Is ZTE Ban The Start Of A Tech War Between China And The US?

- Apr 25, 2018-

As everyone who follows China knows, the US Department of Commerce has imposed a denial of export privilegesagainst ZTE, China’s second-largest telecommunications equipment manufacturer, thus prohibiting US companies from selling essential electronic components and software to ZTE, a crippling sanction. 

ZTE may be too big to fail, given China’s global technology ambition

China has responded resolutely, with targeted actions that seem selected from expert scenario planning, as well as with rhetoric, both high indignation and nationalistic bravado. 

From China’s perspective, according to its Ministry of Commerce, “If the United States attempts to curb China's development ... it miscalculates. The action targets China; however, it will ultimately undermine the US itself,” affecting tens of thousands of jobs and hundreds of related US enterprises. 

“Targeting technology is like throttling the neck of the Chinese enterprises,” wrote China Daily. “The ZTE case should remind China's decision-makers of the urgency to become self-sufficient in core technologies.”

Why ZTE ban might be the best thing ever for China’s chip ambitions

President Xi Jinping has been prescient about domestic control of core technologies, especially related to the internet and more recently to artificial intelligence. Since taking office in 2012, he has stressed the “hidden risks” that come with core technologies not being mastered domestically. He said, “Heavy dependence on imported core technology is like building our house on top of someone else's walls: no matter how big and how beautiful it is, it won’t remain standing during a storm.” Innovation is the first of Xi’s “five major concepts of development”. 

From the US perspective, according to its Department of Commerce, the prohibition against ZTE is punishment for ZTE violating US sanctions against Iran and North Korea, making false statements and obstructing justice, and then after reaching a settlement agreement, violating it.

The United States claims it is not resisting China’s rise, but rather the country’s unfair or illegal means to achieve it. The US action enumerated four such practices as rationale for imposing punitive tariffs, all relating to technologyor intellectual property: foreign firms in China are required to form joint ventures and transfer knowledge, as well as license technology with below-market terms and conditions, while the state supports Chinese enterprises in acquiring foreign hi-tech assets, and sanctions commercial cyber theft. 

President Trump is wildly unpopular among American elites, especially among policy experts, who do not need much of an excuse to criticise him – note the fusillade of attacks on Trump’s tariffs. But these elites are not criticising Trump on US moves to counter what they, with unusual consensus, perceive to be China’s unfair policies, and in some cases unlawful programmes, to become a world leader in state-of-the-art technologies, especially AI, information technology, robotics,advanced manufacturing, new energy vehicles, aviation and biotechnology. 

Don’t call this Trump’s trade war. It’s much bigger than that

China claims that it is still a developing country, so different rules apply, a foundational principle of the World Trade Organisation. Beijing also claims that the country itself is a victim of discriminatory policies restricting its imports of hi-tech products.

Projecting malevolent motives and seeing sinister conspiracies is the easy way out

Of course, China had to respond with appropriate actions as well as confident words, imposing heavy tariffs on US sorghum and signalling that additional agricultural tariffs were at the ready, along with barely veiled threats against US companies operating in China. 

Here’s my fear. While I have argued that most mainstream American experts are not motivated to impede China’s rise, as many in China believe, I can no longer make that argument persuasive. 

In the US, there has been a dark turn among experts that US policy towards China, calibrated over four decades to shepherd China’s rise, has failed: China, they have come to believe, has become a competitor and may become an adversary, and that US relations with China must now be managed as with an emergent adversary, not as with a developing partner. 

In China, nationalistic voices are on the rise, castigating the US for its self-serving motivation to impede China’s rise, and calling for China to become more self-reliant, more rapidly, especially in world-class semiconductors, so that the country would not be vulnerable to US “blackmail”. 

The US and China must each figure out how not to confirm the other’s self-fulfilling prophecy

Welcome to the unhappy world of self-fulfilling prophecy, where the actions of each side in response to a perceived threat from the other side increases the likelihood of that threat morphing from theoretical to actual.

To both sides, I offer two pieces of advice. First, take a breath and a fresh look, because the road on which you are travelling will not lead to a happy place. 

Second, contemplate why the other side is misinterpreting your actions. To my American friends, what makes China think the US is resisting its rise? To my Chinese friends, what makes the US think that China is a competitor and may become an adversary? 

Projecting malevolent motives and seeing sinister conspiracies is the easy way out. It can solicit cheers and plaudits in one’s domestic media, but it will impede progress and is likely to be self-defeating. The US and China must each figure out how not to confirm the other’s self-fulfilling prophecy. 

Robert Lawrence Kuhn is a public intellectual, international corporate strategist and investment banker, and China expert and commentator. He is the author of How China’s Leaders Think and a co-creator (with Adam Zhu) and host of CGTN’s “Closer to China with R.L. Kuhn” and “The Watcher” commentaries 

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