President Xi Jinping’s government as it confronts a more unified approach from the U.S. and its allies.’</p><ul><li><strong style="font-weight: bold">‘Analysts say the Communist Party</strong> is betting that a response that inflicts financial costs on companies will be popular at home, show China stands on equal footing with the U.S. and help thwart President Joe Biden’s efforts to heap more <a href="https://www.bloomberg.com/news/articles/2021-03-25/biden-says-china-won-t-be-most-powerful-country-on-his-watch" rel="nofollow">pressure </a>on Beijing over human rights.’</li></ul><p><strong style="font-weight: bold">‘Although Xinjiang</strong> is in the spotlight now, Chinese diplomats made clear during tense talks with U.S. counterparts in Alaska last week that Xi’s administration is drawing a firm line against what it calls “interference” in “<a href="https://www.bloomberg.com/news/terminal/QQ7UV88JMDC0" rel="nofollow">internal affairs</a>” including Hong Kong, Tibet and Taiwan.’</p><ul><li><strong style="font-weight: bold">‘That raises the prospect</strong> that foreign companies operating in China across a range of industries could find themselves in the geopolitical firing line, facing pressure from Beijing to keep quiet on human rights just as global investors put more weight on environmental, social and governance issues.’</li></ul></td></tr></tbody></table></td></tr><tr class="w-mb" height="10"><td colspan="1" style="font-size:1px; line-height: 1px;"> </td></tr></tbody></table></div><div><table class="mob-w-full html_8cg6cr" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;width: 100%;"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="margin-top:40px;"><tbody><tr><td style="background-color: #c80000; padding:3px; border-top:40px solid $f6f6f6;"></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_57bMu1" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#FFFFFF"><tbody><tr><td style="vertical-align: top; padding:20px;"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr><td style="vertical-align: top; padding-top: 5px; width: 50px;" width="50"><a href="https://www.economist.com/business/2021/03/31/consumer-boycotts-warn-of-trouble-ahead-for-western-firms-in-china" style="border-bottom: none"><img src="https://img.scoop.it/_WMiBTDcNqqcPnQt-JHFGalCLyWtmb0jKl3uQzE8FbY=" srcset="https://img.scoop.it/_WMiBTDcNqqcPnQt-JHFGR10wIJwgQyzLwkcHqpJQsg= 2x" width="50" height="50" style="border: 1px solid #ddd; border-radius:10%;"></a></td><td style="vertical-align: top; padding-left: 20px; "><a href="https://www.economist.com/business/2021/03/31/consumer-boycotts-warn-of-trouble-ahead-for-western-firms-in-china" class="post-title default-template" style="border-bottom: 0;">'Consumer boycotts warn of trouble ahead for Western firms in China'</a></td></tr></tbody></table></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_82LRyb" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#FFFFFF" style="font-size: 15px; color: #001544;"><tbody><tr><td><img class="mob-w-full mob-h-auto" width="100%" height="auto" src="https://img.scoop.it/67ukkqSvplKotYYCx6R2Njl72eJkfbmt4t8yenImKBUrkZYC-qKAy-rC6LxShaqt" border="0"></td></tr><tr><td style="padding:20px;"><h3><strong style="font-weight: bold">The Economist</strong></h3><h3><br></h3><blockquote><strong style="font-weight: bold">BIG IDEA |</strong> ‘Western executives in China cannot shake an unsettling fear that this time is different.’</blockquote><blockquote>‘Their lucrative Chinese operations are at rising risk of tumbling into the political chasm that has opened between the West and China.’</blockquote><p><br></p><p><strong style="font-weight: bold">‘Boycotts of foreign brands</strong> are so common in China that managers have a ready-made playbook when caught in a storm of nationalist outrage.’</p><ul><li><strong style="font-weight: bold">‘Start with an apology.</strong> Then stay mostly quiet, perhaps expressing respect for Chinese culture. Wait for the anger to subside.’</li><li><strong style="font-weight: bold">[Boycotts</strong> have been in the Chinese, not just Chinese Communist Party’s, toolkit for a long time: I am currently reading <em style="font-style: italic"><strong style="font-weight: bold">A Study of Chinese Boycotts, with Special Reference to Their Economic Effectiveness,</strong></em><strong style="font-weight: bold"></strong>published in 1933.]</li></ul><p><strong style="font-weight: bold">‘Over the past week</strong> the list of companies consulting the manual has grown.’</p><ul><li><strong style="font-weight: bold">‘Chinese consumers,</strong> egged on by the ruling Communist Party, vowed to shun some of the world’s biggest clothing companies, from Adidas to Zara.’</li></ul><p><strong style="font-weight: bold">‘In the eyes of the boycotters,</strong> the firms erred by declaring concern over allegations that China’s cotton industry includes the forced labour of Uyghurs, a mostly Muslim ethnic minority in the north-western region of Xinjiang.’</p><ul><li><strong style="font-weight: bold">‘Their bosses</strong> hope that the controversy will fizzle out.’</li></ul><p><strong style="font-weight: bold">‘But they and other Western executives</strong> in China cannot shake an unsettling fear that this time is different.’</p><ul><li><strong style="font-weight: bold">‘Their lucrative Chinese operations</strong> are at rising risk of tumbling into the political chasm that has opened between the West and China.’</li></ul><p><strong style="font-weight: bold">'H&M,</strong> a Swedish fast-fashion retailer, faces the most immediate trouble.’</p><ul><li><strong style="font-weight: bold">'As of March 30th,</strong> a week after it was attacked online, its garments were still unavailable on China’s most popular e-commerce apps. Its stores have disappeared from smartphone maps. Landlords in several shopping malls have terminated its leases.’</li><li><strong style="font-weight: bold">'Its Chinese business,</strong> worth $1bn in revenues and representing 5% of its global sales in 2020, is in jeopardy.’</li></ul><p><strong style="font-weight: bold">‘Little by little</strong> the social-media mob has dwindled amid signs that government censors were reining it in, perhaps to lower the heat.’</p><ul><li><strong style="font-weight: bold">‘The share prices</strong> of foreign firms entangled in the boycotts have clawed back most of their initial losses.’</li></ul><p><strong style="font-weight: bold">‘Foreign executives,</strong> however, remain on edge.’</p><ul><li><strong style="font-weight: bold">'The issue</strong> at the heart of their current problems—China’s human-rights violations in Xinjiang, and the West’s newfound willingness to punish them—is one for which the tried and tested playbook is ill-suited.'</li><li><strong style="font-weight: bold">'It may also be</strong> more expansive, seeping into many other corners of their business dealings in the world’s second-biggest economy.’</li></ul><p><strong style="font-weight: bold">‘Mei Xinyu,</strong> a researcher with the Ministry of Commerce, has written that cotton is the “entry point” for America’s strategy of using the Xinjiang allegations to suppress China, which denies any forced labour is taking place.’</p><ul><li><strong style="font-weight: bold">‘China’s only choice,</strong> he says, is to fight back forcefully.’</li></ul><p><strong style="font-weight: bold">‘The Communist Party</strong> is confident of its abilities to do so, thanks to what it calls the “powerful gravitational field” of its market.’</p><ul><li><strong style="font-weight: bold">‘American-listed firms</strong> which regularly report their revenues from China or Asia, and can thus be assumed to have larger exposure to the country, have outperformed those that do not in recent years (see chart above).’</li></ul><p><strong style="font-weight: bold">‘An apology, </strong>the first step in mending fences, is untenable this time.’</p><ul><li><strong style="font-weight: bold">‘Many people inside foreign companies</strong> “recognise the moral gravity of what’s happening in Xinjiang”, says Scott Nova of the Worker Rights Consortium, a labour-monitoring organisation.’</li><li><strong style="font-weight: bold">‘Those that do not</strong> must still comply with the American ban on cotton imports if shipping to America.’</li></ul><p><strong style="font-weight: bold">‘This earns</strong> them little sympathy in China.’</p><ul><li><strong style="font-weight: bold">‘Foreign firms</strong> have found it virtually impossible to get audiences with Chinese officials to explain their legal obligations in America, says a government-relations expert.’</li></ul></td></tr></tbody></table></td></tr><tr class="w-mb" height="10"><td colspan="1" style="font-size:1px; line-height: 1px;"> </td></tr></tbody></table></div><div><table class="mob-w-full html_8KVmIj" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;width: 100%;"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544;"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="margin-top:40px;"><tbody><tr><td style="background-color: #c80000;padding:3px;border-top:40px solid $f6f6f6;width: 100%;"></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_95zBo1" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#FFFFFF"><tbody><tr><td style="vertical-align: top; padding:20px;"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr><td style="vertical-align: top; padding-top: 5px; width: 50px;" width="50"><a href="https://www.ft.com/content/d3806cc5-8233-4488-95ca-f35c502f5cbb" style="border-bottom: none"><img src="https://img.scoop.it/zxbyrGBKPhFFZLzMYqfYnalCLyWtmb0jKl3uQzE8FbY=" srcset="https://img.scoop.it/zxbyrGBKPhFFZLzMYqfYnR10wIJwgQyzLwkcHqpJQsg= 2x" width="50" height="50" style="border: 1px solid #ddd; border-radius:10%;"></a></td><td style="vertical-align: top; padding-left: 20px; "><a href="https://www.ft.com/content/d3806cc5-8233-4488-95ca-f35c502f5cbb" class="post-title default-template" style="border-bottom: 0;">'Profit or principle is the hard choice for foreign companies in China' George Magnus</a></td></tr></tbody></table></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_7j2j8D" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;width: 100%;"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#FFFFFF" style="font-size: 15px; color: #001544;"><tbody><tr><td style="text-align:center"><img class="mob-w-full mob-h-auto" width="75%" height="auto" src="https://img.scoop.it/Kk2c_a0ToyuJ6wHK2dsuqTl72eJkfbmt4t8yenImKBUrkZYC-qKAy-rC6LxShaqt" border="0"></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_4icfSL" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="font-size: 15px; color: #001544;"><tbody><tr><td style="padding:0 20px;"><h3><br></h3><h3><strong style="font-weight: bold">Financial Times</strong></h3><h3><strong style="font-weight: bold">George Magnus |</strong> University of Oxford</h3><h3><br></h3><blockquote><strong style="font-weight: bold">BIG IDEA |</strong> ‘Business risks for foreign companies in China are increasing after the recent exchange of sanctions between Beijing and western governments.’</blockquote><blockquote>‘For foreign companies in China, the options seem delicately balanced. If they stand up for principles, they may put revenues at risk and will incur extra costs as they develop new supply chains. Yet if they prioritise their China profits, they could do irretrievable damage to their brands at home and in other markets, falling foul of shareholders and changing governance requirements.’</blockquote><blockquote>‘It is an invidious choice but the latter is likely to be far more damaging to longer term performance and earnings, and corrosive of trust in the brand.’</blockquote><p> </p><p><strong style="font-weight: bold">‘Business risks</strong> for foreign companies in China are increasing after the recent exchange of sanctions between Beijing and western governments.’</p><p><strong style="font-weight: bold">‘The immediate problem</strong> is the row engulfing firms with a presence in or ties to Xinjiang province, amid allegations of forced labour, human rights abuses and genocide.’</p><ul><li><strong style="font-weight: bold">‘Many firms</strong> are getting embroiled in a debate about profit versus principle, probably forcing them to choose between aligning with the governance system propagated by China and that of their home countries.’