by Alex Davidson

The arrest in Canada of the Chinese company Huawei’s Chief Financial Officer, Wanzchou Meng, on 1 December 2018 at the request of the United States authorities, signalled the opening of another front in the U.S. trade war with China.

Wanzchou Meng is accused of helping the Chinese company, Huawei, cover up violations of sanctions on Iran. Meng, as well as being Huawei’s Chief Financial Officer, is deputy chairwoman of the company’s board. She is the daughter of Huawei’s billionaire founder, Ren Zhengfei. The arrest came at the same time in December 2018 as Presidents Trump and Xi were meeting following the G20 summit in Buenos Aires. At that meeting they agreed to suspend further tariff increases for a 90 day period until 1 March 2019.

This arrest and the other actions against Huawei indicate that the trade war, which the U.S. began in 2018, is now going beyond the tariffs already imposed and is entering a new phase involving high-tech.

Trump promised in his election campaign to put “America first” including ending what he described as the “unfair trade relationship” with China. Trump began the trade war in early 2018 and since then, until the temporary suspension agreed in December, there has been a tit-for-tat imposition of sanctions by both countries (see timeline)

HIGH TECH

The new front in the trade war between the U.S and China is over domination of the information technology industry.

Huawei is the second big Chinese tech company to be accused of breaching sanctions against Iran – the first was ZTE Corp. in 2017. The United States punished ZTE by forbidding it from buying American components, most importantly telecom chips made by U.S. based Qualcomm. These purchasing restrictions were eventually lifted after ZTE paid a substantial fine and agreed to replace its senior management.

Huawei has just overtaken Apple becoming the world’s second largest smartphone maker (Samsung is first). U.S. moves against Huawei and ZTE may be intended to force China to remain a cheap supplier instead of a threatening competitor.

The impetus for the high-tech trade war goes far beyond the focus on tariffs and it seems likely that U.S. tech companies as well as the military intelligence communities are influencing U.S. government policy. More systematic efforts to block Chinese access to U.S. components, increasingly by blocking Chinese investments in U.S technology companies, are being made using “national security” as the reason.

However, as in the tit-for-tat tariff measures, China is not passive. The U.S. company Qualcomm, the world’s biggest smartphone chip maker, abandoned its bid last year to buy the Dutch semiconductor company NXP after failing to secure Chinese regulatory approval. Qualcomm had sought to buy NXP because of its market position as the dominant supplier to the automotive market as car makers add more chips to each vehicle each year. Qualcomm needed approval from China because the country accounts for nearly two-thirds of its revenue. The Chief Executive of Qualcomm commented, “We obviously got caught up in something that was above us”.

It is not easy to separate high-tech industrial and corporate dominance from military dominance so one needs to see this as perhaps the most significant and far-reaching part of the trade war. 

In the U.S. it is now seen as a major threat if Chinese companies buy American companies and then transfer their intellectual property or have their employees train their Chinese replacements. By blocking these investments the Trump administration hopes to preserve U.S technological dominance for longer.

The EU, which has opposed Trump’s tariffs, is copying American investment restrictions, notably against Huawei. This may be another indication that the less-publicised high-tech trade war is actually the more important one. Losing the lead in the global technology race means lower profits and, most importantly, a disappearing military advantage.

China’s successful mission to land on the dark side of the Moon will be seen as another threat to U.S. domination. 

 

President Donald Trump and President Xi Jinping

2018 Timeline - U.S. Tariffs and China’s retaliation

• January 22 President Trump placed a 30% tariff on foreign solar panels. China, the world leader in solar panel manufacture, decried the tariffs. That same day, tariffs of 20% were placed on washing machines for the first 1.2 million units imported during the year. In 2016, China exported $425 million worth of washers to the United States.
• March 1 President Trump imposed tariffs of 25% on steel and 10% on aluminium. The tariffs would have a greater effect on some other countries, including allies such as Canada and South Korea, than China.
• March 22 President Trump asked the United States Trade Representative to investigate applying tariffs on $50–60 billion worth of Chinese goods, stating that the proposed tariffs were "a response to the unfair trade practices of China over the years", including theft of U.S. intellectual property. Over 1,300 categories of Chinese imports were listed for tariffs including aircraft parts, batteries, flat-panel televisions, medical devices, satellites and various weapons.
• April 2 China responded by imposing tariffs on 128 products it imports from America, including aluminium, airplanes, cars, pork, and soybeans (which have a 25% tariff), as well as fruit, nuts, and steel piping (15%).
• On April 5 Trump responded saying that he was considering another round of tariffs on an additional $100 billion of Chinese imports as Beijing retaliates. The next day the World Trade Organisation received a request from China for consultations on new U.S.tariffs.
• May 20 Chinese officials agreed to "substantially reduce" America's trade deficit with China by committing to "significantly increase" its purchases of American goods.
• May 29 The White House announced that it would impose a 25% tariff on $50 billion of Chinese goods with "industrially significant technology", the full list of products affected to be announced by June 15. It also planned to impose investment restrictions and enhanced export controls on certain Chinese individuals and organisations to prevent them from acquiring U.S. technology. China said it would discontinue trade talks with Washington if it imposed trade sanctions.
• June 15 Trump declared that the United States would impose a 25% tariff on $50 billion of Chinese exports. $34 billion would start July 6 with a further $16 billion to begin at a later date. China's Commerce Ministry accused the United States of launching a trade war and said China would respond in kind with similar tariffs for US imports, starting on July 6. Three days later, the White House declared that the United States would impose additional 10% tariffs on another $200 billion worth of Chinese imports if China retaliated against these U.S. tariffs. 
• June 19 China retaliated almost immediately, threatening its own tariffs on $50 billion of U.S. goods and claimed the United States had "launched a trade war."
• July 6 American tariffs on $34 billion of Chinese goods came into effect. China imposed retaliatory tariffs on US goods of a similar value.
• July 10 The U.S. released an initial list of the additional $200 billion of Chinese goods that would be subject to a 10% tariff. China vowed to retaliate two days later with tariffs on American goods worth $60 billion annually.
• August 8 The Office of the United States Trade Representative published its finalised list of 279 Chinese goods, worth $16 billion, to be subject to a 25% tariff from August 23. China responded with its own tariffs of equal value when the American tariffs were implemented on August 23.
• August 14 China filed a complaint with the World Trade Organisation, claiming that US tariffs on foreign solar panels clash with WTO ruling and have destabilised the international market for solar PV products.
• August 23 the US and China's promised tariffs on $16 billion of goods took effect and on August 27 China filed a new WTO complaint against the US regarding the additional tariffs.
• September 17 The US announced its 10% tariff on $200 billion worth of Chinese goods would begin on September 24, increasing to 25% by the end of the year. They also threatened tariffs on an additional $267 billion worth of imports if China retaliates, which China promptly did on September 18 with 10% tariffs on $60 billion of US imports. So far, China has either imposed or proposed tariffs on $110 billion of U.S. goods, representing most of its imports of American products.
• December 1 The planned increases in tariffs were postponed. The White House stated that both parties will "immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft."