President Donald Trump’s Thursday chat with Chinese Vice Premier Liu He at the White House revealed something that insiders have long known: Trade figures like the deficit are red herrings, and the real fight between China and the US is over the future of tech and, by extension, who will win the next world war.
While Trump drones on about the trade deficit, his trade war with China also seeks to fundamentally restructure the relationship between the world’s two economic superpowers.
And the key here isn’t trade stats or even economics broadly, but national security.
In the next great war, the country that masters artificial intelligence, quantum computing, and the internet of things will essentially bring guided-missile destroyers to a sailboat fight.
With that in mind, here’s what the White House said Trump and Liu talked about (emphasis added):
“(1) The ways in which United States companies are pressured to transfer technology to Chinese companies; (2) the need for stronger protection and enforcement of intellectual property rights in China; (3) the numerous tariff and non-tariff barriers faced by United States companies in China; (4) the harm resulting from China’s cyber-theft of United States commercial property; (5) how market-distorting forces, including subsidies and state-owned enterprises, can lead to excess capacity; (6) the need to remove market barriers and tariffs that limit United States sales of manufactured goods, services, and agriculture to China; and (7) the role of currencies in the United States-China trading relationship.”
In the White House’s own words, technology transfer and intellectual property take precedence over the trade deficit. Three of the first five points from the readout explicitly mention tech transfer, illegal or coerced.
And rightly so. From January to October 2018, the US’s trade deficit with China ballooned to $344 billion, but that just means the US buys more from China than China buys from the US — which you’d expect when a richer country buys goods from a poorer one.
But in 2017, two retired senior Department of Defense officials wrote in a New York Times op-ed article that Chinese intellectual-property theft cost the US as much as $600 billion a year, calling it “the greatest transfer of wealth in history.” Chinese spies had stolen documents about the F-15 fighter and the space shuttle and attempted to pry secrets about America’s “most significant weapons,” the authors said.
China seeks to transform itself into the world’s leading superpower by rocketing past the US in economic and military strength, and it seeks to do so on the back of stolen technology. Chinese President Xi Jinping enshrined this vision in his “Made In China 2025” push to turn the country into a tech superpower.
But as tariffs hammered China’s economy, Xi took a rare face-losing defeat and walked back some of those claims, in a sign that Trump’s “tariffs first, ask IP questions later” strategy had borne fruit.
And unlike Trump’s wailing about trade deficits, which he seems to go alone, the world has united behind Trump on the fight to stop China’s theft of next-generation technologies.
China pressuring US companies on sensitive military tech
Ken Jarrett, the president of the American Chamber of Commerce in Shanghai, told Business Insider that while US companies operating in China didn’t like the tariffs and uncertainty from the trade war, many agreed with Trump on technology transfers.
“Most US companies are careful about what intellectual property they bring to China. Some simply do not bring their best intellectual property to China,” Jarrett said.
“While few companies will publicly state that they experience pressure to transfer technology, 21% of respondents to the AmCham Shanghai Business Climate Survey (July 2018) reported having felt such pressure,” he said. “In the aerospace sector, 44% of companies felt such pressure, as did 41% of chemicals companies, affirming the US administration’s concern about this pay-to-play tactic in technology-based industries.”
When a company that deals with sensitive military information, like RAND Corp, sends people to China, it warns them against bringing their personal electronics. Among US business officials who visit China, horror stories about people rummaging around hotel rooms while they’re out or even in the shower have become common.
China’s spying is said to go well beyond top US military systems like the F-35 stealth fighter and the Patriot missile to Silicon Valley, where Chinese agents are attempting to steal trade secrets from the US’s tech industry.
China has vigorously denied all of this. Huawei, the tech company accused by multiple nations of spying — and recently by the US of bank fraud and violating sanctions on Iran — tried to assuage fears about its connection to the Chinese state by saying it would deny any government request to access its data.
But by Chinese law, that would be plainly illegal. China can enlist the help of any of its citizens or companies to further the party’s goals — and one of those goals, the US and international experts assess, is displacing the US as the world’s superpower.
While most businesses have said they aren’t in favor of Trump’s tariffs and dislike the uncertainty the trade war has brought, Trump’s own officials have said the trade war will bring short-term losses in hopes of a long-term restructuring.
Because, as leading academics and military professionals have repeatedly stressed, the US-China business relationship has blurred the lines between economic and military competition, and without intervention, those are both contests the US would lose.