The US-Chinese Trade War Just Entered Phase 2
Skip to main content
  • Home
  • Economy
    • Aviation
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
    • Book Review
    • Brands
    • Earth
    • Explorer
    • Fact Check
    • Family
    • Food
    • Game Reviews
    • Good Practices
    • Habitat
    • Humour
    • In Focus
    • Luxury
    • Mode
    • Panorama
    • Pursuit
    • Wealth
    • Wellbeing
    • Wheels
  • Epaper
  • More
    • Subscribe
    • Videos
    • Thoughts
    • Splash
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • COVID-19
    • Games
    • Long Read
    • Interviews
    • Offbeat
    • Podcast
    • Quiz
    • Tech
    • Trial By Trivia
    • Magazine
  • বাংলা
The Business Standard

Friday
January 27, 2023

Sign In
Subscribe
  • Home
  • Economy
    • Aviation
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
    • Book Review
    • Brands
    • Earth
    • Explorer
    • Fact Check
    • Family
    • Food
    • Game Reviews
    • Good Practices
    • Habitat
    • Humour
    • In Focus
    • Luxury
    • Mode
    • Panorama
    • Pursuit
    • Wealth
    • Wellbeing
    • Wheels
  • Epaper
  • More
    • Subscribe
    • Videos
    • Thoughts
    • Splash
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • COVID-19
    • Games
    • Long Read
    • Interviews
    • Offbeat
    • Podcast
    • Quiz
    • Tech
    • Trial By Trivia
    • Magazine
  • বাংলা
FRIDAY, JANUARY 27, 2023
The US-Chinese Trade War Just Entered Phase 2

Politics

Peter E Harrell
30 December, 2019, 03:45 pm
Last modified: 30 December, 2019, 03:52 pm

Related News

  • Yellen, China's Liu agree to enhance communication after 'frank exchange' - US Treasury
  • US-China officials to meet on economy, aim to ease tension
  • China slams US sanctions over alleged rights abuses in Tibet
  • US says China seeks stabilized relations with Washington in short term
  • Eye of the storm: Taiwan at the centre of Sino-US tensions

The US-Chinese Trade War Just Entered Phase 2

Its next chapter will be fought through export and import controls, investment restrictions, and sanctions—and the United States should prepare itself now

Peter E Harrell
30 December, 2019, 03:45 pm
Last modified: 30 December, 2019, 03:52 pm
A journalist takes pictures of a projection screen prior to the start of Germany's auction for the construction of a 5G mobile network in Mainz on March 19
A journalist takes pictures of a projection screen prior to the start of Germany's auction for the construction of a 5G mobile network in Mainz on March 19

The Trump administration's "phase one" trade deal with China may mark the end of the first chapter of the trade conflict between the United States and China, which saw Washington embrace a confrontational approach. But even if China meets its commitments under that agreement, the deal will not mean the conclusion of the broader competition between the two powers. The forces of geopolitical rivalry and the sharp differences between China's state capitalist model of economic development and the US economic system are too great. Instead, the deal will mark a pivot to a second phase of economic competition, one which will be fought with export and import controls, investment restrictions, and sanctions rather than with tariffs.

Over the past two years, Washington has been quietly building a legal and regulatory architecture for this campaign. In 2018, US Congress enacted legislation to enhance controls on the export of emerging technologies, such as advanced robotics and artificial intelligence, and bolster reviews of foreign investment in the United States. In November 2019, the Trump administration and Congress took steps to block US companies from using Chinese telecommunications network equipment in the United States. There is increasing discussion in Washington about additional restrictions on business and investment relations between the United States and China, such as limits on federal employee retirement fund investments in China.
But the highest-profile example of the United States' use of targeted coercive measures against China is its yearlong campaign against Huawei, China's national-champion telecommunications company. This campaign holds important lessons for the United States as it turns from a tariff-centric approach to competition with Beijing to targeted coercive tools. In particular, the campaign against Huawei shows the need for better planning, more effective diplomacy, investment in alternatives to Chinese products, and a systematic review of the long-term risks from the aggressive use of coercive economic measures.

Huawei is paradigmatic of the challenge China poses the United States. It is a technological leader in "5G" telecommunications, the next-generation mobile technology that will enable industries like autonomous vehicles and advanced telemedicine. Huawei's leadership in 5G could give China an edge in developing entire new industries. And it simultaneously creates national-security risks through the potential to facilitate Chinese espionage and cyberattacks.

Huawei's success to date is due in part to legitimate investments—Huawei spends $15 billion annually on research and development—but also, according to US officials, intellectual-property theft and illegal subsidies and state support. Huawei's scale—it is not only a network equipment company but also one of the world's leading mobile handset makers—means that US firms bear significant costs from restrictions on business: Huawei purchased $11 billion annually from US firms in 2018. And with more than $100 billion in global annual revenues and employees in more than 170 countries, Huawei is larger than the economies of several countries subject to US sanctions, such as Cuba and North Korea (and more connected to the rest of the world, besides).

Over the past year, Washington has responded to the Huawei challenge with a multifaceted pressure campaign. US officials have charged the company with violating US sanctions on Iran and indicted it for stealing US intellectual property. In May 2019, the Commerce Department limited sales of US-made products to the company. US State Department officials have mounted an aggressive diplomatic campaign to persuade US allies to block Huawei equipment from new telecommunications networks, and the Trump administration has threatened to limit intelligence sharing with countries that allow Huawei into their 5G networks. Congress has effectively prohibited the US government from purchasing Huawei equipment, and the Federal Communications Commission recently banned the use of federal funds for US telecommunications companies to purchase Huawei gear. The Trump administration is reportedly considering further restrictions on US companies' ability to do business with Huawei through their overseas affiliates.

The initial results of this pressure, however, have been mixed—with diplomatic pressure proving at least as successful as economic coercion. Limits on US companies selling chips, software, and other products to Huawei have largely failed to blunt Huawei's global smartphone sales. A recent study of the market found that Huawei's sales grew 28 percent in the third quarter of 2019 year-on-year despite the restrictions. That growth was driven by Huawei's dominant position within China, but even in Europe, Huawei managed to keep its sales almost flat. (Europe also saw dramatic growth by Huawei's Chinese rival, Xiaomi.) Huawei is succeeding in shifting its supply chains away from US components, and one of Huawei's latest phones is apparently manufactured without any US chips at all—illustrating the limits of US economic pressure. Recognizing that the blanket ban on sales has harmed US companies without consistently imposing costs on Huawei, the Trump administration recently began authorizing sales of products that Huawei could readily buy from non-US suppliers while blocking the sale of more unique products.

The Trump administration's diplomatic campaign against Huawei's 5G telecommunications equipment, on the other hand, has begun to gain momentum. The United States has persuaded Australia, Japan, and New Zealand to block Huawei from their 5G telecommunications networks. Diplomatic engagement and public-relations campaigns in Europe have prompted allies such as Germany, the United Kingdom, Italy, and Poland to reopen debate about whether to allow Huawei equipment in 5G networks, which at the very least is likely to lead to restrictions on Huawei equipment to only "noncore" parts of 5G networks. Even Spain's largest telecommunications company recently announced plans to drastically scale back Huawei 5G equipment despite extensive reliance on the company in existing networks. But in the developing world, aside from a handful of countries such as Vietnam, Huawei remains likely play a major role in network development. The African Union, for example, signed a memorandum of understanding with Huawei on 5G network development despite widespread reports that China has bugged its headquarters for years. As then Deputy Director of National Intelligence Sue Gordon said publicly in March, the United States will "have to presume a dirty network" in many countries.

US policymakers should draw at least four lessons from the early results of the US campaign against Huawei. The first is the need for better planning in deploying coercive economic measures when it comes to China. Huawei has been able to survive the US export restriction in part because the Trump administration telegraphed the possibility beforehand, which allowed Huawei to stockpile a year's worth of US parts. That gave the company time to diversify its supply chains even after the restrictions were imposed, and foreign suppliers moved quickly to fill the gap despite Washington asking them to curb their own sales. Broad restrictions on virtually all sales to Huawei generated sharp opposition from US companies facing lost market share. A surprise attack that was narrowly focused on only those components that Huawei could not readily obtain elsewhere would have ultimately put more pressure on Huawei while minimizing collateral costs to US business. US officials also need to consider whether there are circumstances under which they would settle with Huawei. The United States settled charges against Chinese telecommunications company ZTE last year and was willing to drop sanctions against Russian aluminum company Rusal after negotiating changes in its corporate ownership. Ultimately, a settlement that increases US control over Huawei's business may prove more beneficial than a coercive economic campaign that has only limited impacts on Huawei's operations.

The second lesson is the importance of diplomacy. The Trump administration's diplomatic campaign was initially hindered by internal divisions about whether to focus narrowly on concerns about 5G or more broadly on all of Huawei's business. Statements by US President Donald Trump that linked Huawei to broader US-China trade talks, meanwhile, undercut the US position that Huawei poses a genuine security risk and is not simply part of the US-Chinese trade flap. The Trump administration also initially struggled to show allies a specific "smoking gun" proving the risks that Huawei equipment poses. But starting over the summer, as Trump officials expanded their diplomatic efforts and focused their arguments on 5G networks and on the fact that Huawei has a legal obligation to cooperate with Chinese intelligence, US allies have begun to shift their positions.

The third lesson is the need to develop viable alternatives to Chinese products. Competitors such as Europe's Ericsson often do not offer the type of fully integrated solutions that Huawei does, and they come at a higher upfront cost. Countries, particularly poorer emerging markets, are reluctant to slow down 5G deployment because they see rapid deployment of 5G as important to their own economic growth. In a world of limited and high-cost alternatives, governments will be tempted to turn to Huawei despite security risks.