</li></ul><p><strong style="font-weight: bold">‘Scores of large foreign companies</strong> have a presence in Xinjiang.’</p><ul><li><strong style="font-weight: bold">‘These include</strong> over 50 American firms listed in the Fortune 500.’</li><li><strong style="font-weight: bold">‘Almost 70 European firms</strong> listed either in the Euro Stoxx 50 index or in the Global Fortune 500 do business there.’</li><li><strong style="font-weight: bold">‘Moreover,</strong> according to the Australian Strategic Policy Institute, about 83 foreign and Chinese firms use some 80,000 Uyghur workers who have been transferred from Xinjiang to work in poor conditions in 27 factories in nine provinces.’</li></ul><p><strong style="font-weight: bold">‘Now many foreign companies</strong> may find themselves on the wrong end of corporate coercion in China, or of corporate governance in their own countries, or both.’</p><ul><li><strong style="font-weight: bold">‘Corporate coercion</strong> occurs in China in a myriad of ways, most of which firms learn to manage.’</li></ul><p><strong style="font-weight: bold">‘From time to time,</strong> though, it takes on an overt political tone.’</p><ul><li><strong style="font-weight: bold">‘In the latest example,</strong> H&M, the Swedish clothing firm that announced it would stop sourcing cotton in Xinjiang, was removed from leading Chinese ecommerce, ride-hailing, mapping and other apps.’</li><li><strong style="font-weight: bold">‘It became the target</strong> of protests, boycott demands and social media abuse.’</li><li><strong style="font-weight: bold">‘The row</strong> has spilled over to include other brands, such as Adidas and Nike, with supply chain operations centred on China.’</li></ul><p><strong style="font-weight: bold">‘These spats</strong> have historically tended to peter out without longer-term commercial disruption.</p><ul><li><strong style="font-weight: bold">‘Yet firms</strong> would do well to consider if this time things will be different.’</li></ul><p><strong style="font-weight: bold">‘The geopolitical backdrop</strong> is more volatile than at any time since companies started to flock to China.’</p><ul><li><strong style="font-weight: bold">‘Furthermore,</strong> negative perceptions about China in liberal-leaning western democracies and in Asia are at record levels.’</li></ul><p><strong style="font-weight: bold">‘If companies</strong> ignore allegations or findings about Xinjiang-related abuses, there may be adverse consequences for them and their shareholders.’</p><ul><li><strong style="font-weight: bold">‘If they stand up for principles,</strong> they may put revenues at risk and will incur extra costs as they develop new supply chains.’</li><li><strong style="font-weight: bold">‘Yet if they prioritise their China profits,</strong> they could do irretrievable damage to their brands at home and in other markets, falling foul of shareholders and changing governance requirements.’</li><li><strong style="font-weight: bold">‘It is an invidious choice</strong> but the latter is likely to be far more damaging to longer term performance and earnings, and corrosive of trust in the brand.’</li></ul></td></tr></tbody></table></td></tr><tr class="w-mb" height="10"><td colspan="1" style="font-size:1px; line-height: 1px;"> </td></tr></tbody></table></div><div><table class="mob-w-full html_70C6a1" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;width: 100%;"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="margin-top:40px;"><tbody><tr><td style="background-color: #c80000; padding:3px; border-top:40px solid $f6f6f6;"></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_74AUOv" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#FFFFFF"><tbody><tr><td style="vertical-align: top; padding:20px;"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr><td style="vertical-align: top; padding-top: 5px; width: 50px;" width="50"><a href="https://www.wsj.com/articles/beijing-targets-american-business-11616783268" style="border-bottom: none"><img src="https://img.scoop.it/K9fKxwrt-0GqvuYSovNp36lCLyWtmb0jKl3uQzE8FbY=" srcset="https://img.scoop.it/K9fKxwrt-0GqvuYSovNp3x10wIJwgQyzLwkcHqpJQsg= 2x" width="50" height="50" style="border: 1px solid #ddd; border-radius:10%;"></a></td><td style="vertical-align: top; padding-left: 20px; "><a href="https://www.wsj.com/articles/beijing-targets-american-business-11616783268" class="post-title default-template" style="border-bottom: 0;">Part 1 | ‘Beijing’s message is unmistakable: You must choose.’ Matt Pottinger</a></td></tr></tbody></table></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_6Tppkf" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;width: 100%;"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#FFFFFF" style="font-size: 15px; color: #001544;"><tbody><tr><td style="text-align:center"><img class="mob-w-full mob-h-auto" width="75%" height="auto" src="https://img.scoop.it/Y1bSkaQ-RU8I3sb0ZQZcwzl72eJkfbmt4t8yenImKBUrkZYC-qKAy-rC6LxShaqt" border="0"></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_7ExFLN" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="font-size: 15px; color: #001544;"><tbody><tr><td style="padding:0 20px;"><h3><br></h3><h3><strong style="font-weight: bold">The Wall Street Journal</strong></h3><h3><strong style="font-weight: bold">Matt Pottinger |</strong> former Deputy National Security Advisor</h3><h3><br></h3><blockquote><strong style="font-weight: bold">BIG IDEA |</strong> ‘Beijing’s message is unmistakable: You must choose.’</blockquote><blockquote>‘If you want to do business in China, it must be at the expense of American values. ‘</blockquote><blockquote>‘You will meticulously ignore the genocide of ethnic and religious minorities inside China’s borders; you must disregard that Beijing has reneged on its major promises—including the international treaty guaranteeing a “high degree of autonomy” for Hong Kong; and you must stop engaging with security-minded officials in your own capital unless it’s to lobby them on Beijing’s behalf.’ </blockquote><p><br></p><p><strong style="font-weight: bold">'In the weeks</strong> that surrounded President Biden’s inauguration, Chinese leaders waged an information campaign aimed at the U.S.'</p><ul><li><strong style="font-weight: bold">'Their flurry of speeches,</strong> letters and announcements was not, as the press first assumed, addressed mainly to the new administration.'</li><li><strong style="font-weight: bold">'It was an effort</strong> to target the U.S. business community.'</li></ul><p><strong style="font-weight: bold">'The Communist Party’s top diplomat, </strong>Yang Jiechi, spoke to a virtual audience of American business leaders and former government officials in early February.'</p><ul><li><strong style="font-weight: bold">'He painted</strong> a rosy picture of investment and trade opportunities in China before warning that Tibet, Xinjiang, Hong Kong and Taiwan are “red lines” that Americans would do well to keep quiet about.'</li><li><strong style="font-weight: bold">'Yang</strong> excoriated Trump administration policies toward China and was unsubtle in pressing his audience to lobby the Biden administration to reverse them.'</li></ul><p><strong style="font-weight: bold">'General Secretary Xi Jinping,</strong> seated before a mural of the Great Wall of China, beamed himself to business elites in Davos, Switzerland, in late January.'</p><ul><li><strong style="font-weight: bold">'He urged</strong> them to resist efforts by European and American policy makers to “decouple” segments of their economies from China’s.'</li><li><strong style="font-weight: bold">'Xi</strong> also wrote a personal letter to a prominent U.S. businessman exhorting him to “make active efforts to promote China-U.S. economic and trade cooperation.” '</li></ul><p><strong style="font-weight: bold">'Beijing’s message</strong> is unmistakable: You must choose.'</p><ul><li><strong style="font-weight: bold">'If you want to do business in China,</strong> it must be at the expense of American values.'</li><li><strong style="font-weight: bold">'You will meticulously</strong> ignore the genocide of ethnic and religious minorities inside China’s borders; you must disregard that Beijing has reneged on its major promises—including the international treaty guaranteeing a “high degree of autonomy” for Hong Kong; and you must stop engaging with security-minded officials in your own capital unless it’s to lobby them on Beijing’s behalf.'</li></ul></td></tr></tbody></table></td></tr><tr class="w-mb" height="10"><td colspan="1" style="font-size:1px; line-height: 1px;"> </td></tr></tbody></table></div><div><table class="mob-w-full html_4x1oJ7" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;width: 100%;"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="margin-top:40px;"><tbody><tr><td style="background-color: #c80000; padding:3px; border-top:40px solid $f6f6f6;"></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_7X7ZfV" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#FFFFFF"><tbody><tr><td style="vertical-align: top;padding: 20px 20px 40px 20px;"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr><td style="vertical-align: top; padding-top: 5px; width: 50px;" width="50"><a href="https://www.wsj.com/articles/beijing-targets-american-business-11616783268" style="border-bottom: none"><img src="https://img.scoop.it/K9fKxwrt-0GqvuYSovNp36lCLyWtmb0jKl3uQzE8FbY=" srcset="https://img.scoop.it/K9fKxwrt-0GqvuYSovNp3x10wIJwgQyzLwkcHqpJQsg= 2x" width="50" height="50" style="border: 1px solid #ddd; border-radius:10%;"></a></td><td style="vertical-align: top; padding-left: 20px; "><a href="https://www.wsj.com/articles/beijing-targets-american-business-11616783268" class="post-title default-template" style="border-bottom: 0;">Part 2 | 'The ideological dimension of the competition is inescapable, even central.' Matt Pottinger</a></td></tr></tbody></table></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_50mzmT" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="font-size: 15px; color: #001544;"><tbody><tr><td style="padding:0 20px;"><h3><strong style="font-weight: bold">The Wall Street Journal</strong></h3><h3><strong style="font-weight: bold">Matt Pottinger |</strong> former Deputy National Security Advisor</h3><h3><br></h3><blockquote><strong style="font-weight: bold">BIG IDEA |</strong> 'American businessmen, wishing for simple, lucrative commercial ties, have long resisted viewing U.S.-China relations as an ideological struggle. But strategic guidance issued by the leaders of both countries make clear the matter is settled: The ideological dimension of the competition is inescapable, even central.'</blockquote><p><br></p><p><strong style="font-weight: bold">'Another notable element</strong> of Beijing’s approach is its explicit goal of making the world permanently dependent on China, and exploiting that dependency for political ends.'</p><ul><li><strong style="font-weight: bold">'Xi</strong><strong style="font-weight: bold">has issued guidance,</strong> institutionalized this month by his rubber-stamp parliament, that he’s pursuing a grand strategy of making China independent of high-end imports from industrialized nations while making those nations heavily reliant on China for high-tech supplies and as a market for raw materials.'</li><li><strong style="font-weight: bold">'In other words,</strong> decoupling is precisely Beijing’s strategy—so long as it’s on Beijing’s terms.'</li></ul><p><strong style="font-weight: bold">'Even more remarkable, </strong>the Communist Party is no longer hiding its reasons for pursuing such a strategy.'</p><ul><li><strong style="font-weight: bold">'In a speech Mr. Xi</strong> delivered early last year, published only in late October in the party’s leading theoretical journal, Qiu Shi, he said China “must tighten international production chains’ dependence on China” with the aim of “forming powerful countermeasures and deterrent capabilities.” '</li></ul><p><strong style="font-weight: bold">'This phrase</strong>—“powerful countermeasures and deterrent capabilities”—is party jargon for offensive leverage.'</p><ul><li><strong style="font-weight: bold">'Beijing’s grand strategy</strong> is to accumulate and exert economic leverage to achieve its political objectives around the world.'</li></ul><p><strong style="font-weight: bold">'American businessmen,</strong> wishing for simple, lucrative commercial ties, have long resisted viewing U.S.-China relations as an ideological struggle.'</p><ul><li><strong style="font-weight: bold">'But strategic guidance</strong> issued by the leaders of both countries make clear the matter is settled: The ideological dimension of the competition is inescapable, even central.'</li></ul></td></tr></tbody></table></td></tr><tr class="w-mb" height="10"><td colspan="1" style="font-size:1px; line-height: 1px;"> </td></tr></tbody></table></div><div><table class="mob-w-full html_9BfAPJ" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;width: 100%;"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="margin-top:40px;"><tbody><tr><td style="background-color: #c80000; padding:3px; border-top:40px solid $f6f6f6;"></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_5FC8dF" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#FFFFFF"><tbody><tr><td style="vertical-align: top; padding:20px;"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr><td style="vertical-align: top; padding-top: 5px; width: 50px;" width="50"><a href="https://www.washingtonpost.com/opinions/2021/03/30/china-xinjiang-xi-hong-kong-europe/" style="border-bottom: none"><img src="https://img.scoop.it/R2honJU3MXkzC1EUKtMivqlCLyWtmb0jKl3uQzE8FbY=" srcset="https://img.scoop.it/R2honJU3MXkzC1EUKtMivh10wIJwgQyzLwkcHqpJQsg= 2x" width="50" height="50" style="border: 1px solid #ddd; border-radius:10%;"></a></td><td style="vertical-align: top; padding-left: 20px; "><a href="https://www.washingtonpost.com/opinions/2021/03/30/china-xinjiang-xi-hong-kong-europe/" class="post-title default-template" style="border-bottom: 0;">'How China keeps stumbling on the global stage' John Pomfret</a></td></tr></tbody></table></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_7jxvIv" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr><td><img class="mob-w-full mob-h-auto" width="100%" height="auto" src="https://img.scoop.it/tr4NkUFXGfnns8FVhX6UYzl72eJkfbmt4t8yenImKBUrkZYC-qKAy-rC6LxShaqt" border="0"></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_5tVB6P" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px"><tbody><tr class="w-payload"><td valign="top" width="0" style="color: #001544"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="font-size: 15px; color: #001544;"><tbody><tr><td style="padding:0 20px;"><h3><br></h3><h3><strong style="font-weight: bold">The Washington Post</strong></h3><h3 style="margin-bottom: 40px;"><strong style="font-weight: bold">John Pomfret</strong></h3><blockquote><strong style="font-weight: bold">BIG IDEA |</strong> ‘Across the globe, Xi’s diplomatic representatives in Europe, Beijing, Hong Kong, Canada, Australia and elsewhere, are lifting up rocks and smashing their own feet.’</blockquote><blockquote>‘The moves are befuddling — with a buoyant economy and a practically covid-free country, China is poised to see its influence rise if it plays it smart. But it’s not; instead, it’s alienating individuals and nations across the world.’</blockquote><blockquote>‘I’ve been studying China for my entire adult life and I have to admit to being bewildered by China’s performance.’</blockquote><blockquote>‘But I’m in good company. Thirty-one years ago, the great political scientist Lucian Pye <a href="https://www.foreignaffairs.com/articles/asia/1990-09-01/china-erratic-state-frustrated-society" rel="nofollow">wrote</a>, “Just when all appears to be going well, Chinese officials create problems for seemingly unaccountable reasons.” ’</blockquote><p><br></p><p><strong style="font-weight: bold">‘In October 1938,</strong> Chairman Mao Zedong, addressing the Chinese Communist Party faithful, coined an expression — “<a href="https://www.marxists.org/ebooks/mao/Quotations_from_Chairman_Mao_Tse-tung.pdf" rel="nofollow">lift up a rock only to smash your own foot”</a> — to describe British Prime Minister Neville Chamberlain’s failure in his negotiations with German leader Adolf Hitler.’ </p><ul><li><strong style="font-weight: bold">‘</strong><a href="https://www.reuters.com/article/us-china-parliament-xi-timeline/timeline-the-rise-of-chinese-leader-xi-jinping-idUSKCN1GS0ZA" rel="nofollow"><strong style="font-weight: bold">Xi Jinping, Mao’s successor as Communist Party boss</strong></a><strong style="font-weight: bold">,</strong> would do well to take a lesson from the chairman.’</li></ul><p><strong style="font-weight: bold">‘Across the globe,</strong> Xi’s diplomatic representatives in Europe, Beijing, Hong Kong, Canada, Australia and elsewhere, are lifting up rocks and smashing their own feet.’</p><ul><li><strong style="font-weight: bold">‘The moves are befuddling</strong> — with a buoyant economy and a practically covid-free country, China is poised to see its influence rise if it plays it smart.’</li><li><strong style="font-weight: bold">‘But it’s not;</strong> instead, it’s alienating individuals and nations across the world.’</li></ul><p><strong style="font-weight: bold">‘China’s most recent missteps </strong>have occurred in Europe and now risk scuttling Beijing’s biggest foreign policy win there in years.’</p><ul><li><strong style="font-weight: bold">‘Last week,</strong> the European Union joined with the United States, Britain and Canada <a href="https://www.washingtonpost.com/world/xinjiang-sanctions-european-union/2021/03/22/1b0d69aa-8b0a-11eb-a33e-da28941cb9ac_story.html?itid=lk_inline_manual_7" rel="nofollow">to sanction four relatively low-ranking officials from China </a>over the treatment of the Uyghur minority in Xinjiang.’</li><li><strong style="font-weight: bold">‘Those sanctioned</strong> pointedly did not include Chen Quanguo, a top Communist Party official in the region, making it seem that this united front against China was more a diplomatic checking-of-boxes than anything else. (<a href="https://home.treasury.gov/news/press-releases/sm1055" rel="nofollow">The United States is the sole nation to have sanctioned Chen.)</a>’</li></ul><p><strong style="font-weight: bold">‘China,</strong> however, decided to double down.’</p><ul><li><strong style="font-weight: bold">‘It struck back at Europe</strong> by sanctioning <a href="https://www.washingtonpost.com/world/china-hits-british-lawmakers-with-new-sanctions-as-spat-with-us-allies-intensifies/2021/03/25/b706939a-8dda-11eb-aff6-4f720ca2d479_story.html?itid=lk_inline_manual_9" rel="nofollow">10 individuals, </a>including members of the European Parliament, and four organizations, among them the widely-respected <a href="https://merics.org/en" rel="nofollow">Mercator Institute for China Studies</a>.’</li></ul><p><strong style="font-weight: bold">‘In picking up this rock,</strong> China has likely smashed any chance that the European Parliament will approve a major investment deal with Europe: the <a href="https://trade.ec.europa.eu/doclib/docs/2021/january/tradoc_159342.pdf" rel="nofollow">EU-China Comprehensive Agreement on Investment (CAI)</a>.’</p><ul><li><strong style="font-weight: bold">‘The CAI</strong> was concluded despite opposition from the incoming Biden administration.’</li><li><strong style="font-weight: bold">‘But now that China</strong> has sanctioned politicians from four main political parties in the European Parliament, Beijing has done more than President Biden to roll back China’s influence in Europe.’</li></ul><p><strong style="font-weight: bold">‘China’s goof up in Europe</strong> is just the latest in a string of diplomatic misadventures that have become a hallmark of the rule of Xi Jinping.’</p><p><strong style="font-weight: bold">‘The Chinese</strong> have termed these type of interactions “wolf warrior” diplomacy, inspired by a shoot-em-up action film of the same name.’</p><ul><li><strong style="font-weight: bold">‘China’s wolf warriors</strong> might play well in Beijing, but across the globe China’s envoys are snatching defeat from the jaws of victory.’</li></ul><p><strong style="font-weight: bold">‘Take Taiwan.’</strong></p><ul><li><strong style="font-weight: bold">‘In 2019,</strong> President Tsai Ing-wen, who is disliked by China’s government, resigned from her position as chairman of the Democratic Progressive Party <a href="https://www.nytimes.com/2020/01/08/world/asia/china-taiwan-hong-kong-protests.html" rel="nofollow">after her party bombed in local elections.</a>’ </li><li><strong style="font-weight: bold">‘Her polling numbers</strong> were low and allies urged her to drop out of the presidential race.’</li><li><strong style="font-weight: bold">‘The stage</strong> was set for a win by Taiwan’s Nationalist Party, which is far more amenable to entreaties from Beijing.’</li></ul><p><strong style="font-weight: bold">‘Enter China.</strong></p><ul><li><strong style="font-weight: bold">‘Beijing’s complete unwillingness</strong> to reach a compromise with pro-democracy protesters in Hong Kong along with the passage of a <a href="https://www.washingtonpost.com/world/asia_pacific/hong-kong-arrests-national-security-law/2021/02/28/7e6cd252-77ea-11eb-9489-8f7dacd51e75_story.html?itid=lk_inline_manual_15" rel="nofollow">draconian (and unnecessary) national security law </a>there saved Tsai’s political career.’</li><li><strong style="font-weight: bold">‘In January 2020,</strong> running on a platform that, understandably, sought to highlight fears of China,<a href="https://www.bloomberg.com/graphics/2020-taiwan-election-results/" rel="nofollow">Tsai crushed her Nationalist opponent,</a> Han Kuo-yu, winning 57 percent of the vote to his 39 percent.’</li></ul><p><strong style="font-weight: bold">‘China</strong> has repeated this failure in Canada.’</p><ul><li><strong style="font-weight: bold">‘In 2018,</strong> while the Trump administration was slapping tariffs on Canadian goods, Canada and China were well on their way to concluding a free-trade agreement.’</li><li><strong style="font-weight: bold">‘Then Canadian authorities</strong> detained Meng Wanzhou, a Chinese business executive, on a United States extradition request. Instead of letting the courts decide, <a href="https://www.washingtonpost.com/opinions/global-opinions/china-michael-spavor-michael-kovrig-hostages/2021/03/23/0d5ca8f2-8bf0-11eb-a6bd-0eb91c03305a_story.html?itid=lk_inline_manual_17" rel="nofollow">China took two Canadians in China hostage. </a>Beijing’s relations with Ottawa went into a deep freeze and that free trade agreement is currently dead.’</li></ul><p><strong style="font-weight: bold">‘Same holds true for Australia,</strong> where the government’s criticism of China’s human rights practices has resulted in <a href="https://asia.nikkei.com/Business/Agriculture/China-tariff-on-Australia-s-barley-reshapes-global-trade" rel="nofollow">China slapping tariffs on Australian wine, barley</a>, beef, copper, sugar, lobsters, timber and coal.’</p><p><strong style="font-weight: bold">‘I’ve been studying China</strong> for my entire adult life and I have to admit to being bewildered by China’s performance.’</p><ul><li><strong style="font-weight: bold">‘But</strong> I’m in good company.’</li></ul><p><strong style="font-weight: bold">‘Thirty-one years ago,</strong> the great political scientist Lucian Pye <a href="https://www.foreignaffairs.com/articles/asia/1990-09-01/china-erratic-state-frustrated-society" rel="nofollow">wrote</a>, “Just when all appears to be going well, Chinese officials create problems for seemingly unaccountable reasons.” ’</p><ul><li><strong style="font-weight: bold">‘Pye argued</strong> that a key to understanding China’s “perversely self-damaging behavior” starts with the observation that much of it is a show.’</li><li><strong style="font-weight: bold">‘China’s political system</strong> demands expressions of exaggerated loyalty — from wolf warrior diplomats and commoners alike — exactly because so many people don’t actually believe in what they are doing.’</li></ul></td></tr></tbody></table></td></tr><tr class="w-mb" height="10"><td colspan="1" style="font-size:1px; line-height: 1px;"> </td></tr></tbody></table></div></td></tr></tbody></table></div></td></tr></tbody></table></td></tr></tbody></table>
How to Meet the China Challenge
3/17/2021
