Reuters’ Karen Freifeld and Mike Stone report on continued efforts to restrict the supply of American components to Huawei, despite a series of tweets last week in which President Donald Trump spoke dismissively about the national security implications of such sales. The comments were the latest twist in a long-running U.S. campaign against Huawei.
An interagency meeting was held on Thursday to discuss national security and China export issues, including proposals to restrict sales of chips to Huawei, the world’s second-largest smartphone maker, and a plan to block the sale of jet engines for China’s new passenger airplane.
While blocking General Electric Co (GE.N) from supplying jet engines appeared to be off the table after Trump opposed efforts to stop their sale, sources told Reuters on Monday new restrictions aimed at cutting Huawei off further from its suppliers were still under discussion.
[…] In their meeting on Thursday, officials discussed possible changes to what is known as the de minimis rule, which dictates how much U.S. content can be in a foreign-made product before the United States has authority to regulate its sale, the sources said.
[…] The government agencies also have been considering changing the Foreign Direct Product Rule, which subjects foreign-made goods based on U.S. technology or software to U.S. oversight. [Source]
The New York Times’ Alan Rappeport reported on Trump’s statements last week:
President Trump publicly objected to efforts within his own administration to restrict the sales of American technology to China over national security concerns, insisting on Tuesday that such fears were an “excuse” and that the United States was open for business.
Mr. Trump’s comments appeared to represent a striking reversal of his administration’s aspirations to curb China’s ascent as a global leader in technology and came as cabinet officials were expected to discuss tougher restrictions on China later this month.
That meeting, set for Feb. 28, was expected to include a discussion about whether to halt sales to China of an aircraft engine produced in part by General Electric by blocking its license to export the technology. Officials were also expected to consider new rules that would further curtail the ability of Huawei, the Chinese telecom giant, to have access to American technology, including semiconductors.
But on Tuesday, Mr. Trump seemed to scuttle such moves. Two people familiar with the matter said that the late February meeting was on hold and that the United States would not block G.E.’s ability to sell jet engine parts to China. [Source]
The United States cannot, & will not, become such a difficult place to deal with in terms of foreign countries buying our product, including for the always used National Security excuse, that our companies will be forced to leave in order to remain competitive. We want to sell…
— Donald J. Trump (@realDonaldTrump) February 18, 2020
….product and goods to China and other countries. That’s what trade is all about. We don’t want to make it impossible to do business with us. That will only mean that orders will go to someplace else. As an example, I want China to buy our jet engines, the best in the World….
— Donald J. Trump (@realDonaldTrump) February 18, 2020
….I have seen some of the regulations being circulated, including those being contemplated by Congress, and they are ridiculous. I want to make it EASY to do business with the United States, not difficult. Everyone in my Administration is being so instructed, with no excuses…
— Donald J. Trump (@realDonaldTrump) February 18, 2020
….THE UNITED STATES IS OPEN FOR BUSINESS!
— Donald J. Trump (@realDonaldTrump) February 18, 2020
Trump has described Huawei as "very dangerous" and was reportedly "apoplectic" over the U.K.’s recent decision to allow the purchase of Huawei equipment for limited use in 5G networks. The administration’s insistence that such equipment would pose an unacceptable security risk appears unabated, with plans announced on Friday for an industry summit on the subject to be held at The White House in April and Trump raising the issue on a visit to India this week. Moves to tackle the problem upstream by cutting off Huawei’s supply of American components have caused alarm in the U.S. tech sector, but efforts to address it downstream by dissuading Huawei’s potential customers have met limited success. Even if sales to China are now allowed to go unfettered, the threat of their obstruction has already made securing domestic or alternative sources an urgent priority for China’s government and companies.
The Washington Post’s Joseph Marks commented:
The bottom line: As key U.S. allies in Europe and North America seem likely to allow Huawei to build at least portions of their 5G networks, they have no idea what the U.S. position really is. Trump’s comments also play into longstanding concerns the president is not concerned about the national security threat posed by Huawei and is more interested in using U.S. restrictions on the company as leverage in his trade standoff with China.
“It makes it look like the U.S. is really just worried about China as a tech competitor and not a national security threat,” Adam Segal, a cybersecurity and China scholar at the Council on Foreign Relations, told me. “It speaks to the problem the administration has had from the beginning in its messaging about Huawei … It seems as if the president, at any moment, could overturn whatever decision China hawks in the administration make.”
The inconsistency couldn’t come at a worse time because U.S. arguments about Huawei’s dangers already seem to have hit a brick wall in Europe. The United Kingdom has already agreed to allow the company to build portions of its 5G networks and Canada, France and Germany all appear likely to follow suit.