World+Biz / Top News

US-China / Trade War

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • Manufacturers feel the pinch as consumers tighten belt
    Manufacturers feel the pinch as consumers tighten belt
  • Sugar turning bitter!
    Sugar turning bitter!
  • Island hopping in Bangladesh?
    Island hopping in Bangladesh?

MOST VIEWED

  • US President Joe Biden speaks during an event at the Royal Castle, amid Russia's invasion of Ukraine, in Warsaw, Poland on 26 March 2022. Photo: Reuters
    Biden reelection bid not official, but fundraising to begin
  • Paetongtarn Shinawatra, 36, the youngest daughter of billionaire former Prime Minister Thaksin Shinawatra, attends a Pheu Thai Party news conference in Bangkok, Thailand, December 6, 2022. REUTERS/Athit Perawongmetha/File Photo/File Photo
    Thai PM walks out of news conference over question on ex-leader Thaksin
  • FILE PHOTO: Demonstrators take part in an anti-government protest after Peru's former President Pedro Castillo was ousted, in Lima, Peru January 23, 2023. REUTERS/Angela Ponce
    Peru president calls for 'political truce' amid protests
  • Guatemala's President Alvaro Colom speaks during a breakfast meeting with Central American leaders before the opening of the XIII Tuxtla Summit "Mechanism of Dialogue and Concentration", which seeks to strengthen trade ties between the countries of Central America, in Merida December 5, 2011. REUTERS/Victor Ruiz Garcia
    Guatemala's ex-president Alvaro Colom dies at 71
  • Ardern’s decision to stand down shows that women continue to be torn between their political ambitions and private lives. Photo: Bloomberg
    Grateful Ardern makes last bow as New Zealand PM
  • Chris Hipkins walks, after being confirmed as the only nomination to replace Jacinda Ardern as leader of the Labour Party, at New Zealand's parliament in Wellington, New Zealand January 21, 2023. REUTERS/Lucy Craymer
    New Zealand's ruling party confirms Hipkins as new prime minister

Related News

  • Yellen, China's Liu agree to enhance communication after 'frank exchange' - US Treasury
  • US-China officials to meet on economy, aim to ease tension
  • China slams US sanctions over alleged rights abuses in Tibet
  • US says China seeks stabilized relations with Washington in short term
  • Eye of the storm: Taiwan at the centre of Sino-US tensions

Features

December-er shohor, taxi taken for airport and the Park Street bathed in lights. Photo: Jannatul Naym Pieal

Exploring Kolkata on foot, empowered by Google Maps

36m | Explorer
Island hopping in Bangladesh?

Island hopping in Bangladesh?

2h | Panorama
Illustration: TBS

HC verdict moves the needle on recognising single motherhood

31m | Panorama
According to the CAB president Ghulam Rahman, one of the most common complaints of consumers is being deceived by sellers when it comes to the weight of goods. Photo: TBS

Has the Directorate improved consumer rights in Bangladesh?

2d | Panorama

More Videos from TBS

Kajol’s road paintings bring change in Gafargaon

Kajol’s road paintings bring change in Gafargaon

14h | TBS Stories
Carew & Company witnessed a remarkable growth

Carew & Company witnessed a remarkable growth

15h | TBS Stories
PCB recalls cricketers from BPL ahead of PSL

PCB recalls cricketers from BPL ahead of PSL

17h | TBS SPORTS
Why Misha Sawdagar became villain instead of a Hero?

Why Misha Sawdagar became villain instead of a Hero?

16h | TBS Entertainment

Most Read

1
Picture: Collected
Bangladesh

US Embassy condemns recent incidents of visa fraud

2
Four top bankers arrested in DSA case filed by S Alam group 
Bangladesh

Four top bankers arrested in DSA case filed by S Alam group 

3
Illustration: TBS
Banking

16 banks at risk of capital shortfall if top 3 borrowers default

4
Photo: Collected
Splash

Hansal Mehta responds as Twitter user calls him 'shameless' for making Faraaz

5
A frozen Beyond Burger plant-based patty. Photographer: AKIRA for Bloomberg Businessweek
Bloomberg Special

Fake meat was supposed to save the world. It became just another fad

6
Representational Image
Banking

Cash-strapped Islami, Al-Arafah and National turn to Sonali Bank for costly fund

EMAIL US
[email protected]
FOLLOW US
WHATSAPP
+880 1847416158
The Business Standard
  • About Us
  • Contact us
  • Sitemap
  • Privacy Policy
  • Comment Policy
Copyright © 2023
The Business Standard All rights reserved
Technical Partner: RSI Lab

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - [email protected]

For advertisement- [email protected]