<table height="100%" width="100%" cellpadding="0" cellspacing="0" border="0" style="width: 100%;margin-inline-start: 0!important;margin-inline-end: 0!important;"><tbody><tr style="height: 0!important;"><td align="center" valign="top" style="border-collapse: collapse;border-spacing: 0;font-family: Georgia, Times New Roman serif;font-size: 15px;line-height: 1.7em;"><table class="mob-w-full" border="0" cellpadding="0" cellspacing="0" style="max-width: 767px;margin: 0;padding: 0;width: 100% !important;margin-inline-start: 0!important;margin-inline-end: 0!important;" width="0"><tbody><tr style="height: 0!important;"><td width="0" style="border-collapse: collapse;border-spacing: 0;font-family: Georgia, Times New Roman serif;font-size: 15px;line-height: 1.7em;"><div><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#f6f6f6" style="font-size: 15px;width: 100%;margin-inline-start: 0!important;margin-inline-end: 0!important;" class="onecolumn_5CPQqv"><tbody><tr class="col-payload" style="height: 0!important;"><td class="" width="0" bgcolor="#f6f6f6" valign="top" style="color: #001544;border-collapse: collapse;border-spacing: 0;font-family: Georgia, Times New Roman serif;font-size: 15px;line-height: 1.7em;"></td></tr></tbody></table></div><div><table class="mob-w-full postlist_7YAB61" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;width: 100% !important;margin-inline-start: 0!important;margin-inline-end: 0!important;"><tbody><tr class="w-payload" style="height: 0!important;"><td valign="top" width="0" style="color: #001544;border-collapse: collapse;border-spacing: 0;font-family: Georgia, Times New Roman serif;font-size: 15px;line-height: 1.7em;"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="font-size: 15px;color: #001544;width: 100%;margin-inline-start: 0!important;margin-inline-end: 0!important;"><tbody><tr style="height: 0!important;"><td style="padding: 20px;border-collapse: collapse;border-spacing: 0;font-family: Georgia, Times New Roman serif;font-size: 15px;line-height: 1.7em;"><p style="margin: 0 0 10px 0;"><em style="font-style: italic"><strong style="font-weight: bold">How the Biden administration </strong></em><em style="font-style: italic">characterizes the China – strategic competitor, rival, enemy, and the like – and how it develops strategies – containment, confrontation, competition, cooperation, or some combination of these - will have an impact, to a greater or lesser degree, on most every industry and every market.</em></p><ul><li style="margin-bottom: 10px;"><em style="font-style: italic"><strong style="font-weight: bold">So,while the President and his team</strong></em><em style="font-style: italic">are working toward what is promised to be a comprehensive, all-of-government approach to China, it’s time to begin considering the broad nature of the possibilities that could emerge.</em></li><li style="margin-bottom: 10px;"><em style="font-style: italic"><strong style="font-weight: bold">Here are some ideas</strong></em><em style="font-style: italic">to help you understand the Biden China policies as they evolve.</em></li></ul></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full html_6hvzA9" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;width: 100% !important;margin-inline-start: 0!important;margin-inline-end: 0!important;"><tbody><tr class="w-payload" style="height: 0!important;"><td valign="top" width="0" style="color: #001544;border-collapse: collapse;border-spacing: 0;font-family: Georgia, Times New Roman serif;font-size: 15px;line-height: 1.7em;"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="FFFFFF" style="width: 100%;margin-inline-start: 0!important;margin-inline-end: 0!important;"><tbody><tr style="height: 0!important;"><td style="padding: 0 25%;border-collapse: collapse;border-spacing: 0;font-family: Georgia, Times New Roman serif;font-size: 15px;line-height: 1.7em;"><img style="width:100%;" src="https://img.scoop.it/BUiXmflSzoEmPXSktQ6erTl72eJkfbmt4t8yenImKBVJxRAugK2tNBoI2RyzxY2k"></td></tr><tr style="height: 0!important;"><td style="padding-top: 20px;padding-bottom: 10px;text-align: center;border-collapse: collapse;border-spacing: 0;font-family: Georgia, Times New Roman serif;font-size: 15px;line-height: 1.7em;"><h3 style="font-size: .9em;font-family: Lato, sans-serif;color: #5d5d5f;margin-block-start: 0;margin-block-end: 0;margin-top: 0;font-weight: normal;">Council on Foreign Relations headquarters, circa 1930</h3></td></tr></tbody></table></td></tr></tbody></table></div><div><table class="mob-w-full postlist_7Zs2vR" align="center" border="0" cellpadding="0" cellspacing="0" width="0" style="font-size: 15px;width: 100% !important;margin-inline-start: 0!important;margin-inline-end: 0!important;"><tbody><tr class="w-payload" style="height: 0!important;"><td valign="top" width="0" style="color: #001544;border-collapse: collapse;border-spacing: 0;font-family: Georgia, Times New Roman serif;font-size: 15px;line-height: 1.7em;"><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" bgcolor="#ffffff" style="font-size: 15px;color: #001544;width: 100%;margin-inline-start: 0!important;margin-inline-end: 0!important;"><tbody><tr style="height: 0!important;"><td style="padding: 20px;border-collapse: collapse;border-spacing: 0;font-family: Georgia, Times New Roman serif;font-size: 15px;line-height: 1.7em;"><h1 style="font-size: 1.5em;border-bottom: 3px solid #c80000;padding-bottom: 5px;margin-block-start: .7em;margin-block-end: .7em;margin-top: 0;font-weight: normal;"><strong style="font-weight: bold">1 | The Briefing</strong></h1><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">The Council on Foreign Relations</strong> is celebrating its 100th anniversary.</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">Conspiracy theorists</strong> will tell you that for all that time U.S. foreign policy has been secretly directed from the CFR, not from Foggy Bottom or the White House.</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">A more credible view</strong> is that one of the CFR’s sources of influence is as a resource for policymakers.</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">One of its activities</strong> to support policymakers is the briefing.</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">A policymaker</strong> asks for a briefing on an issue or region, and the CFR invites its members with expertise on the subject to brief him or her on it.</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">On Tuesday,</strong> I joined a small group of CFR members, all distinguished China specialists, to brief a member of Congress on how the U.S. should think about China and how to approach U.S.-China relations.</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">This was</strong> an off-the-record meeting, so I can’t comment much on the discussion itself.</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">But I can tellyou</strong> about one of the issues that the group felt was especially crucial.</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">That is,</strong> how should we characterize U.S. policy responses toward China?</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">This sounds like</strong> the kind of useless, arcane debate only pointy-head, academic-type, foreign affairs wonks would enjoy. But how you define something informs how you handle it.</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">If you are getting ready for a race,</strong> you will train differently for a marathon than for a ‘fun run.’</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">And so</strong> it is with foreign policy: How you characterize an issue suggests the strategy or strategies for dealing with it.</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">The classic example</strong> of this is George Kennan and his ‘Containment Doctrine.’ </p><p style="margin: 0 0 10px 0;"><br></p><h1 style="font-size: 1.5em;border-bottom: 3px solid #c80000;padding-bottom: 5px;margin-block-start: .7em;margin-block-end: .7em;margin-top: 0;font-weight: normal;"><strong style="font-weight: bold">2 | Kennan & the 'Containment Doctrine'</strong></h1><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">At the beginning of the Cold War,</strong> the U.S. was still groping for a strategy for how to counter the threat from the Soviet Union,</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">Then in 1947</strong> State Department Russian expert George Kennan, writing anonymously as ‘X,’ published <a href="https://www.foreignaffairs.com/articles/russian-federation/1947-07-01/sources-soviet-conduct" rel="nofollow" style="border-bottom: 1px solid #008dc8;text-decoration: none;color: inherit !important;">‘The Sources of Soviet Conduct’</a> in the CFR’s journal, <em style="font-style: italic">Foreign Affairs</em>. Here’s how he characterized the situation:</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">‘It is clear that the United States</strong> cannot expect in the foreseeable future to enjoy political intimacy with the Soviet regime.’</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘It must continue</strong> to regard the Soviet Union as a rival, not a partner, in the political arena.’</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘It must continue</strong> to expect that Soviet policies will reflect no abstract love of peace and stability, no real faith in the possibility of a permanent happy coexistence of the Socialist and capitalist worlds, but rather a cautious, persistent pressure toward the disruption and weakening of all rival influence and rival power.’</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘Balanced against this </strong>are the facts that Russia, as opposed to the western world in general, is still by far the weaker party, that Soviet policy is highly flexible, and that Soviet society may well contain deficiencies which will eventually weaken its own total potential.’</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">It’s a little eerie</strong> how Mr. Kennan’s characterization of the USSR echoes the situation with China today.</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">You could almost substitute</strong> China for Russia or Soviet Union throughout his essay and be on the mark.</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">Here are</strong> a few examples using the excerpts above:</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘It is clear </strong>that the United States cannot expect in the foreseeable future to enjoy political intimacy with the <del style="text-decoration: line-through">Soviet</del> Chinese regime.’</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">The U.S.</strong> ‘must continue to regard the <del style="text-decoration: line-through">Soviet Union</del> China as a rival, not a partner, in the political arena.’</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">The U.S.</strong> ‘must continue to expect that <del style="text-decoration: line-through">Soviet</del> Chinese policies will reflect no abstract love of peace and stability, no real faith in the possibility of a permanent happy coexistence of the Socialist and capitalist worlds, but rather a cautious, persistent pressure toward the disruption and weakening of all rival influence and rival power.’</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘Balanced against this </strong>are the facts that <del style="text-decoration: line-through">Russia</del> China, as opposed to the western world in general, is still by far the weaker party, that <del style="text-decoration: line-through">Soviet</del> Chinese policy is highly flexible, and that <del style="text-decoration: line-through">Soviet</del> Chinese society may well contain deficiencies which will eventually weaken its own total potential.’</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">Let me add</strong> one more:</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘The</strong><del style="text-decoration: line-through"><strong style="font-weight: bold">Soviet</strong></del><strong style="font-weight: bold">Chinese concept of power,</strong> which permits no focal points of organization outside the Party itself, requires that the Party leadership Xi Jinping remain[s] in theory the sole repository of truth.’ </li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">Based on his analysis,</strong> Mr. Kennan concluded:</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘In these circumstances </strong>it is clear that the main element of any United States policy toward the Soviet Union must be that of a long-term, patient but firm and vigilant containment of Russian expansive tendencies.’