[…] Perhaps most maddeningly for Huawei hawks, Trump’s tweets stepped on what might have been a rare good day for the United States in its battle with the company. A federal judge in Texas yesterday dismissed a lawsuit from Huawei claiming that Congress overstepped its bounds in 2018 when it barred the company from government computer networks, one of the earliest parries in the long-running conflict. [Source]
The American Enterprise Institute’s Derek Scissors wrote more bluntly that "the president doesn’t care about national security […] what President Trump cares about is how much the Chinese state will buy."
[… T]he proclamation that “THE UNITED STATES IS OPEN FOR BUSINESS” […] isn’t quite true. In 2018, for example, the US wasn’t open to steel from our ally Canada, steel used by many American companies for production. In 2020 we may close ourselves off to cars from more allies.
These moves and others are said by President Trump to be necessary for protecting national security, citing Section 232 of the 1962 Trade Expansion Act. Basically any import can be a security risk. Trading with allies is not beneficial and common products like cars can constitute a major threat. This is odd, but yesterday’s tweets were odder.
They dismissed the “always used national security excuse” regarding sales of jet engines to China. That’s because, while the US isn’t always open for business, it is always open for selling. In the president’s view, national security can’t be harmed even by exporting vital products to your biggest adversary. The harm would not be in not exporting. [Source]
In Monday’s Terms of Trade letter from Bloomberg, Shawn Donnan similarly focused on Trump’s preoccupation with the trade balance, noting that his "broadside at what he made clear he saw as invocations of national security that were too broad … should be remarkable to anyone who has been following Trump’s trade wars closely."
Trump has made clear repeatedly over the past three years that he wants to sell more to China not less. There is a reason the aspect he touts most of the “phase one” deal he signed with China in January is the $200 billion Chinese buying spree at its center.
Which brings us to what precipitated his tweeted intervention last week.
Speak to American tech and other executives and they quickly express fears that one result of the Trump administration’s assault on China is that they will be shut out of what remains the world’s most promising market.
[…] It’s also a major concern of farm groups and American manufacturers who do a good business in China, and for U.S. academic institutions that have attracted Chinese students.
Which is why some worry that a longer-term de-Americanization has begun and that with the genie already out of the bottle it may be too late to reverse that trend. Trump taking to Twitter to intervene last week may turn out to be an important milestone. It could also simply be a late recognition that trade and technology wars are both hard to win and replete with unintended consequences. [Source]
It remains to be seen how much of the "$200 billion buying spree" will actually materialize. Bloomberg reported earlier this month that oil and gas industry leaders had warned that White House that the buying commitments it had secured from China were unrealistic:
The “phase one” deal signed by President Donald Trump on Jan. 15 calls for China to purchase an additional $52.4 billion in liquefied natural gas, crude oil, refined products and coal over the next two years. To do that, China would have to import an additional 1 million barrels per day of crude oil, 500,000 barrels per day of refined products and 100 tankers full of liquefied natural gas, the American Petroleum Institute cautioned last month in a closed-door meeting with the Energy Department.
[…] “The United States’ ability to expand its exports of crude oil and other liquids would likely become a binding constraint,” API said in its briefing for the Energy Department. And “even if production is available, logistical challenges remain with marine shipping and the Panama Canal.”
[…] Analysts and markets were already skeptical over the deal and the $200 billion in additional purchases of everything from airplanes to crude oil and soybeans that is its centerpiece. Trump has himself said that his own advisers have counseled him that some of the commitments he sought from the Chinese were unrealistic and boasted of his own role in setting higher targets. [Source]
Trump’s tone on national security may cast doubt on a related class of export control: the "Entity List" designation of 20 Chinese public security bureaus and eight companies for "engaging in [or] enabling activities contrary to the foreign policy interests of the United States" by their involvement in mass detentions in Xinjiang. The designation bars unapproved sales of American products or components to organizations "reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States." Western companies’ and research institutions’ entanglements in Xinjiang had attracted mounting scrutiny as awareness of the detentions grew. Jessica Batke and Mareike Ohlberg described previously unreported American sales of DNA analysis technology to Xinjiang at China File and Foreign Policy last week:
[… One] American company, the Massachusetts-based Thermo Fisher Scientific, came under public criticism as early as 2017 for its sales of genetic sequencers to police in Xinjiang. Both the U.S. Congress and Human Rights Watch raised concerns about human rights and privacy violations as a result of the region’s DNA collection campaign—and the extent to which Thermo Fisher’s technology aided these violations. In 2019, Thermo Fisher halted its sales in the region, describing the suspension as in line with its ethics code, but did not say whether it would continue to sell its products elsewhere in China.
The Bingtuan [Xinjiang Production and Construction Corps, a "quasi-colonial enterprise" and "’vast farming militia’"] Public Security Bureau’s 2015 planned purchase, arranged through Promega’s authorized Xinjiang-based distributor, Hangzhou Xinyue Biotechnology Co., Ltd., was for Promega’s PowerPlex 21 system. Documents show that public security officials sought this specific equipment to create records from trace DNA—minimal amounts of DNA people leave behind as they touch surfaces—that were of high enough quality to be entered into a national DNA database. Because the PowerPlex 21 was the only equipment advanced enough for this work, public security officials were issuing a single-source procurement notice, meaning that they could skip a public bidding process. Unless the notice was contested within a seven-day period, officials could buy the listed equipment.
[…] The Promega website hosts the abstracts of two academic papers that discuss using genetic sequencing to distinguish different ethnic minority populations in China, including Uighurs. According to the full version of one of these papers, Promega equipment, in addition to products made by Thermo Fisher Scientific, was used in the course of the research. The research looked at 211 samples of Uighur individuals’ DNA collected in Korla, Xinjiang, with the subjects’ informed consent. Experts have previously expressed concern that, given the ever-present threat of internment, Uighurs in China cannot give true consent, and the science publishers Springer Nature and Wiley are conducting ethical reviews of papers they have published “in which scientists backed by China’s government used DNA or facial-recognition technology to study minority groups in the country, such as the predominantly Muslim Uyghur population,” according to Nature. [Source]
These sales are part of a broader pattern. Writing on the spread of digital authoritarianism at War On The Rocks last week, Cornell’s Jessica Chen Weiss noted that "according to a report by Steven Feldstein, repressive countries like Saudi Arabia rarely buy [surveillance] technologies from a single source, relying not only on Huawei but also companies based in democracies such as the United States (Google and Amazon), the United Kingdom (BAE), and Japan (NEC). Whether technology is inherently illiberal or neutral, with their usage depending on local interests, norms, and protections, it is clear that these technologies have not emanated solely from authoritarian regimes."
At The Financial Times last week, Janan Ganesh suggested that Trump’s lack of idealism might keep tensions with China more safely contained to the economic sphere than more principled stances by "his higher-minded successors."
By now, Europeans and other third-parties to the superpower tussle know that America will not soften its line under a new president. What they tend to underrate is the chance that it will actually harden. For all his militant jingoism, President Donald Trump views China in practical terms. The more power, security and wealth that it accrues, the less he believes there is for the US. It is an impoverished idea of foreign relations but it is at least transactional.
As proof, the Chinese can and often do buy off some of his animus with material concessions. Mr Trump’s quarrel is not a principled one with the essential nature of their government. In that sense, his cynicism, so unbecoming in other contexts, is a stabilising influence on this fraughtest of relationships.
[…] Mr Trump’s indifference to the domestic doings of China, Saudi Arabia and other governments has shown his narrowness of human sympathy. But it has also kept his squabbles with most of them to what is tangible and negotiable. It is not even as though he drives the hardest of bargains, as the North Koreans might testify between Cheshire Cat smiles. [Source]
With Trump’s emphasis on sales to China, scrutiny of investment flowing the other way looks set to continue. At Wired, the Atlantic Council’s Justin Sherman identified recent moves by the U.S. as part of a global trend, and highlighted the Committee on Foreign Investment in the United States’ growing focus on Chinese tech investments (which includes a national security review of a 2017 acquisition by TikTok announced last November).
Established in 1975 through a Ford administration Executive Order, CFIUS is composed of representatives from State, Treasury, Defense, and numerous other agencies. The whole point is to balance myriad interests—broadly, economic and security goals. Of all entities within the executive brand, it has primary responsibility for watching foreign investment in the States. Its recommendations can lead to blocking covered transactions that threaten US national security—and even undoing those already completed.
[…] Lately, CFIUS has zeroed on deals centered on data, like when it informed Chinese company Beijing Kunlan Tech it had to sell the dating app Grindr. Information on sexual preferences and activity, the logic went, is too sensitive to risk falling into the Chinese government’s hands. And while the last time CFIUS publicly released investigation statistics was 2015, those numbers and recent press reports indicate a growing and heavy focus on Chinese investments in US tech.
[…] As talk of US-China “decoupling” remains in vogue—at least in certain Washington wonk circles—it’s worth realizing that numerous world leaders are exploring ways to limit security risks posed by investments in technology companies. Nonetheless, that doesn’t mean all those efforts are necessarily well-scoped or well-executed in practice. Paranoia and misperception of actual foreign government capabilities and intent to access data abound in certain cases.
The question for policymakers, then, becomes: What kind of investments cross the line? Developing these clear criteria—and, in the US, in ways at least slightly more transparent than those in the current, largely opaque CFIUS process—can at once help to better inform the public about these processes and to better balance economic interests with those pertaining to data flows and national security. [Source]