Why US-China trade talks are about more than trade
| Washington and Boston
With trade talks between the United States and China at a make-or-break moment, the news media and investors are focused heavily on President Donald Trump鈥檚 threat to jack up tariffs on China Friday if the negotiations don鈥檛 go well.
That focus is fair enough. Stocks have already tumbled because of the fear. The tariffs would impose meaningful burdens on businesses and consumers in the world鈥檚 two largest economies.
Often left on the sidelines of this discussion, though, is something essential: Those two nations, while economically intertwined, are also rivals in a technology race that will shape their respective futures. That鈥檚 one reason why China apparently backtracked on its pledges in the trade talks last week 鈥� including new legal protections against the theft of intellectual property, or IP.
Why We Wrote This
Fears of a U.S.-China trade war have triggered shudders in financial markets. But the current impasse also exposes a deeper tension between two nations that are at once interconnected and in competition with each other.
Mr. Trump鈥檚 tariff threats followed. And he鈥檚 not alone in the concern. In fact, while the president鈥檚 own checklist with China may revolve heavily around boosting U.S. exports, frustration over leakage of U.S. know-how to China has been rising from the White House to the Pentagon to corporate boardrooms. Some in Congress are, if anything, even more exercised about the issue of technology transfer than Mr. Trump.
鈥淚 commend the Trump administration for not allowing the status quo to go on, [but] I wish I had more confidence that the administration understood what was at stake, particularly as we think about technology and innovation,鈥� Sen. Mark Warner, D-Va., said at a Monitor Breakfast with reporters Thursday. 鈥淲hile I think there is finally, finally the beginnings of a strategy on 5G [wireless networks], I think at least the White House was asleep at the switch for the first two years of this administration.鈥�
Senator Warner said 鈥渢here鈥檚 been a gradual awakening鈥� in the private and public sectors to the problem, but that Mr. Trump and to some degree President Barack Obama before him have failed to rally a global coalition to address an issue regarding China that鈥檚 global in scope.
Last year, for example, one bill to guard against cyberthreats passed the House on a 362-1 vote.
鈥淭his issue of the Chinese forcing American companies to transfer technology or stealing American technology and IP is one of the few issues that enjoys broad bipartisan support,鈥� says Timothy Heath, a security expert at the Rand Corp., a think tank near Washington. 鈥淎nd the difficulty is what do you do about it.鈥�
An era of competition
This week Democratic leaders joined the president in confronting China.
Similarly, House Speaker Nancy Pelosi of California, while questioning some of Mr. Trump鈥檚 methods, said Wednesday: 鈥淚n any trade agreement if you don鈥檛 have enforcement, all you鈥檙e having is a conversation, a cup of tea.鈥�
鈥淗ang tough on China, President聽@realDonaldTrump. Don鈥檛 back down. Strength is the only way to win with China,鈥� Senate Majority Leader Chuck Schumer of New York tweeted on Sunday. That came after Mr. Trump had gone to Twitter with a 鈥淣o!鈥� to a Chinese 鈥渁ttempt to renegotiate.鈥�
The heightened concern about safeguarding U.S. technology doesn鈥檛 necessarily mean the Trump administration will win major breakthroughs in a bilateral trade deal.
Rather, regardless of what any deal achieves, the two nations appear to have entered a protracted era of competing for technological advantage, in areas ranging from aerospace and telecommunications to artificial intelligence, all with big military as well as commercial implications. Managing tensions over the issue is an increasingly important part of the U.S.-China relationship, for both sides.
After a year of intense bilateral negotiations, Mr. Trump had voiced the expectation of a deal soon. With the recent setbacks, the question now is whether those hopes can be revived.
As a nudge, Mr. Trump may impose 25% tariffs on $200 billion in Chinese imports as soon as Friday morning. Yet, by some accounts, he鈥檚 been open to concessions on the technology issues in order to reach a deal.
鈥淢y concern is that he will perhaps agree to a less ambitious agreement in order to close a deal,鈥� says Orit Frenkel, a former director in the Office of the United States Trade Representative and now president of Frenkel Strategies.
Given both his political promises and the rattled investors on Wall Street, 鈥渉e feels a lot of pressure to have a deal,鈥� she says. 鈥淚 think he may compromise on some of the more ambitious asks,鈥� including better market access for U.S. cloud-computing firms in China.
Senator Warner voiced similar concern.
鈥淚 am extraordinarily afraid that [he] is gonna do some deal with China where he maybe sells another $100-billion-plus of soybeans and declares victory, and we lose the challenge where the game is: intellectual property, emerging technologies like 5G, AI, quantum. And that would be a detriment not only to our country but to the West for decades to come,鈥� he said at the Monitor Breakfast.
The backdrop for his concern: signs of an unprecedented push by China to catapult itself toward leadership in key technologies 鈥� a strategy that Beijing calls the 鈥淢ade in China 2025鈥� initiative. It鈥檚 a multipronged effort that has used channels ranging from legitimate investment to espionage.
鈥淐hina has effectively used stolen IP to grow its gross national product (GNP) and has derived an incalculable near and long-term military advantage from it, thereby altering the calculus of global power,鈥� a from within the U.S. Navy stated.
Complicating the stakes
Although an actual war would likely be catastrophic for each side, both nations as potential adversaries feel the need to safeguard their futures. And the boundary between the economic and military is blurry.
鈥淭here鈥檚 a lot of different ways that conflicts are playing out,鈥� says Evan Anderson, who leads a 聽in Seattle to safeguard U.S. companies against IP theft. Cyber misinformation campaigns by Russia are one example. Efforts to pluck economic gems from rival nations are another.
鈥淭hat鈥檚 the world that we鈥檙e currently living in. And I think we鈥檙e getting close to a place where we鈥檝e woken up to that in the Western world,鈥� Mr. Anderson says.
Senator Warner emphasized the goal of moving the discussion beyond the U.S. to include Europe, Japan, South Korea, and others in a multilateral effort 鈥� 鈥渢o go as a group to China to say, 鈥楥hina you are a great nation, we want you part of the world community, but you鈥檝e got to play by the rules.鈥欌��
It鈥檚 a hard task. Pledges have been made by China before, while enforcement and compliance have been lacking, experts say.
鈥淐hina realizes that being a tech superpower is fundamental to its ambition so it wouldn鈥檛 be willing to make genuinely impactful compromises鈥� in trade negotiations, says Alex Joske, who follows security issues related to China at the Australian Strategic Policy Institute鈥檚 International Cyber Policy Centre.
Even if the two nations reach a deal that includes some of the technology issues, 鈥渢hat鈥檚 just the beginning of the challenges both in terms of commercial competitiveness鈥� and in the implications for security, human rights, and more, says Graham Webster, a cybersecurity expert at the New America Foundation.
鈥淭he reason for that is pretty simple,鈥� he says. 鈥淣either country has figured out what 5G, artificial intelligence, [and other] huge data-driven services are going to mean for our countries.鈥�
In the U.S., some lawmakers including Senator Warner are proposing new laws to grapple with the issues, from privacy to election security. On China, he鈥檚 spearheading to set up a White House-based office to better track the cyberthreats and other risks inherent in global supply chains for the military.
Others say that, alongside any security measures, the most basic task for America is minding the health of its own society.
鈥淥ur country鈥檚 job is to do better innovation here at home,鈥� says John Deutch, an MIT scientist and former director of the CIA. 鈥淐hina will overcome us,鈥� he says, 鈥渙nly ... if we don鈥檛 pay attention to our own technology and economy.鈥�
