Ongoing US/China cold war guaranteed

Via Sinocism:

I am ecstatic that we may finally be on the cusp of no longer having to speculate about whether there be a US-China trade deal, and what might be in it. Some of the details of the phase one deal to be signed Wednesday have started to leak, much I believe to the consternation of the Chinese side who would prefer to keep it secret.

One question I have is how much of the deals to be announced tomorrow are ones that have already been announced one or more times?

If there is a phase two deal expect it to be done in small chunks, like phase 2A, phase 2B etc, rather than one big agreement as the really difficult issues that go to the heart of the PRC economic system look so far to be mostly untouched in this phase one deal, and are likely untouchable in any future deal.

And as this newsletter has been saying ad nauseum, the trade deal is actually the easy part of the US-China relationship, and do not be surprised to see more US pushback in the technology realm before the ink is barely dry on this phase one deal.

Enjoy the pause in the downward trajectory in US-China relations but do not stop making contingency plans. Sorry to be pessimistic, need to go to one of those positive energy classes I guess…

1. US-China trade

China to ramp up U.S. car, aircraft, energy purchases in trade deal: source – Reuters

China would also buy over $50 billion more in energy supplies, and boost purchases of U.S. services by about $35 billion over the same two-year period, the source told Reuters on Monday.

The Phase 1 agreement calls for Chinese purchases of U.S. agricultural goods to increase by some $32 billion over two years, or roughly $16 billion a year, said the source, who was briefed on the deal.

When combined with the $24 billion U.S. agricultural export baseline in 2017, the total gets close to the $40 billion annual goal touted by U.S. President Donald Trump.

Trade war: China to make huge purchases of US goods as details of phase one deal revealed | South China Morning Post

The trade deal to be signed this week will include pledges by China to buy US$200 billion of US goods over two years in four industries, a Trump administration official and two other sources briefed on the matter said.

The target for manufactured goods purchases will be the largest, worth around US$75 billion. China will also promise to buy US$50 billion worth of energy, US$40 billion in agriculture and US$35 billion to US$40 billion in services, the three people said.

U.S. and China may not release full details of trade deal that they’ll sign this week – POLITICO

The administration isn’t legally obligated to publish the full text of the deal because it was an executive agreement that didn’t require congressional approval, said Derek Scissors, a resident scholar at the American Enterprise Institute.

Comment: And China definitely does not want it made public

Trump’s Supporters See U.S. Victory in China Trade Deal – The New York Times

Michael Pillsbury, a China scholar at the Hudson Institute who advises Mr. Trump, said that Mr. Trump’s campaign advisers have realized that the president’s supporters are less concerned about China’s record of human rights abuses or fears that it is an existential threat and more interested in having greater access to its market. He said that Mr. Trump appears to be shifting his tone on China away from the caustic rhetoric used by Stephen K. Bannon, his former chief strategist, in favor of an argument that shows how the president succeeded in “opening up” China.

Xi Strikes Optimistic Tone After Riding Out Trade War With Trump – Bloomberg

“The list of challenges Xi faces in 2020 is undoubtedly long, but from his perspective, so too are the opportunities stemming from declining global leadership and influence of the U.S., whether real or perceived,” said Jude Blanchette, Freeman chair of China Studies at the Center for Strategic and International Studies.

Navarro: China deal will provide swift enforcement – POLITICO

Navarro said the agreement will “take a big chunk out of [China’s] seven deadly sins”: cyber-intrusions, intellectual property theft, forced technology transfers, dumping, unfair competition from state-owned enterprises, currency manipulation and fentanyl shipments to United States that have helped fuel the opioid crisis.

Opinion: Phase One Deal Doesn’t Mean End of Trade War – Caixin OpEd

will this phase one agreement be enough for Washington to put aside its hawkish ambition of fundamentally challenging China’s economic system and seeking more opening in the Chinese market? Certainly not…

For China, with a temporary break at hand, there is not really much room to sit back. Beijing is still facing an uphill battle against Washington’s unprecedented challenges to its economic model since it joined the World Trade Organization in 2001. The Trump administration favors a direct confrontation with China, which will certainly not stop after the phase one deal is signed.

Lu Zhenhua is a senior editor at Caixin Global.

Comment: The operative word for the relationship is “缠斗 fighting while embracing”, as this newsletter first noted last March in “Fighting while embracing; Huawei; Black Mirror meets blacklist”:

It looks to me that there is no turning back and now the best case for those who want stability in the relationship is “fighting while embracing”, or 缠斗, as I have heard from several people Xi started describing his view of the US-China relationship a few months ago

Interesting “tick-tock” – How the U.S. and China Settled on a Trade Deal Neither Wanted – WSJ $$

Looking for a direct route to the president, Chinese Ambassador Cui Tiankai spoke with President Trump’s son-in-law and adviser, Jared Kushner, say people familiar with the episode. The U.S. offer didn’t roll back enough tariffs, he told Mr. Kushner.

It was time to settle, Mr. Kushner responded. If not, on Dec. 15 the president was ready to proceed with new tariffs on about $156 billion in Chinese imports, including smartphones and toys. “Don’t think in terms of tariff reduction,” he advised. “Think in terms of what will happen if you don’t make a deal.”…

Chinese officials feel they have little to gain from a phase-two deal forcing Beijing to ease state control of the economy, and Mr. Trump recently said that a phase-two agreement probably wouldn’t conclude until after the Nov. 3 election. The Chinese government continues to plan for a future where the two economies would be less intertwined and China would develop technology rather than rely on American imports.

Trump Accused of Playing Politics With Treasury Report on China – Bloomberg

“The Trump administration has adopted a different definition of manipulation than the standard definition for China,” said Brad Setser, who worked at Treasury during President Barack Obama’s administration and is now at the Council on Foreign Relations. “It isn’t seeking that China step back from guiding the foreign exchange market; rather, the administration wants China to resist depreciation pressure.”

Schumer Says Trump’s Phase-One China Deal Is Too Weak – WSJ $$

Mr. Schumer, in a letter to the White House released Tuesday morning, said U.S. businesses stand to lose billions of dollars if the administration can’t secure concrete commitments from China to stop subsidizing domestic firms and sponsoring efforts to steal intellectual property, among other changes. Making a temporary deal could concede leverage the U.S. needs to pressure China, Mr. Schumer said.

2. US Secretary of State Pompeo’s speech on China and technology

He gave it at the Commonwealth Club in San Francisco to the Silicon Valley Leadership Group. I believe it is one in the series of speeches Sec. Pompeo promised he would make about China

Silicon Valley and National Security – United States Department of State – Speech By Mike Pompeo

I want to talk to you about one specific topic today, the challenges and opportunities that the United States has with China. We need to think bigger, perhaps, and better as well. Because I am convinced that we can cooperate with China, as this administration has shown with what I hope will be in the next several hours the signing of a phase one trade deal. That’s a fantastic thing, I believe, for the United States. We’d welcome more of it.

But we also have to honestly confront tough questions about the national security consequences of doing business in a country controlled by the Chinese Communist Party. That especially goes for companies that develop some of our most sensitive technology, as many do here in this region…

Under Xi Jinping, the CCP has prioritized something called “military-civil fusion.” Many of you will know this. It’s a technical term but a very simple idea. Under Chinese law, Chinese companies and researchers must – I repeat, must – under penalty of law, share technology with the Chinese military….

I also want to remind each of you as Americans, as citizens of a free nation, that it is increasingly at risk from Chinese actions that may undermine the very freedom that you have to build your business and create. This is not to be alarmist. It’s not to be threatening. It is for all of us to be aware of.

Look, that’s already happened in Washington, D.C. We now see China for what it is, not what we wish it would be. It’s happened on both sides of the political aisle, and American companies have also rallied to patriotic causes. It’s a long history of that here in the United States. Any of you who have read history would remember that the so-called “Arsenal of Democracy,” also known as American manufacturing, was essential for our victory back in World War II….

with respect to 5G we see so many countries that are completely unprepared for what installing 5G technology in their nationwide systems will do for their security. You go to European countries and they’re keenly aware of the need to protect the private information of their citizens, their health care records, all of the things that none of us want out in the public space, and yet they’re prepared to make that – allow that information to transit across Chinese infrastructure.

And I remind them – and this is an imperfect analogy, and I’m deeply aware of that – but none of us would have installed Soviet technology. Right?

Foreign Ministry Spokesperson Geng Shuang’s Regular Press Conference on January 14, 2020

On Monday US Secretary of State Mike Pompeo warned US tech companies against China’s so-called “Orwellian surveillance state”. Does the foreign ministry have any comment on that? And how does China view the US Treasury decision to remove the currency manipulator label for China?

A: On your first question, I haven’t seen the latest remarks from the US and will need to check for more information. However, this won’t be the first time the US has made such remarks. Certain individuals in America keep attacking and smearing China by force of habit. This has not only tarnished America’s international credibility, but has also been questioned and rejected by more and more countries. We urge the US to give up its prejudice and obsession against China and work to create an enabling atmosphere for the development of China-US relations.

A non-partisan DC think tanker’s view – Fear Not Technological Disengagement and Competition with China – War on the Rocks

The degree to which technological disengagement is beneficial to U.S. national interests should be determined through defining American goals in the U.S.-Chinese relationship and assessing the strategic paths available to U.S. policymakers. A technology cost-imposition strategy should not constrain China’s development for its own sake. But technology is inherently linked to national security, and technology and innovation are fundamental American strengths. Technology is therefore a favorable domain to which policymakers in Washington can shift Sino-U.S. competition and incrementally apply pressure to Beijing within a broader long-term strategy of compelling China to recognize international laws and norms and abstain from destabilizing behavior. – Jack Bianchi is a senior analyst at the Center for Strategic and Budgetary Assessments, where he focuses on Asia strategy and U.S.-Chinese competition

David Llewellyn-Smith
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