OUR MAN IN Washington passes on this observation: the Trump administration is now escalating its attacks on China’s ability to access US technology and its drive to decouple the Chinese and US technology sectors regardless of domestic costs. Concern about the damage to US business interests has held the administration’s China policy in check up to a point. If that constraint is no longer in place, it would indicate a new adversarial phase in the relationship.
Our man proffers two pieces of evidence.
The first is the cautionary statement issued by the Semiconductor Industry Association, the US chip industry’s trade association, about the much tougher Foreign Direct Product Rule within the US export control regime. This is aimed at preventing Huawei Technologies from not only buying US-made chips but any made by non-US firms that have been developed or produced with US technology, including software. The new rule, the association says, “will bring significant disruption to the US semiconductor industry”.
Part of that disruption will be caused by significantly increased business and compliance costs for technology suppliers who will now have to monitor the entire value chain of their products and services from development to end-user sale. They may find that doing some business is not longer viable, and thus they will surrender those customers to competitors.
The second is the executive order prospectively banning US individuals and entities from using WeChat, the instant messaging app that is central to Tencent’s social media platform.
WeChat is so ubiquitous within China that a ban could make it all but impossible for US businesses to operate in China. The main channel US multinationals use to communicate with their customers, colleagues, business partners and suppliers in China would be cut off.
The order gives the US Secretary of State the authority to identify which transactions are subject to the ban, but does not require him to provide advance notice of his decisions.
How extensive the impact would be will depend on how strictly the order is applied. It is written with a degree of ambiguity that would make a Chinese legal drafter proud, allowing broad administrative interpretation in its implementation whose very uncertainty provides a chilling effect on any who might be affected.
As now written, under the terms of the executive order, the US Secretary of State, currently Mike Pompeo, one of the most bellicose of the China hawks in the administration, could, in theory, decide that, say, Apple installing WeChat on its iPhones in China would violate the order.
Removing the app from the handsets Apple sells in China would kill the company’s sales there. It might also lead Beijing to enact its new regulations that allow for sanctions on foreign companies that limit technology exports to China for political reasons. Sanctions could take the form of retaliatory measures against Apple’s supply chain. That would not be easy to reconfigure in short order for the reasons that we have recently discussed.
This is an extreme but still conceivable example. There is no evidence that the administration is seeking what would be Pyrrhic victories in destroying the Chinese markets of US multinationals. Indeed, there is no indication at all of how the WeChat order would be implemented. Our man’s broader point is that the decision would be political. Should Apple or any other US tech company show open defiance of the administration’s drive to decouple the two countries’ tech sectors, the conceivable examples could suddenly become more plausible.
This, in turn, suggests the determination to decouple is more robust within the White House than is perceived outside it, and that the China hawks now in the ascendency within the administration will grasp every opportunity to push it further.