</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘This would of itself</strong> warrant the United States entering with reasonable confidence upon a policy of firm containment, designed to confront the Russians with unalterable counterforce at every point where they show signs of encroaching upon the interest of a peaceful and stable world.’</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">This was</strong> Mr. Kennan’s 'Containment Doctrine' which informed U.S. strategy throughout the Cold War.</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">Edward Luce</strong> of the <em style="font-style: italic">Financial Times</em> calls Mr. Kennan ‘the architect of a doctrine that won the cold war.’</li></ul><p style="margin: 0 0 10px 0;"><br></p><h1 style="font-size: 1.5em;border-bottom: 3px solid #c80000;padding-bottom: 5px;margin-block-start: .7em;margin-block-end: .7em;margin-top: 0;font-weight: normal;"><strong style="font-weight: bold">3 | China Isn’t the Soviet Union</strong></h1><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">Unfortunately,</strong> this conclusion, even drawn from the same broad circumstances, does not apply to China: Containment won’t work.</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">China’s economy</strong> is not only massively larger than the Soviet Union’s was, its interconnections with the global economy are vastly greater.</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">Because of those interconnections</strong> and the economic interests, many nations are reluctant to oppose China on an issue.</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">And</strong> when they do challenge China, China punches back. Look at Australia.</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">Thus replicating</strong> the 'two blocs' of the Cold War is just about impossible</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">Instead,</strong> in our briefing of the Congressperson, we discussed four possible strategies the Biden administration might adopt:</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">Containment, confrontation,</strong> competition, or cooperation.</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">The general feeling</strong> was that Mr. Biden would adopt one or the other or a combination of these depending on the issue at hand.</li></ul><p style="margin: 0 0 10px 0;"><br></p><h1 style="font-size: 1.5em;border-bottom: 3px solid #c80000;padding-bottom: 5px;margin-block-start: .7em;margin-block-end: .7em;margin-top: 0;font-weight: normal;"><strong style="font-weight: bold">4 | Approaches to U.S. Policy Toward China</strong></h1><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">Ian Bremmer</strong> of the Eurasia Group takes up this theme in his recent essay, <a href="https://asia.nikkei.com/Opinion/US-must-grasp-China-s-different-set-of-values" rel="nofollow" style="border-bottom: 1px solid #008dc8;text-decoration: none;color: inherit !important;">‘US must grasp China's different set of values’</a>:</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘Three</strong> distinct approaches have begun taking shape.’</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">‘The first approach is containment,</strong> championed by more hawkish elements within the White House and the national security establishment.’</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘This group</strong> believes that a Cold War with China is unavoidable given just how many zero-sum issues there are between the two countries, including but not limited to: the South China Sea, Taiwan, Hong Kong, Uighurs and most crucially, technology.’</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘Under this view,</strong> it is critical for the U.S. to meet China toe-to-toe in all aspects of great power competition.’</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">Just as George Kennan</strong> suggested of the Soviet Union:</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘Underpinning this approach</strong> is the belief that it will not be aggressive actions from the U.S. or its allies that brings Beijing to its knees, but rather China's own policies of state-capitalism and authoritarianism, which they view as unsustainable over the long run given massive Chinese debt and continued risky investments into developing countries.’</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">Echoing 'cooperation':</strong> ‘The second option is one of interdependence, primarily being pushed by the economic policymakers in the Biden administration.’</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘Rather than lumber into a Cold War,</strong> they want to constructively engage with the Chinese using existing multilateral architecture, reforming it to accommodate China where possible, and creating new institutions where necessary to get China to act more multilaterally.’</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">Also, sort of suggested</strong> in the CFR briefing as ‘cooperation,’ but clearly distinct from that, is ‘the wild-card option being spearheaded by Presidential Climate Envoy John Kerry and those in the administration who view climate change as the greatest single threat to the U.S., China included.’</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘Rather than pursue a policy</strong> of either containment or interdependence, they want the U.S.-China relationship to be in service to the fight against global warming, a battle that needs to include China, the world's largest emitter.</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘For supporters of this approach,</strong> the U.S.-China relationship will evolve along with the way the climate change threat evolves.’</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">In asking, ‘which approach</strong> will Biden choose?’ Dr. Bremmer agreed with the CFR briefing group.</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">‘Knowing the consensus-building Biden,</strong> it will likely be some combination of all three.’ Or all four.</li></ul><p style="margin: 0 0 10px 0;"><br></p><h1 style="font-size: 1.5em;border-bottom: 3px solid #c80000;padding-bottom: 5px;margin-block-start: .7em;margin-block-end: .7em;margin-top: 0;font-weight: normal;"><strong style="font-weight: bold">5 | The 100-Day Review</strong></h1><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">The Biden administration</strong> is in the midst of a 100-day review of China policy.</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">Whatever the outcome</strong> the one thing not to expect is an elegant Kennan-esque doctrine from which all U.S. strategies and policies follow.</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">Perhaps</strong> the U.S. and the world’s relationship with China is too different from that of the Soviet Union and too complex.</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">Or perhaps</strong> we just haven’t found the George Kennan of our age.</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">In any case,</strong> the outcome of the 100-day review will not be framed in any of the terms proposed in the CFR briefing.</p><ul><li style="margin-bottom: 10px;"><strong style="font-weight: bold">Instead</strong> the review will discuss specific challenges and proposed policy responses.</li><li style="margin-bottom: 10px;"><strong style="font-weight: bold">But underlying</strong> each of these responses will be either containment, confrontation, competition, cooperation, or some mix of these.</li></ul><p style="margin: 0 0 10px 0;"><strong style="font-weight: bold">Those</strong> who are able to discern which of these applies to a specific policy and how that impacts business and markets will be a step ahead of everyone else.</p></td></tr></tbody></table></td></tr></tbody></table></div></td></tr><tr height="40" class="col-mb" style="height: 0!important;"><td colspan="1" style="font-size: 1px;line-height: 1px;border-collapse: collapse;border-spacing: 0;font-family: Georgia, Times New Roman serif;" bgcolor="#f6f6f6"> </td></tr></tbody></table></td></tr></tbody></table>
China, Ai, & the Coming U.S. Industrial Policy
3/11/2021
<div style="background-color:#ffffff; margin:0 auto; padding:0; text-align:center;"><table cellpadding="0" cellspacing="0" width="100%" style="background-color: #f5f5f5; margin:0 auto; text-align: center;"><tbody><tr><td><table cellspacing="0" cellpadding="0" style="width:100%; margin:0 auto; text-align:left; background:#fff"><tbody><tr><td><div><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr height="0"><td width="0"></td></tr><tr><td width="0"></td><td align="center"><div><img src="https://img.scoop.it/9kW3A4yX8FDdPZVzSIT9-zl72eJkfbmt4t8yenImKBXdhNIf0Yl8YfRAVzhohB7e" style="border-style: none;" alt=""></div></td><td width="0"></td></tr><tr height="0"><td width="0"></td></tr></tbody></table></div><div><h3 style="text-align: center;font-family: 'Lato';font-size: 13px;line-height: 22px;font-weight: normal;color: #5f5f5d;display: block;margin-block-start: 0em!important;margin-block-end: 0em!important;">Chart from the 'Final Report' by the National Security Commission on Artificial Intelligence</h3></div><div style="padding-top: 2em; "><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" style="background: #fff"><tbody><tr><td style="padding:0 3.5%;"><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"></p><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">I have followed </strong>China's efforts to take the lead in artificial intelligence since Li Kejiang announced the 'Made in China 2025' plan in 2015.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">What I haven't paid </strong>much attention to is AI in the U.S. </li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">That changed a couple of weeks ago </strong>when I read the 756-page 'Final Report' of the National Security Commission on Artificial Intelligence, an organization created by Congress and chaired by former Google CEO, Eric Smidt. The Report concluded:</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘China</strong> possesses the might, talent, and ambition to surpass the United States as the world’s leader in AI in the next decade if current trends do not change.’</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘If the United States</strong> does not act, it will likely lose its leadership position in AI to China in the next decade and become more vulnerable to a spectrum of AI-enabled threats from a host of state and non-state actors.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">And what actions</strong> should the U.S. take?</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘The government </strong>will have to orchestrate policies to promote innovation; protect industries and sectors critical to national security; recruit and train talent; incentivize domestic research, development, and production across a range of technologies deemed essential for national security and economic prosperity; and marshal coalitions of allies and partners to support democratic norms.'</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘The Commission is</strong> not calling for a state-directed economy, a five-year plan, or China-style “military-civil fusion.” '</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘But this is not a time</strong> for abstract criticism of industrial policy or fears of deficit spending to stand in the way of progress.'</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">That last point </strong>was the only part of the Report that was outdated.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Rather than criticize </strong>industrial policy, leaders from both the Democrats and the Republicans are embracing it.</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">And goodness </strong>knows neither side fears deficit spending.</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Then there are semiconductors.</strong> Even before<strong style="font-weight: bold"></strong>the current shortage of semiconductors, former President Trump raised the alarm about vulnerabilities in the U.S. supply chain.