An analysis of the current US-China set of trade and associated policy disputes with possible outcomes for business and government policy makers.

1. Between the Eagle and the Dragon: Global Trade in the Coming Decades
Mark Freeman
25 July 2019
Trade disputesinvolvingthe UnitedStatesare nothingnew withpastdisputeshavinghadpredictableor
expectedoutcomes. The USand Japan haddisputesin the 1960s over textilesandsteel withthe
outcomesbeingthe productionof value addedgoodsleadingtothe MITI miracle of planningandthe
world’sthirdlargesteconomy. Japanis bothan allyanda competitor.
DevelopmentsandstoriesregardingUS-Chinatrade disputes change rapidly. Storiesaboutthe US,
Chinaand othercountriesare part of the currentmediacycle,butthey oftendonot lastlongas “foreign
policy”or similarissuestendtobe of fleetinginterestfor mostAmericans.
The relative insularityof Americasince the endof WWIIor at leastsince the endof the ColdWar has
largelyeroded,butAmericansremain largely unaware of global eventsandhow these eventscould
affectthem. The Americanmediacontributestothisinsularitywith scantcoverage of international
eventsbeyondcrisisorientedsituations. Lookingback andexaminingcurrentconditions makesacase
for whyAmericansshouldpay closerattentionascurrent eventsare shaping theirfuture.
THE DRAGON
Chinaisa rival withthe world’ssecondlargesteconomy ataslowinggrowthrate of approximately6%
and ismovingto produce value addedgoodsandservicesjustasJapandidfiftyyearsago. The current
US-Chinatrade dispute isbutone episode with more tocome asthe stakesclimbinthe comingdecades.
Chinaisusingeverymethodpossible to protecttheirinternal stability, achievetheirowngoalsof
political andeconomichegemony,protecttheirglobal supplylines andprojectpower. Withaboutfour
timesthe US population,Chinafeelstheyshouldhave aneconomythatisproportionate totheirsize
and some feel they will eventuallydominatethe world. The Opiumwars beginningin1839, the defeat
inthe China-Japanwarof 1894-95, the May FourthMovement,World War IIand the foundingof the
People’sRepublicof China70 yearsago are touchstonesfora populationwithalongmemory and
differentviewpoints.
The backdrop of China’shistory playsarole in China’sreactiontocurrenteventsandpart of that
reactionis manifestedin the feelingthatAmericansare tryingtokeepChinadown asa global powerand
undermine the “Chinese Dream”. Chinacannotbe seenas“cavingin”to America. A side effecthas
beennationalisticsentiment stemmingfromAmerican actionsonHuawei resultinginlowersalesfor
AmericancompaniessuchasApple orStarbucks inChina. Chinese foreigndirectinvestmentinthe US,
howeversmall relativetoothercountries’FDI, will decline atleastuntil the trade issuesare resolved.

2. In 1972, NixonandMao “opened”Chinatothe worldafteryearsof internal Chinese tumultand 1975
was the lasttime the US enjoyedatrade surpluswithChina. ChinareintroduceditselftoAmericain
1980 whenthe firstlarge scale trade missionvisited multiple citiesacrossAmerica.
Chinaremains largely unknowntoAmericansand oftenunderestimatedby policymakersin American
governmentandinAmericanbusiness. Policy anddecision makersshouldatleastscanSunTzu’s “Art of
War” foran outline of Chinese strategies.
Since accessiontothe WTO in 2001, the US and Chinahave enjoyed andwill continue toenjoy (after
“deals”are reached) mutuallybeneficial trade,butthe USissaid to have lostovertwomillionjobswith
the lossof those jobspoliticallyattributedtoinvestmentsinChina. Those investmentscame with
stringssuchas local partnershipsthatrequiredgivingupintellectualpropertyorindustryknow how.
Additional complaintswere thatChineseoperations of foreigncompanies facedrisingcosts, lessthan
transparentoperational rulesorthat state subsidies disproportionately supported local competitors.
Chinese requirementsandactionsviolatedWTOrulesandunderminedUSbusiness,but affected
Americancompanies are saidtohave toldthe US governmentnottoraise these issuesasbusiness
answeredtotheirshareholdersand these businesses didnotwanttheirChinese operations orprofits
harmedby raisingoftenlegitimate complaints.
