Trade, technology and hostage-taking

Muhammad Mahmood | Published: December 29, 2018 21:09:13 | Updated: December 29, 2018 22:15:31

While it is very difficult to know or even understand the inner workings of the Trump administration relating to its trade negotiation to strike a "deal'' with China, but with the arrest of Meng Wanzhou, a very senior executive of Huawei, the symbol of China's increasing technological prowess, clearly indicates the core issue that the US is pursuing in the guise of a trade war with China is far more than trade. But here there is no suggestion that there are no trade issues involved in its dispute with China. There are, and they are getting increasingly integrated into a war to thwart China's technological advances. The US has apparently adopted a new approach - hostage-taking - in conducting negotiation with China. Both Canadian Prime Minister Justin Trudeau and President Trump's adviser John Bolton admitted that they knew in advance of Meng's arrest. Surprisingly, President Trump did not know about her arrest while he was having dinner with President Xi at the G20 Summit. John Bolton did not think it was necessary to pass on the information to his president.

The arrest of Meng has been portrayed as a legal action relating to the unilateral US sanctions (against the UN Security Council resolution in which favour the previous US administration also voted) violations against Iran. These sanctions have no legal validity under the international law. The criminal charges brought against Meng by the US are clearly trumped up and politically motivated. In cases like those of J.P. Morgan or many other financial institutions around the world and US corporations on previous occasions for violating US unilateral sanctions, a fine was imposed and no arrest warrant was issued or an executive was arrested or held responsible for alleged cases of sanction busting. Ericsson and Samsung also sell to Iran but are not sanctioned or any executives are being arrested. The case against Meng is very selective. Meng has clearly been targeted for a special treatment. That special treatment even extends to her humiliating bail conditions which include she must wear an electronic ankle tag  at all times and pay for her round the clock security detail to watch her every move.

The arrest of Meng in Canada at the behest of the US is clearly a case of hostage-taking. President Trump himself has said he could use his presidential power to intervene in the case of Meng if such an intervention results in serving US national security interest and enhance securing a trade deal favourable to the US. Hostage-taking is the new strategic ploy or one may say, the new art of US trade diplomacy which possibly can be extended to other fields of diplomacy in the future.

This arrest also signals that the Trump administration is determined to enforce its illegal sanctions against Iran, in particular and sends a signal to EU companies what consequences they face if they do not tow the US line on Iran. Such hostage-taking by weaponising the law by the US to secure a trade deal and to secure its military-strategic objectives make this world a far more dangerous place as such behaviours can get a life of their own and can spin out of control. Indeed, Robert Lighthizer has forewarned more such actions will follow. No wonder, the US Justice Department has published  indictment  of two Chinese citizens for  alleged espionage involving  collection of  US government and corporate data. The timing of the indictment is not very surprising.

In essence, Trump is pursuing a trade policy based on power, and not based on rules. He has almost rendered the World Trade Organisation (WTO) an ineffective multilateral institution. The two largest trading nations, the US and China are now playing by different rules; one pursuing power-based bilateralism and the other rules-based multilateralism. Such divergent trade policy orientation will have serious consequence for the global trading system.

The arrest of Meng represents a very significant escalation of the ever-deepening economic and military-strategic conflict between China and the US. The US is completely determined to prevent China from realising its goal of becoming world's leading high technology goods producer by 2015. This is because that would enable China to make dent into the market share and profits of US high tech companies which are also closely integrated into the US war industry.

There is complete bipartisan support for Meng's arrest which conforms to targeting China's high tech industry and bullying US corporate rivals in other countries. Meng's arrest was a well-planned action against Huawei. The company has been on the US hit list for a very long time and is seen as not only a commercial risk but also a risk to US technological dominance. The other Chinese telecommunication manufacturer, ZTE has also been subject to financial and other penalties and bans for alleged violation of US sanctions against Iran and North Korea.

The current development surrounding the arrest is clearly a part of a US-led international effort to disrupt and destroy China's technological giant. Washington has successfully been able to bring in line Australia and New Zealand to block Huawei products from 5G network and to limit its role in their mobile phone network. In UK, the head of MI6 has spoken out outlining how far it was willing to deal with Huawei. Accordingly, British Telecom has announced that it would exclude Huawei from its 4G operations as well as Huawei products from its 5G networks. Now Tokyo is actively considering to ban Huawei and ZTE from government contracts. It must be noted that the US has already banned Huawei from its 5G networks. In a broader context the US has undertaken a campaign to dissuade its other allies from using Huawei telecommunications equipment using security concerns as a pretext.

China has now also been blamed for technology theft in addition to currency manipulation which was Trump's initial salvo in the blame game against China. The US faced similar charges of technology theft from the UK in the mid-19th to early 20th century. Corporate espionage is a common phenomenon in all advanced industrial countries including the US - in fact, US companies spy on other US competitors in the domestic market. This is not a uniquely US or Chinese phenomenon. Technology is both a cumulative and iterative process. But the US seems to consider technology is some kind of purely home-grown process and can be preserved or locked up eternally for all the benefits it bestows on the US.

Trump's trade negotiations with China are part of a much broader US attempt to push back on Chinese technological advances as reflected in growing concerns about this in the US. Large tech firms in China are not very different from those in the US - they all want a larger share of the global market. The US strategy is to shut out large Chinese tech firms from markets. Accordingly, Australia, New Zealand, the UK and Japan have decided to exclude Huawei telecommunications equipment. China already accounts for about 15 per cent of global high tech products market and is eager to increase its global market share. This is not something the US likes to see happen. This is why the trade talks between the US and China are getting so much attention.

While China runs trade surpluses in merchandise with US, it runs substantial and increasing trade deficits in services with the US. The US ban on Chinese scholars' participation in many areas of scientific research and Chinese students' undertaking courses in many areas of science and technology will only encourage to redouble China's effort to be self-sufficient in a whole range of areas. In fact, China has moved a long way and is emerging as a country of leading edge technologies, if one looks at increasing number of patents, papers published in scientific journals and a whole range of other areas. China also spends a considerably larger share of gross domestic product (GDP) for research and development. Now China has reached a stage when it has no less interest in safeguarding and protecting intellectual property rights than the US.  The size of the Chinese economy will be much larger than that of the US within a decade. In view of these basic facts, China is virtually certain to have far more advanced home-grown technologies than the US.  China is no longer a copycat, and the US knows that. China is now becoming the hub of new technologies rivalling the Silicon Valley.

Muhammad Mahmood is an independent economic and political analyst.

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