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Now the Biden administration </strong>and Congress are continuing efforts to secure that supply chain.</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">The proposed solution</strong> here, as with AI, is a U.S. industrial policy for semiconductors.</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">In its efforts to counter China and its industrial policy, </strong>the Biden administration, with bipartisan support, is itself inching toward adopting industrial policies to meet specific challenges.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Not only</strong> will this have an impact on the targeted sectors, it will also represent a return to how the U.S. addressed such challenges in the past.</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">As now National Security Advisor, </strong>Jake Sullivan, wrote a year ago:</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">'Looking to U.S. history, </strong>from the early years of the republic to the era following World War II, shifts in grand strategy have from time to time necessitated a change in economic philosophy—from mercantilism to laissez-faire absolutism to Keynesianism to neoliberalism—and national security arguments have proved critical to securing that change.' </li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">'The same is true today </strong>as the United States enters a new era of great-power competition with China and grapples with powerful forces like inequality, technology, and climate change.'</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">[More </strong>on Mr. Sullivan's push for industrial policy below at #3]</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Still, despite all the noise</strong> on the left and right, there is still no sign of an industrial policy for AI, semiconductors, or anything else.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">But that </strong>is going to soon change. </li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Industrial policy American-style </strong>is coming.</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Here are </strong>my report and commentary on these challenges and the arguments for an American-style industrial policy as the way to secure the U.S semiconductor supply chain and to compete with and win against China in AI.</p><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><br></p><h4 style="font-family: Georgia, serif;font-size: 21px;line-height: 36px;font-weight: normal;color: #001544;display: block;border-bottom: 3px solid #c80000;margin-block-start: 0em!important;margin-block-end: 0em!important;margin-inline-start: 0em!important;margin-inline-end: 0em!important;"><strong style="font-weight: bold">1 | Artificial Intelligence: How to Beat China</strong></h4><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">The Problem: </strong>The National Security Commission on Artificial Intelligence, created by Congress and chaired by former Google CEO, Eric Smidt, recently released its 756-page <a href="https://www.nscai.gov/" target="_blank" style="color: inherit!important;text-decoration: none!important;border-bottom: 1px solid #008dc8!important;">‘Final Report.’</a></p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘AI</strong> is expanding the window of vulnerability the United States has already entered.</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘For the first time since World War II, </strong>America’s technological predominance—the backbone of its economic and military power—is under threat.’</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘China</strong> possesses the might, talent, and ambition to surpass the United States as the world’s leader in AI in the next decade if current trends do not change.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">The Threat: ‘China</strong> is organized, resourced, and determined to win the technology competition. AI is central to China’s global expansion, economic and military power, and domestic stability.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘It has a head start</strong> on executing a national AI plan as part of larger plans to lead the world in several critical and emerging technology fields.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘Beginning in 2017,</strong> China established AI goals, objectives, and strategies tied to specific timelines with resources backed by committed leadership to lead the world in AI by 2030.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘China</strong> is executing a centrally directed systematic plan to extract AI knowledge from abroad through espionage, talent recruitment, technology transfer, and investments.’</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘It has ambitious plans</strong> to build and train a new generation of AI engineers in new AI hubs.’</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘It supports “national champion” firms (</strong>including Huawei, Baidu, Alibaba, Tencent, iFlytek, and SenseTime) to lead development of AI technologies at home, advance state-directed priorities that feed military and security programs under the rubric of military-civil fusion, and capture markets abroad.’</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘It funds</strong> massive digital infrastructure projects across several continents.’</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘China </strong>developed an intellectual property (IP) strategy and is trying to set global technical standards for AI development.’</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘And its laws</strong> make it all but impossible for a company in China to shield its data from the authorities.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">The Conclusion:</strong> ‘If the United States does not act, it will likely lose its leadership position in AI to China in the next decade and become more vulnerable to a spectrum of AI-enabled threats from a host of state and non-state actors.’</p><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">The Solution:</strong> ‘The government will have to orchestrate policies to promote innovation; protect industries and sectors critical to national security; recruit and train talent; incentivize domestic research, development, and production across a range of technologies deemed essential for national security and economic prosperity; and marshal coalitions of allies and partners to support democratic norms.'</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘The Commission is</strong> not calling for a state-directed economy, a five-year plan, or China-style “military-civil fusion.” '</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘But this is not a time</strong> for abstract criticism of industrial policy or fears of deficit spending to stand in the way of progress.' [Neither of these seems to be impediments these days on the Left or the Right.]</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">My Take.</strong> I don’t have the expertise to judge the Report on the merits.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">But from following AI</strong> from the Chinese point of view, I have no doubt that China is determined to lead in AI and reap the advantages from that.</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">I also realize</strong> that China has an AI ‘industrial policy,’ as it does for tech more generally.</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">But evaluations</strong> of the implementation of that policy show something more akin to herding cats - scattered, sometimes wasteful, sometimes uncoordinated – rather than the superbly coordinated behemoth moving smoothly toward AI domination the Report suggests.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Even so, cats do get herded, </strong>and that is the threat to the U.S. and its allies.</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"> </p><h4 style="font-family: Georgia, serif;font-size: 21px;line-height: 36px;font-weight: normal;color: #001544;display: block;border-bottom: 3px solid #c80000;margin-block-start: 0em!important;margin-block-end: 0em!important;margin-inline-start: 0em!important;margin-inline-end: 0em!important;"><strong style="font-weight: bold">2 | Then There are Semiconductors</strong></h4><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Not long</strong> after the Commission published its report, <a href="https://www.wsj.com/articles/chinas-rise-drives-a-u-s-experiment-in-industrial-policy-11615381230?mod=searchresults_pos8&page=1" target="_blank" style="color: inherit!important;text-decoration: none!important;border-bottom: 1px solid #008dc8!important;">'China’s Rise Drives a U.S. Experiment in Industrial Policy'</a> appeared in The Wall Street Journal.</p><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">The Problem.</strong> ‘While American companies pioneered semiconductors and still dominate chip design, many have outsourced the actual fabrication of chips, mostly to Asia.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘The U.S. share</strong> of global chip-making has shrunk from 37% in 1990 to 12% now and on current trends will slip to 10% by 2030.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">The Threat.</strong> ‘Semiconductors today resemble oil in the 1970s: a critical input to the economy whose supply is a matter of national security.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘ “Semiconductors</strong> are the fundamental building block of thousands of products that our lives depend upon,” he said. “We’ve never had a time where … the control over the technology is as much at stake. And we’ve never had a competitor with the size and skill of China,” said Sen. Mark Warner (D., Va.), who co-sponsored the chip incentive program, described below, with John Cornyn (R., Texas).’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">And ‘China </strong><a href="https://www.wsj.com/articles/china-breaks-with-taiwan-precedent-omitting-call-for-peaceful-unification-11590151372?mod=article_inline" rel="nofollow" style="color: inherit!important;text-decoration: none!important;border-bottom: 1px solid #008dc8!important;">is dialing up threats to reunite</a>, by force if necessary, with Taiwan, a democratic self-governing island that Beijing claims as its territory.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘Taiwan supplies</strong> 22% of the world’s chips and 50% of its most advanced.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘Imagine American leaders</strong> discovering at the height of the Cold War that its most sophisticated jet engines were all made in West Berlin, surrounded by the Red Army.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘You get a sense of the urgency</strong> in Washington over semiconductors now.'</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">The Conclusion.</strong> ‘In a different era the U.S. may have quietly let chip making migrate overseas, as it had with televisions, laptop computers and cellphones.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘What changed?</strong> In a word, China.’</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘Its state-guided</strong> pursuit of technological dominance has infused economic transactions with national-security implications.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">The Solution.</strong> As an initial step: ‘In January Congress enacted legislation – the ‘Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act’ - to match state and local incentives for new semiconductor fabrication plants (fabs), and bankroll extensive new research, development and training.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘Congress</strong> hasn’t appropriated funding for those provisions, or enacted a related 40% tax credit toward the capital costs of new fabs.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘However,</strong> Mr. Biden has signaled support for funding and announced <a href="https://www.wsj.com/articles/biden-to-address-chip-shortages-supply-chain-problems-with-executive-action-11614160803?mod=article_inline" rel="nofollow" style="color: inherit!important;text-decoration: none!important;border-bottom: 1px solid #008dc8!important;">a 100-day review of supply-chain vulnerabilities</a> in four industries: semiconductors, batteries, pharmaceuticals and strategic materials.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘ “We’ll be using a mix of incentives</strong> to encourage production here,” said Peter Harrell of National Security Council.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘ “We have a crummy record</strong> on industrial policy when we try to pick winning companies, but I don’t think that’s right when we try to pick winning industries,” says Sen. Warner.’</p><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">My Take. </strong>A speaker at a recent panel I put on for a major hedge fund said that in a race you can either trip the other runner, or you can run faster.</p><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">During the Trump administration,</strong> much of the emphasis was on tripping China on semiconductors.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">He banned</strong> the sale of chips to Huawei and slapped Section 301 tariffs on Chinese semiconductors and manufacturing equipment.</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">This effort</strong> to starve China – who, despite pouring in hundreds of billions of dollars, still cannot produce cutting-edge chips and may not be able to for perhaps another decade - has been very effective.</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">But Mr. Trump</strong> also aimed to run faster.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">He pushed to “re-shore”</strong> semiconductor manufacturing to bring more fabrication plants to the U.S.</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">And he coaxed</strong> Taiwan Semiconductor Manufacturing Company into <a href="https://www.allaboutcircuits.com/news/tsmc-responds-to-pressure-for-us-based-fab-announces-plans-for-12-billion-chip-factory-in-arizona/" rel="nofollow" style="color: inherit!important;text-decoration: none!important;border-bottom: 1px solid #008dc8!important;">building </a>a $12 billion fab in Arizona. </li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">President Biden </strong>has yet to announce its decision about to what extent and how it will limit China’s access to semiconductors.</p><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">But, </strong>besides his 100-day review, he has announced:</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">“I’m directing senior officials</strong> in my administration to work with industrial leaders to identify solutions to the semiconductor shortfall.”</li><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">“Congress</strong> has authorized a bill [CHIPS for America Act] but they need ... $37 billion to make sure that we have this capacity. I’ll push for that as well.” '</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">All good </strong>but far from an industrial policy for semiconductors.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Perhaps </strong>that will be announced after the 100-day review. Or not.</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold"> </strong></p><h4 style="font-family: Georgia, serif;font-size: 21px;line-height: 36px;font-weight: normal;color: #001544;display: block;border-bottom: 3px solid #c80000;margin-block-start: 0em!important;margin-block-end: 0em!important;margin-inline-start: 0em!important;margin-inline-end: 0em!important;"><strong style="font-weight: bold">3 | For Industrial Policy: National Security Advisor, Jake Sullivan</strong></h4><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">A year ago, </strong>before Joe Biden won the presidential election, and he was appointed National Security Advisor, Jake Sullivan, along with Jennifer Harris of the Roosevelt Institute, published an essay in Foreign Policy,<a href="https://foreignpolicy.com/2020/02/07/america-needs-a-new-economic-philosophy-foreign-policy-experts-can-help/" target="_blank" style="color: inherit!important;text-decoration: none!important;border-bottom: 1px solid #008dc8!important;"> 'Neoliberalism Is Finished. America Needs a New Economic Philosophy</a>,' calling for the U.S. to adopt industrial policies to meet Chinese competition.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Now that he</strong> is National Security Advisor and positioned to champion these views in the White House, this essay takes on an importance it didn't have when published. Here are some excerpts.</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘The U.S. national security community</strong> is rightly beginning to insist on the investments in infrastructure, technology, innovation, and education that will determine the United States’ long-term competitiveness vis-à-vis China.’ </p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘The growing competition with China</strong> and shifts in the international political and economic order call for more expansionary economics.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘Advocating industrial policy </strong>was once considered embarrassing—now it should be considered something close to obvious.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘Rather than focusing</strong> on picking winners in specific sectors, there is an emerging consensus that suggests governments should focus instead on investing in large-scale missions—like putting a man on the moon or achieving net-zero emissions—that require innovations across many different sectors.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘Another good reason</strong> [besides climate change] is that others are doing it, especially the United States’ competitors.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘President Xi Jinping’s Made in China 2025 strategy</strong> is a 10-year blueprint aimed at catapulting China into a technology and advanced manufacturing leader in both the commercial and military domains.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘Good estimates</strong> are elusive, but China’s subsidies alone reach into the hundreds of billions of dollars.’</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘And these investments</strong> have already paid off handsomely in several areas, like artificial intelligence, solar energy, and 5G, where many experts believe China is on par with or already outstripping the United States.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">‘U.S. firms</strong> will continue to lose ground in the competition with Chinese companies if Washington continues to rely so heavily on private-sector research and development, which is directed toward short-term profit-making applications rather than long-term, transformative breakthroughs.’</p><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">My Take.</strong> The Biden administration has a broad view of national security that embraces financial, economic, and technological threats.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">This is reflected </strong>in the composition of Mr. Sullivan's National Security Council staff, which, unlike previous staffs, includes experts in all these diverse fields.</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Given Mr. Sullivan's views </strong>on industrial policies to meet the national security challenges posed by China in these areas, as well as what seem to be Mr. Biden's own inclinations, expect initiatives to be forthcoming.</p><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><br></p><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">The question,</strong> as I discussed in my Commentary a couple of weeks ago, isn’t whether or not we will have American-style industrial policies for AI, semiconductors, and other industries.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">The question</strong> is what each of these will look like given the range of proposals that will be coming, not just from the White House, but from Congress and indeed from all over the political spectrum.</li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">But whatever these are, </strong>big changes are coming in how the U.S. organizes itself to compete with China. Industrial policy American-style will be back soon.</p><ul><li style="font-family: Georgia, serif!important;font-size: 1em!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><strong style="font-weight: bold">Stay tuned.</strong></li></ul><p style="font-family: Georgia, serif!important;font-size: 15px!important;line-height: 1.7em!important;font-weight: normal!important;color: #001544!important;margin-block-start: 0.7em!important;margin-block-end: 0.7em!important;"><br></p></td></tr></tbody></table></div></td></tr></tbody></table></td></tr></tbody></table></div>
China & the U.S.: Getting Each Other Wrong
3/4/2021
<div style="background-color:#ffffff; margin:0 auto; padding:0; text-align:center;"><table cellpadding="0" cellspacing="0" width="100%" style="background-color: #f5f5f5; margin:0 auto; text-align: center;"><tbody><tr><td style="max-width:600px"><table cellspacing="0" cellpadding="0" style="width:100%; margin:0 auto; text-align:left; background:#fff"><tbody><tr><td><div><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" style="background: #fff"><tbody><tr><td><a href="http://sco.lt/71uylE?track_p_id=96VCqMv41f8ygOKc_OH%40mWK" target="_blank" style="color: inherit!important;text-decoration: none!important;border-bottom: 0px solid #008dc8!important;"><img width="100%" src="https://img.scoop.it/EMpWitGWAE9fRSRDN3oCpjl72eJkfbmt4t8yenImKBWpnB4YU4myT9-8UqDpoJyK" style="display:block; width:100%; border:none; margin-bottom: 10px; height:auto"></a></td></tr><tr><td class="noPadding" style="padding:6% 3.5% 3.5% 3.5%"><table cellspacing="0" cellpadding="0" width="100%"><tbody><tr><td width="50px" style="display:block; padding-top:10px;"><img height="50px" width="auto" alt="SourceLogo" src="https://assets-global.website-files.com/5c864c33af62620dca1373ac/5fc2c325b2be470b39241339_Malcolm%20Riddell.png" style="border: 1px solid #ddd; border-radius:10%; box-shadow: 0 4px 8px 0 rgba(0, 0, 0, 0.2), 0 2px 6px 0 rgba(0, 0, 0, 0.19); width:auto;"></td><td width="100%" style="padding-left:5%; color:#001544; font-size:27px; line-height:41px; font-weight:700; font-family: 'Lato'">China & the U.S.: Getting Each Other Wrong</td></tr></tbody></table></td></tr><tr><td style="padding:0 3.5% 3.5% 3.5%;"><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"></p><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">China and the U.S.</strong> seem to be in the process of reassessing their views of each other’s strengths and weaknesses.</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">Xi Jinping</strong> appears to be seeking some balance in his assessment of the U.S.</li><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">And analysts</strong> in the U.S. have reversed a trend of opinion that ‘China is inexorably rising and on the verge of overtaking a faltering United States.' </li><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">They argue i</strong>nstead ‘the United States has good reason to be confident about its ability to compete with China.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">But Mr. Xi’s subordinates</strong> reportedly don’t provide him with unbiased facts and analyses about the U.S.</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">And in the U.S. </strong>the calm assessment needed for rational China strategy is upended by the competition among politicians to see who can be toughest on China. </li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">Thus,</strong> the chance of either side getting a clear picture of the other and making sound policy based on that is slim.</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">And</strong> that is dangerous.</li></ul><h4 style="font-family: Georgia, serif;font-size: 21px;line-height: 36px;font-weight: 400;color: #001544;display: block;border-bottom: 3px solid #c80000;margin-block-start: 40px!important;margin-block-end: 0px!important;margin-inline-start: 0px!important;margin-inline-end: 0px!important;">1 | Misperceptions, Miscalculations, & War</h4><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘History is replete</strong> with cases of misperception about changing power balances.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘To prevent a new cold or hot war,</strong>the US and China must avoid exaggerated fears and misperceptions about changing power relations.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘Today,</strong> some Chinese analysts underestimate America’s resilience and predict Chinese dominance, but this, too, could turn out to be a dangerous miscalculation,’ writes Joe Nye of the Harvard Kennedy School.</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘It is equally dangerous for Americans </strong>to over- or underestimate Chinese power, and the US contains groups with economic and political incentives to do both.’</li></ul><h4 style="font-family: Georgia, serif;font-size: 21px;line-height: 36px;font-weight: 400;color: #001544;display: block;border-bottom: 3px solid #c80000;margin-block-start: 40px!important;margin-block-end: 0px!important;margin-inline-start: 0px!important;margin-inline-end: 0px!important;">2 | Xi Jinping Seeks a Balanced Assessment of the U.S.</h4><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">Xi Jinping </strong>seems to be aware of the danger of miscalculation.</p><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">Chris Buckley</strong> of The New York Times reports in ‘ “The East Is Rising”: Xi Maps Out China’s Post-Covid Ascent’:</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘Xi Jinping</strong> has struck a confident posture as he looks to secure China’s prosperity and power in a post-Covid world, <a href="http://archive.vn/Xjwea" rel="nofollow" style="color: inherit!important;text-decoration: none!important;">saying that</a> the country is entering a time of opportunity when “the East is rising and the West is declining.” ’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘But behind closed doors,</strong> China’s Communist Party leader has also issued a blunt caveat to officials: Do not count out our competitors, above all the United States.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘ “The biggest source of chaos</strong> in the present-day world is the United States,” Mr. Xi said, a county official in northwest China recounted in a speech <a href="https://web.archive.org/web/20210226222555/http%3A%2F%2Fwww.qiliannews.com%2Fsystem%2F2021%2F02%2F25%2F013341147.shtml" rel="nofollow" style="color: inherit!important;text-decoration: none!important;">published last week on a government website</a>.’</li><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘He quoted Mr. Xi</strong> as saying: “The United States is the biggest threat to our country’s development and security.” ’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘That warning,</strong> echoed in <a href="http://news.ccu.edu.cn/info/1034/6848.htm" rel="nofollow" style="color: inherit!important;text-decoration: none!important;">similar recent public comments</a> by senior officials close to Mr. Xi, reinforces how he is seeking to balance confidence and caution as China strides ahead while other countries continue to grapple with the pandemic.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘His double-sided pronouncements</strong> reflect an effort to keep China on guard because, despite its success at home, it faces deep distrust in Washington and other Western capitals.’</li><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘Although China is growing stronger,</strong> Xi has said, there are still many ways in which “the West is strong and the East is weak,” officials have recounted in <a href="https://web.archive.org/web/20210227050625/http:/www.legaldaily.com.cn/zt/content/2021-02/05/content_8431501.htm" rel="nofollow" style="color: inherit!important;text-decoration: none!important;">speeches </a>recently issued on local party websites.’</li></ul><h4 style="font-family: Georgia, serif;font-size: 21px;line-height: 36px;font-weight: 400;color: #001544;display: block;border-bottom: 3px solid #c80000;margin-block-start: 40px!important;margin-block-end: 0px!important;margin-inline-start: 0px!important;margin-inline-end: 0px!important;">3 | The U.S. Seeks a Balanced Assessment of China</h4><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">The U.S. </strong>seems to be going through its own reevaluation of China.</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">Nye</strong> points out:</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘Balances of power</strong> are hard to judge.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘Those who proclaim </strong><em style="font-style: italic">Pax Sinica </em>and American decline fail to take account of the full range of power resources.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘Even if China surpasses</strong> the US to become the world’s largest economy, national income is not the only measure of geopolitical power.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘The US will retain </strong>some long-term power advantages that contrast with areas of Chinese vulnerability.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">And on the heels</strong> of Dr. Nye’s essay comes ‘China Is Not Ten Feet Tall: How Alarmism Undermines American Strategy,’ by Brookings’ Ryan Hass: ‘China, the story goes, is inexorably rising and on the verge of overtaking a faltering United States.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘Among</strong> the most eager purveyors of this story line are China’s government-affiliated media outlets. Projecting self-assurance, they have also gone out of their way to contrast their own achievements with plentiful examples of American dysfunction.’</li><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘ “Time and momentum are on our side,” </strong>Chinese President Xi Jinping declared in a speech at the Communist Party’s Fifth Plenum last fall. In January, Chen Yixin, a top security official, told a Chinese Communist Party study session, “The rise of the East and decline of the West has become a trend.” ’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘Authoritarian systems</strong> excel at showcasing their strengths and concealing their weaknesses.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘But policymakers in Washington</strong> must be able to distinguish between the image Beijing presents and the realities it confronts.’</li><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘For all the obstacles</strong> facing the United States, those facing China are considerably greater.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘During the Cold War,</strong> Secretary of Defense James Schlesinger cautioned against “ten-foot-tall syndrome”: the tendency among U.S. policymakers to view their Soviet competitors as towering figures of immense strength and overwhelming intellect.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘A similar syndrome</strong> has taken hold in the United States today, and the harms are not just analytical.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘Concentrating on China’s strengths</strong> without accounting for its vulnerabilities creates anxiety. Anxiety breeds insecurity.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘Insecurity leads to overreaction,</strong> and overreaction produces bad decisions that undermine the United States’ own competitiveness. Seeing China clearly is the first step toward getting China policy right.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘Washington’s bipartisan</strong> move in recent years to a hard-line approach to China has been driven above all by Beijing:’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘Chinese leaders</strong> have grown more impatiently aggressive in the pursuit of their ambitions and have increasingly leaned on nationalism, particularly as ideology and economic performance have become diminishing sources of social cohesion.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘But much of the shift</strong> in Washington has also been driven by a growing sense of panic about China’s strengths, leading to a bout of American insecurity.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘Such panic</strong> is unlikely to prove constructive: an alarmed focus on degrading China’s strengths risks causing the United States to focus too little on the more essential task of bolstering its own.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘The United States</strong> has good reason to be confident about its ability to compete with China.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘Self-confidence</strong> should foster a steady, patient, and wise response to China’s rise—one that can attract broad support at home and abroad.’</li></ul><h4 style="font-family: Georgia, serif;font-size: 21px;line-height: 36px;font-weight: 400;color: #001544;display: block;border-bottom: 3px solid #c80000;margin-block-start: 40px!important;margin-block-end: 0px!important;margin-inline-start: 0px!important;margin-inline-end: 0px!important;">4 | U.S. Politics Nixes Any Balanced Assessment of China</h4><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">But the need </strong>for this kind of calm assessment of U.S.-China balance of power runs headlong in U.S. politics.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">As Bill Reinsch </strong>of the Center for Strategic & International Studies wrote in ‘Double Feature’:</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘Speaking of China, </strong>the recent Conservative Political Action Conference (CPAC) in Orlando has produced an “I told you so” moment that is too good to ignore.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘Behind the gold statue of Trump,</strong> who appears to be wearing American flag boxers, are no less than six panels discussing China on topics like “China Subverts America” and “Corporate America Surrendering to China.” '</li><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘Featured speakers,</strong> most of whom are already running for president in 2024, are trying to outdo each other in their hostility to China and in their accusations that Democrats in general, and President Biden in particular, are soft on China and busy selling out our country.’</li><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘As I predicted</strong> in multiple past columns, the hysteria has begun and is not going to end anytime soon.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘Unfortunately, </strong>what we heard at CPAC and are likely to hear from Republicans over the next four years is attacks on the fecklessness of U.S. companies that do business with China and on the Biden administration for not sufficiently punishing China.’</p><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘This is</strong> the politics of blame.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘Rather than engage</strong> in a thoughtful debate about the best strategy, it simply identifies the guilty parties and attacks them along with the Chinese.'</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘Biden’s task</strong> is complicated by Congressional Democrats who yield to nobody in their ability to maintain high dudgeon.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘The biggest difference </strong>between the parties is that the Democrats at least put more of the blame where it belongs—on the Chinese rather than the president—and spend more time talking about how to implement “running faster” solutions.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">‘Since all parties</strong> want to take a hard line, it makes sense to stop chest-beating about who is the toughest and instead work together to fashion a bipartisan strategy that will actually accomplish something rather than just produce sound bites for the next election.’</p><ul style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;"><li style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;margin-top: 14px!important;margin-bottom: 0rem!important;padding-top: 0rem!important;padding-bottom: 0rem!important;"><strong style="font-weight: bold">‘This is too</strong> important for hysteria.’</li></ul><p style="font-family: Georgia, serif!important;font-size: 16px!important;line-height: 27px!important;font-weight: normal!important;color: #001544!important;display: block!important;margin-top: 14px!important;margin-bottom: 0rem!important;"><strong style="font-weight: bold">As if that matters.</strong></p></td></tr></tbody></table></div></td></tr></tbody></table></td></tr></tbody></table></div>