Since 2001, the US has arguablyhadtheirforeignpolicyfocusonotherpartsof the worldwithbelated
attentionpaidtoChinaand manifestedinthe currenttrade and foreignpolicychallenges. The US is
currently seenbyChinaandothercountriesasin relative disarray,inreactionarymode ornotwanting
to playa leadingrole onthe global stage. Chinawantsto lead the world,isexploitingthe relative
disarray of US leadershipandAmericahas tofinditself given existingand emergingrealities.
THE WORLD’S SECOND OLDEST PROFESSION
Chinese intelligenceandcounterintelligence use cyberattacks,cybertheft,espionage,industrial coercion
and intellectual propertytheftto more quickly achieve economicandmilitarygoals. State ownedand
private competitors use stolentechnologyorreverse engineeringtocreate similardesignsthatcompete
withforeigncompaniesandbuilduponthose designstobecome greatercompetitorsinthe coming
decades. Chinese state subsidiesorcheaploanshave addedto theircompetitive advantages.
THE EAGLE
The current US administration,aswithprioradministrations,isaware of tacticsand measuresusedby
Chinato achieve theirgoals. Departingfrompastpractice,the currentadministrationconfrontedChina
by imposingtariffs withgoalsof mitigating trade conditions, trade practicesorcounteringvarious
Chinese policyobjectives. The “trade deficit”wascitedasthe reasonforthe impositionof tariffs,but

3. modificationof internal andexternal Chinesepolicies,the rise of theirmilitary andpracticesregarding
technologyare drivingreasonsforcurrentUS policies.
A 2015 agreementbetweenthe USandChina to reduce cyberattackshadverylimited success,butthe
attacks didnot endnor does the ongoingtheftof intellectual property.
China’sMinistryof State Security,the Ministryof PublicSecurity, PLA andthe Shanghai State Security
Bureauare actors ininternal andexternal operations. Estimatessuggestthereare thousandsof Chinese
intelligence operativesinthe USand greaternumbersinside Chinaseekingtoacquire foreign
intellectual propertyand“knowhow”.
Americanshave soldclassifiedsecretstoChineseintelligenceandat leastone Chinese mole inthe CIA
had the effectof unravelingthe agency’snetworkinChinawithunknownnumbersof agentskilledor
imprisoned.
In the wake of the 2013 EdwardSnowdencase andthe 2017 leakof the NSA’sEternalBlue hackingtools,
Chinahas beenusingleaked hackingtoolstoincrease probesandcyberattacks ona varietyof publicand
private targets.
Chinese intelligenceoperationstargetingUSintellectual propertyare active inthe US, butalso inIsrael,
the EU and othercountries once deemed“safe”bysome. These investmentsinothercountriessuchas
Israel are not benignwith commercial, intelligence andmilitaryimplicationssuchasthe Chinese run
port of Haifa where the US Navycalls.
In October2018, the US extraditedfromBelgiumand indictedaChineseoperative of the Ministryof
State Securityforespionage relatedtoattemptstoobtainjetengine fandesigns. InJanuary2019,
PolandarrestedaHuawei employee forespionage. InJuly2019, the Swissgovernmentagreedto
extradite aChinese national tothe US on chargesrelatedtotheftof what wassaidto be $500 million
worthof intellectual propertystolenfromGlaxoSmithKline.
On 1 December2018, Canada detainedatUS request, Huawei CFOMengWanzhou oncharges related
to fraud,theftandviolationof financial sanctionsagainstIran. The US requestedextraditionof this
personon29 January2019. InvestigationsintoHuaweidatingback to2007 ledto criminal charges
beinglodgedagainstHuawei forbankfraud, wire fraud andintellectualpropertythefton28 January
2019.
Priorto the impositionof tariffsunderthe currentadministration, partof the US attitude mayhave been
“as longas we get cheapgoods, little actionwill be takenagainstthe Chinese regardingintellectual
property”. True or not, one estimate suggestedthatthe importationof “cheap”Chinesegoodsresulted
ina 0.29% downwardpressure onUSinflation.
The current administrationwithdrewfromthe TPP,Japanledthe now ratifiedCPTPPand the US wasnot
able to capitalize onintellectual propertyprotectionsitfavoredwhichmighthave shapedfuture WTO
updatesor bilateral US-Chinanegotiations.

4. Retaliatorytariffswere imposedbyChinese,EUand otherUS tradingpartnersthat are now affecting
global trade. Tariffsare easyto impose andtoughto remove. The resultsinclude increased volatilityon
global stockexchanges,reducedbusinessinvestments, slowingconsumersalesinChina andelsewhere,
lowerthanexpectedsalesinadditionalcountrieswiththe likelihoodthatthe current trade episode will
exacerbate global weaknessesinafuture cyclical downturn. The questionis how tounravel the tariffs
and othermeasuresafter“deals”are reached.
AMERICAN BUSINESS
Americanagriculture hassufferedthe mostinthe currenttrade situationwith 2018’s $12 billionin
supportand Farm Bill assistance. The currentadministrationhas tentatively promised$16billioninthe
wake of additional American tariffsandChineseretaliatory tariff increasesinMay2019. What happens
to these producersina prolongedtrade war thatnow extendsinto 2020 and lateror in notdissimilar
episodes?
A shiftfroma focuson Chinato southeastandsouthAsianmarkets alreadyhadbeen occurring,butthis
shifttoother markets isaccelerating. Americanagricultural exportsare well knownfortheirqualityand
manyof these exportersare aware of global marketsinwaysthatotherAmericanbusinesses mightonly
now be exploring.
The longerthe current trade war drags on,the greaterthe damage will be toAmerican agricultural
producers. Inlightof uncertainty,recentMidwestfloodsandmore,agricultural exportersshould
prepare fordifficulttimes inthe neartermfuture. Argentina, Brazil,Ethiopia,Indiaandothernations
view the US-ChinasituationasanopportunitytoaccessChinese marketsandhave beensuccessful in
pursuitof thismarket. Long termcontracts betweenChinaand othercountriescould erode American
marketshares for yearsto come.
In the example of whatwasthe $200 millioncherryexportmarketinChina,17 yearsof market
developmentare beingunderminedby50% Chinese tariffswith new suppliesfromTurkeyand
Uzbekistanthatmay remainaftertrade agreementsare reached. A possibleoutcome isthatexportsto
Chinafor variousUS commoditiesmight notrecoverforyearsor not reachlevelsenjoyedpriortothe
currentround of trade disputes.
Americanbusinessesof varioustypesshould continue toemphasize the EUand expandtheirvisionto
include marketsinAfrica,the Middle East,Indiaandthe restof Asiato reduce riskand bettercompete
withChinaas well as the balance of the world. Unfortunately,there maybe adearthof resources,
resolve orvisiontopursue these additional markets.
Africaisunderestimatedandpaidlittle attentionbyAmericanpolicymakers. Besidesmineral
extraction,itoffersalongtermopportunityformanufacturing, media, services,technology and
agriculture. Africaisworkingtoreduce tariffsthroughthe AfricanContinental Free Trade Area thatis

5. yetto be ratified byall members. Chinacontinuestomake aggressive investmentsinAfricathatwill
offerlongtermgains on theirinvestments.
The US shouldsupportasmany trade promotionefforts aspossibleincludingOPICorthe Ex-ImBank.
The Ex-ImBank mustbe reauthorizedby9.30.2019 and shouldnotbe subjectto ongoingideological
assaults. Projectslookelsewhere forfinancingandthe outcomesbenefitothercountries.
At present,itappearsunlikelythatFederal orState governmentswill provide the additional and
necessarysupportfortrade promotioneffortsthat will assistAmericanbusinessestoregainlostor
underminedmarketsstemmingfromthe currenttrade war as well asto consistentlysupport and
expandfuture exports.
THE DEAL
Findingacceleratedtrade agreementsortariff relieffor Americanbusinesses iscritical forbothshort
and longtermreasons as the global economybecomesevermore competitive.
The US and Chinabothneeda “deal”and one will be struck fora varietyof reasons,butthat deal will be
of little longtermsubstantive value fromthe perspectiveof alteringChinese policiesthatpursue
intellectual property.
Chinamay make pledgestopurchase more US goods,butpledgesandtalksare cheap, differentfrom
actions,of questionablelongtermvalue andtheyare effective negotiatingtactics. Implementationof
newlaws,guidelinesorpracticescouldtake yearsand be metwithinternal Chinese resistance. Both
partieswill trytosave face inthe deal and Chinawill continue to adhere totheirlongtermgoals.
Chinaismovingto develop theirownfinancialservices,taplocal capital orallow more foreignaccessto
theirmarket. Americanfinancial servicesincludinginsurance have longdesiredaccess toChinese
financial markets. InJuly2019, Chinaannouncedaneasingof restrictionsonforeignownedfinancial
operationsinChinatotake place in the comingyearor two. UBS, Nomuraand JPMorgan Chase have
approvedplansinplace. China’sSTARexchange launchedinJuly2019 andis a versionof the NASDAQ.
CHINESE POLICIES
Substantive dealswiththe EUand othersto relax trade tariffswill eventuallybe struckandare good first
stepsto mitigate whatisnowdeemedaUS-Chinatrade war.
Despite some internalpolicydissentrelatedtothe size of theirinvestments, Chinawillnotend
Manufacturing2025 or Beltand Roadas theyare centerpiecesof Xi Jinping’spolicies.
Manufacturing2025 or Made inChina2025 is a strategicplanto produce value addedproductsinareas
such as aerospace,automobilesandpharmaceuticalsthatcancompete inthe global marketplace

6. againstestablishedproducersinthe EU,the US or Japan. Manufacturing2025 drives researchasitalso
drivesespionageactivitiesrelatedtointellectualproperty, economicdataand fleetingmilitarysecrets.
The policyillustratesChinese pursuitof self-sufficiencyintechnologyaswell as whattheymightviewas
global dominance inthe comingcentury.
Beltand Road is an importantChinese policysupplying fundstobuildthe infrastructure somanynations
are understandablycraving. Thisisan evolvingand longtermgovernmentpolicythatisnot“failing”as
some analystshave written. Ascreditor,Chinagainsaccesstonatural resourcesandinfrastructure.
Major projectsinclude: rail linksbetweenChinaandthe EU, a rail linkto Iran,road and rail linksto
Gwadar, Pakistan,aninternationalinlandrail facilitybetweenChinaandKazakhstan,oil andgaspipeline
projectsincentral Asia, the $1.4 billion ColomboportprojectinSri Lanka, port and trade facilities inAsia
and across Africato the operationof the GreekPortof Piraeus. Gwadarisexpectedtobe a militarybase
withinafewyears.
The benefits of BeltandRoad already accrue to Chinainthe form of militarybases inDjibouti, Sri Lanka
(Hambantota),Tajikistanandislandsinthe SouthChinaSea. A naval base for Myanmar has been
explored. Plannedairandnaval bases inKohKong, Cambodiawill addgreatercapacityforthe PLA.
Chinaalready “rules”the SanHai (Yellow,EastandSouthChinaSeas) andthe 400 shipstrong PLA Navy
isaggressivelybuildingafleetthatwill includefouraircraftcarriersby2035 withfuture operationsin
the Indianand westernPacific. The size of the Chinese Navyisestimatedtosurpassthatof the Russian
Navywithinfive years.
IndebtednesstoChinaaddsinfluence of manytypes acrossCentral Asia,Africaaswell asSoutheastAsia.
Accordingto a German-AmericanreportreleasedinJuly2019, Chinahas become the largestglobal
creditorwithconditions, termsandthe extentof those loansremainingunclear asChinadoesnotshare
that informationwiththe IMFor the WorldBank.
Three quartersof Chinese directloanscame fromthe Chinese government andthisputstheminthe
driver’sseatwhencollectingondebtsintimesof crisis. Infrastructure andnatural resourceshave been
pledgedascollateral. Ecuadorpledged80% of theiroil productionascollateral forChineseloans. Itis
estimatedthatChineseownedorsecuredassetsare about$6 trillion.
The influences of bothmajorpolicesare nottobe underestimated,butChinamay notalwaysprevail as
othernationssuchas Malaysiahave put the brakeson projectsthattheysee as affecting theirnational
securitywithoutcomessuchas rewardingcorruptofficials, excessivedebtorpolitical fealty. However,
Malaysiaapprovedscaledbackversionsof previouslyhalted BeltandRoadprojects inApril 2019.
Othercountries are reassessingthe use of Chinese materialsandChinese laborinsteadof local laboror
local materials onthese projects. Some countriesare evaluatingthe impactsof the projects and
growingChinese influence ontheircountries.
Beinga creditorcan be a twoedgedsword. Chinais saidto be more closelymonitoringandevaluating
global projectsandwhethertheyare trulyfeasible inlightof basiceconomicsandwhetherprojectsraise

7. negative publicityforChina. In one example,Chinahas suspendednearly$5billioninloansforaneast
Africanrail system thatmightnot generate enoughrevenuetopayfor the investments.
Chinahas been advocatingfora newtradingbloccalledthe (Regional Comprehensive Economic
Partnership) RCEP forat leastfive yearsthat wouldinclude Indiaandexcludethe US in a type of anti-
CPTPP. The effectwouldbe toshape trade toChinese advantage andnow take care of excessChinese
productioncapacityinlightof fallingUSsales. Thispact is saidto be discussed atmeetingsinAugust
and November2019, but it iscurrentlyopposedbyIndiaasthat country assessescurrenttrade
developmentswithfuture economicandpotentialmilitaryrepercussions.
DON’T DEMONIZE THE DRAGON
The current zeitgeistandanalysisshouldnotdemonizeChinaasloomingconflictsacrossthe globe have
already invitedlatterdayAthensandSpartacomparisons withanticipatedmilitaryconfrontations.
Freedomof NavigationOperations(FONOPS) byUSand otherpowersinandaround the SouthChinaSea
and elsewhere combinedwiththe growthof the Chinese Navyamplifysuchspeculations andare used as
excusestoadvocate forincreasedmilitaryexpenditures.
Chinaisnot monolithicandcannotbe “contained”assome US policymakersmay have thoughtand
continue tothink. Chinafacestheirown growthmanagementchallenges suchasinternal andexternal
debts,bankingissues andreal estate bubbles. Internal changesare onthe horizonforChina,butwhat
theyentail andwhentheymightoccurremain opento speculation.
Chinaand Russiawill continueto use Americanpolicyshifts,disarray andnew realitiesinattemptsto
splitrelationships andalliancesthatwill hinderUS policy goals. One example isRussia’ssale of the S-

8. 400 missile systemtoTurkeythat effectivelyerodesthe place of TurkeywithinNATO inanemergingera
of energycompetitioninthe easternMediterranean. Turkeycannotlikelybackoutof the deal and now
facesexpulsionfromthe F-35consortiumor CAATSA sanctions. The longtermrelationshipbetweenthe
US and Turkeynowrequiresacraftedresponse fromthe currentadministrationthatwill includetrade
actionsand potential sanctionsinthe face of aweakenedTurkisheconomy.
The current confrontational nature of US-Chinarelationsmaybe clumsy,harmful anddoomedto
variousfailures. AddressingChinesepolicies iscorrectwithcurrentUS policies ordemands deemedby
manyto be objectionable orinconsistent. However, the nextadministration mightalsobuildonthese
policies topromote firmbutlessconfrontational stylesof engagement.
In the short term,a troublingaspectmaybe a reactionarymindsetcomingfromWashingtontoward
Chinathat cloudsassessments. TreatingChinaas an enemywill eventuallybe counterproductive as
alliesoralliancesmaynotagree withoragree to US policies. The issues are notgoingawayany time
soonwithpredictable requeststoincrease militarybudgets. A bettersetof policies includeenduring
allianceswithalliesthatcanconfrontor deal withChinainpolitical,economicormilitaryareas.
Relations betweenthe USand Chinamay lie somewhere betweenpartnershipandantagonism. Thatis,
those relations should aimtobe pragmaticandrecognize thatintellectual propertytheftwill continue to
be a Chinese policygoal. The US andothercountriesshouldactaccordingly.
INTELLECTUAL PROPERTY AND CHINESE BUSINESS
Chinawill continue toacquire intellectualpropertythroughinvestmentsas well asthroughcybertheftor
othermeans. Chinese competitors are usingacquired technologies andtheirown researchand
developmenttosecure anincreasingnumberof patentsandbecome agreaterforce onglobal markets
inthe comingdecades. All competitorswill have tobe vigilantastoChinese policies,methodsandreact
accordingly.
Three yearsafterthe fact, investigations remainongoinginto the effectsof China’splacementof
surveillance chipsonSupermicroserversthatpotentiallycompromiseduserssuchasAmazon,Apple and
the US military. Repairingthe damagesdone will be costlyandtime consuming.
Chinese technologycompaniessuchasHuawei,Tencent,ZTE,SenseTime orothersare gainingglobal
influenceevenif theydonotnow constitute astrongpresence inthe US or otheralliedcountries.
Ongoingfearsinclude interference withmilitaryapplicationsandconsumerapplicationssuchas
autonomousvehicleoperations. Chinesecompaniesare obligatedtocooperate withChinese State
institutionsand,whencombinedwith cyberthefttrackrecordsor lack of adherence tothe rule of law,it
isnot surprisingthatAmericanandothernationsare skeptical of contrarianassertions.
The US and those othercountriesare makingpolicies ortakingstepsthat limitaccessof Chinese
companiestotheirsystems. The executive orderof 15 May 2019 blocked the sale of US technologyto

9. affectedcompanies suchasHuawei withyettobe answeredquestionsastoimplementation,timing,
extentandefficacyof the listing(s) onHuawei orotherentities.
Withthe recentExecutive Order,anAmericangovernmentlicense will be neededtosell toaffected
entities. Huawei plannedforthisand likely bore inmind the situationfacedbyZTEthat was eventually
“saved”by the Americanpresident asa favorto Xi Jinping in2018. Huawei was“saved”bythe
AmericanpresidentinJuly2019 whenhe liftedabanon AmericansalestoHuawei priortoa meeting
withXi Jinpingatthe G20 Summit. While the moveswere perhapspredictable,theywereunpopularin
Congressandundermine AmericaneffortstoblockHuawei inothercountries. Inpart,these situations
drive the Chinese goal of technological “self-sufficiency”tobe gainedat anycost.
By marketshare at 28% (othersourcesstate 31% by revenue measures),Huawei isthe world’slargest
providerof telecomequipment, the secondlargestcell phone manufacturerand theirtelecomproducts
are saidto workwell butsubjectively maynotofferthe “best”technology. Itisa Chinese marquee
company with2019 aggregate salesof over$107 billion andpoisedtobecome the dominantplayerin
that marketdue inpart to state subsidiesand low costrelative tooperability.
5G offersgreatpromise butsimultaneouslyoffersgreatvulnerabilitiesthatwill be exploited andthisisa
concernif Huawei were torealize the 40-60% marketshare as some forecastshad predicted. Ericsson’s
marketestimate of $1.2 trillionby2026 illustratesthe impactandsimultaneousfearsof competitors
and governments.
Huawei equipmentisalreadyusedin4Gand will be partof global 5G installations,butthere are
competitorswhichcan alsosupplythistechnology. Overlyconfidentornot,some countries suchas
Germany view future Huawei installationsasa manageable riskwhencoupledwithbetterencryptionor
whenusingmultiple vendors.
AustraliaandNewZealandhave blockedHuawei from5G upgrades. ChinaretaliatedagainstAustralia
by slowingdown inbound shipments suchascoal at Chinese ports.
Countries suchas Canada, CzechRepublic, France,Germany,Norway, Poland, SouthAfricaandthe UK
continue toassess Huawei andotherChinese companies’placeintheirnational telecomsystems. In
spite of industrycriticsor Americanwarnings,inFebruary2019, Iceland,Saudi Arabia,Switzerlandand
TurkeysignedagreementswithHuaweiregardingtheirtelecommunicationssystems. A Huawei 5G
systemwasinstalledinMonacoinJuly2019.
US policy successwill be limitedasothernationsalreadyhave Huawei systemsinplace,Huawei
productsare already shaping5G protocols andHuawei will continue toaggressivelyexpandincountries
where theyare welcome. Chinese competitors suchasHuawei holda numberof patentson5G
technology.
Ciscomakescomponentsfor5G systems,but there are no competingAmericanproducerssuchas
Finland’s Nokia(17%-othersourcescite 22% by 2018 revenues)andSweden’sEricsson (13%-other

10. sourcescite 27% by2018 revenues). ZTE(11% by2018 revenues) andSamsung are amongthe other
competitors.
Huawei Marine Networks are repairingorbuilding approximately 100of the 380 submarine cablesthat
transport95% of global internettraffic. Cable andcable landingstationsare targetsand American,
Chinese andRussiansubmarinescanalreadytapintothese cables.
On 1 July2019, a fire and radiationleak killing14 seniorofficers onaRussiansubmarine inthe Barents
Seafurtherexposedthe designof asubmarine capable of divingfrom2,000 to 6,000 meters deepand
tappingintothese cables. Chinaisbuildingatleastone similarsubmarine.
While Huawei hasgainedthe mostattentionforavarietyof reasonsincludingtheftof intellectual
property,the relatedFebruary2019 Akhancase outlinesawidersetof implicationsforAmerican(and
other) technologycompaniesdealingwithChinese orothercompanies.
Whena solutionisfoundtothe current setof disagreements,lingeringsuspicionsordistrustwill
remain. Xi Jinpingstatedrecognitionof the value of intellectual propertyprotections,butnew Chinese
promises,newlawsandenforcementof those new lawsastheypertaintoforeigners operatinginChina
are differentmatters withlimitedresultsforUSpolicymakers. Aswithgeneralsattemptingtofightthe
lastwar, the US iscurrently seenbysome as tryingto push 20th
centurysolutionsona21st
centurysetof
problems witharisingandconfident China.
Americanbusinessesandgovernmentpolicymakers shouldplanforongoing cybervulnerabilities that
will lingerformanyyearsdemandingvigilance,financial investmentsanda central role instrategic
plans. End to endencryptionandothermeasuresbecome all the more necessaryforoperations.

11. BETWEEN THE EAGLE AND DRAGON
Chinese,American andglobal growthwillcontinueatlowerlevelswith some forecastingaglobal
recessionby2021. The IMF forecastslowergrowthfor2020 inpart as a resultof the collective trade
actions.
If one trustsChinese financial figures,China’s 6% growthisstill significant andthe managersof China’s
economyare able to act in waysthe Fedor the ECB cannot. Nomatterwhat disputesremain from
whateverquarter,Chinawill figure inthe businessplansforamajorityof global companies.
For those AmericancompaniesthatbetbigonChina,the questionsinclude whathappensafterthe yet
to be concluded “deal”andwhat are theiralternate plans? Givenrisingcosts,restrictionsonforeign
companies’operations,subsidizedlocal competitorsanduncertainty, some companiesproducinghigher
marginproductswill reduce riskbyrelocationsome orall productionoutof China. That shifthas
alreadybegun.
AmericanorEU strategiesregardingChinamight include very limitedre-shoringtothe US for precision
manufacturingtoserve various markets. The vastmajorityof re-shoringis likely tobe infactorieswith
increased automation,inMexicoaswell asinneighboringAsiancountriestoserve China,the USand
othermarkets. ThisassessmentwassupportedbyaJuly2019 reportby A.T.Kearney. Nomatterthe
location,companiesmust be keenlyattunedtochangingpolitical andeconomicrealitiesandbe
preparedtoquicklymove andact as theysee fit.
Chinese companiesare evaluatingtheirbusinessdecisionsandthose decisionsinclude shiftingof
manufacturingoperationstoothercountries. Supplychainswere alreadyshiftingtootherAsian
countriesandAsiancompanies inthose countries are rethinkingtheirbusiness relationshipswiththe
US, Chinaand others. CountriessuchasVietnamgainfromthissituation,butpricesare also risingasa
resultof thisshift.
The comingdecadesare part of an Asianfuture withgrowthnotjustin China,butinSouthand
SoutheastAsia. Are Americancompanies reducingfutureriskthroughactive pursuitof business
opportunities inthose othercountries?
Larger Americancompaniestendtobe at leastaware of or have an understandingof global business
environmentsandsoshouldsmall andmediumsizedAmericancompanies. Manycompanies avail
themselvesof America’sport,rail,road,aviationandinlandwaterwaysinfrastructure. That
infrastructure is aging;maintenance has eitherbeeninconsistentorinadequate with erodingcost
advantagesforto Americanproducers.
Giventhe currentlevel of partisanbickering,itisquestionablethatState or the Federal governments
have the political will toinvestinthe infrastructure atthe levelsneededtomaintain acompetitive edge
for America. Variousproposalsof upto$2 trillionininfrastructure investmentsare encouraging,but
translationsinto realityremain subjecttopolitics,paymentmechanismsandthe 2020 elections.

12. Besidesinfrastructure,Americamust continue toinvestinresearchanddevelopment,promote
engineeringstudies andcontinue toattractthe bestand brightesttothe US foreducation. Foreign
studentswill continue to desire tostudyinthe US, butthese students now have more options. Itisa
lostopportunityforthe US whenstudentschoose tostudyelsewhereandcontribute tothose
economiesdue to thatwiderrange of choicesor warinessoverimmigrationpolicies.
SUMMARY
Tariffs
Tariffsare bluntforce measureswithunintendedconsequencesincludinginflation,higherconsumer
pricesand an exacerbationof slowingglobaleconomicgrowth.
For variousreasons,some businesses,industriesandgovernmentsquietlyapplaudedthe current
Americanadministration’sstandagainstChinaandyet are simultaneouslyconcernedastothe extentof
the tariffs, theirdurationandtheirconsequences.
Tariffsshouldbe removedassoonas possible tomitigatelongtermdamage to Americanagricultural
exportsorotherindustries. There are dangers thattariffs become acceptedorrecurringpolicychoices
as outcomeswill echothose of the 1930s.
On conflictingnotes,the liftingof tariffsonCanadianandMexicanaluminumandsteel willsmooththe
path towardUSMCA ratification. The retractedthreatto impose 5% Mexicantariffs by10 June 2019 if
immigrationwasnotcurbedclouded ratification,butMexicoratifiedUSMCA on19 June 2019.
The US reducedspecial tariffsonTurkishsteelimportsfrom50% to 25% on17 May 2019 but also
eliminated Turkeyfromthe General Systemof Preferences (GSP). Indiawasalsodroppedfromthe GSP.
These actionscall intoquestionthe liftingof tariffsonothertradingpartnerssuchas the EU and
subjectively tagthe US as an unreliable tradingpartner.
Intellectual PropertyTheft
Chinawill continue BeltandRoadand Manufacturing2025 and those policiesinclude ongoingtheftof
intellectual propertythatwill benefittheirbusinessesandmilitary. Chinawill exportevermore
technologybasedproductsthatare of theirowndesign. Businessesinthe US andin differentcountries
shouldrecognize thisandmayagree thattrade conditionsandpracticesneedtobe altered.
Chinese technologycompaniesorlarge corporationswithtiestothe Chinesegovernmentalreadyare a
presence in the Americanandglobal landscapes. The ExecutiveOrderof 15 May 2019 will have side
effectsthatinclude Chinese nationalism,reducedsalesforAmericancompaniesinChina andredoubled
effortsbythe Chinese toattaingoalsof technological self-sufficiencythatwill have otherpolicychoices
inthe comingyears. 5G isone current focus, butone shouldnotunderestimateadvancesinartificial
intelligence technologiescomingoutof Chinese companiessuchasSenseTime.

13. Maintainingand Forging Alliances
Asiawill become the 21st
century“power”in more waysthan one withChinathe easternanchorinthe
system. OtherAsiannationsare concernedwiththeirprosperityandsecurityastheyrelate tothe rise
of Chinaandcan be effectivepartnerswith the USor the EU inconfrontingChina.
There are opportunitiesforthe USto maintainalliancessuchasASEAN or forge new alliancestocounter
Chinaor Russia,butcan the US compromise onsome of theircurrent assumptionsorpolicies toforge
those multilateral agreements?
It was a strategicerrorfor the US to withdraw fromthe TPPand the US should pursue joiningthe CPTPP.
It isin the interestof the US, EU and China to update WTO guidelinesasthe worldhaschanged
tremendouslyinthe last25 years. That maybe the outcome afterall the trade war machinationshave
run theircourse.
US Policies
The US can alteror create a newsetof trade and associated multilateralpolicies regardingChinaand
the rest of the worldwhile recognizinghow issuessuchasterrorismor Russianactionsmay alsospur
commoninterestsbetweenthe USandChina. Hopefullythe strategiesandpoliciesare pragmaticand
not basedon loftypolicydocumentsorideological tractsdesignedtoappease certainaudiences.
Besidestrade,the complexitiesandquicklyevolvingissuesof failedstates,climate change reactionsor
arms proliferationshouldnotbe overlookedwhenviewingaperceptual shift fromterrorismtoaGreat
Powercompetitionnarrative. CooperationandengagementwithChinaishelpful in manysituations,but
so will the dangersof misunderstandingandmiscalculationas disagreementsstemmingfrom future
eventsmayforce quickaction.
There are a seriesof cascadingeventswithforeseenaswell asunpredictable outcomesyettounfold.
An epochal change isunderwayalteringthe US-Chinarelationshipandshapingglobaldevelopments.
Chinawill rememberthe currentepisodeandfuture administrationswoulddowell nottoignore or
underestimatethe rise of ChinaandotherAsiancountries,engagewiththemforcefully,pragmatically
and constructivelyasthe failure todosowill be unpleasantforall parties.