The Next Stage in the Trade War

By Eyal Levinter,
Epoch Times Staff


Despite the relative calm in the U.S.-China trade war and the prospects of reaching an agreement, the conflict is likely to develop further in 2019.

Review of leading events to this day:

The Epoch Times looks at the concurrent battles that make up the trade war.

1. Solar panels and washing machines

ENERGY SOLAR POWER PLANT
Photo: Getty Images

Beginning from October 2017: The United States International Trade Commission claimed that local US manufacturers have been suffering from rising imports of washing machines and solar panels from abroad (mainly from China). As a result, the Trump administration imposed import tariffs on solar panels and washing machines. China retaliated by imposing tariffs on sorghum imported from the United States. After negotiations, the tariffs imposed by China have been lifted.

2. Steel and aluminium

China Trade Surplus -Steel
Photo: Getty Images

Beginning from April 2017: President Trump ordered an investigation into whether steel and aluminium imports have led to an American dependency on external sources, and whether it poses a threat to U.S. national security. Following the investigation, the United States imposed import tariffs on steel and aluminium from all countries. China retaliated by imposing tariffs on U.S. imports of aluminium, pork, fruit and other goods (equivalent in value to the tariffs imposed by Trump). The European Union and Canada also responded with tariffs on imports of various products from the United States, including steel and aluminium.

3. Intellectual Property

truck
Photo: Getty Images

Beginning from August 2017: The U.S. started to investigate whether China was carrying out actions that infringed upon the intellectual property rights of U.S. companies. The investigation led to the U.S. to impose tariffs on imports of more than 1,000 mechanical and electronic products from China, including semiconductors. China retaliated by imposing similar tariff values on an array of products imported from the United States.

In August 2018, the United States imposed a 10 percent tariff on an array of other products from China (worth US$200 billion). China retaliated by imposing tariffs on an array of U.S. products. By early December, an “armistice” was declared following a summit meeting between the two presidents. The armistice will last until March 1, 2019, before which the two countries hope to reach a common agreement.

4. Cars

MG cars produced by SAIC Motor Corp
Photo: Getty Images

Beginning from May 2018: The United States opened an investigation into whether the U.S. has been overly dependent on car imports, and its potential threat to U.S. national security. Trump considered raising tariffs on car imports, but has yet to do so. Meanwhile, China announced that as of January 2019, during the period of calm between the two countries, it would temporarily lower (for a three-month period) tariffs on cars imported from the U.S., and postpone its planned increase of tariffs on car parts.

What’s Expected in 2019:

High-tech companies, espionage and cyber attacks

HUAWEI's CEO presentation at Mobile World Congress 2016
Photo: Getty Images

Background:

April 2018: The United States decides to boycott Chinese corporation ZTE, a maker of mobile phones and telecommunications equipment, by prohibiting it from acquiring U.S. technologies. ZTE was found to have violated sanctions prohibiting it from trading with Iran and North Korea, and is also suspected of using its products for espionage.

In the same month, the U.S. begins investigating Huawei, the world’s second-largest smartphone and communications equipment maker, under similar suspicions. A month later the United States imposes a US$1.3 billion fine on ZTE, and demands it to replace its management. ZTE has no choice but to comply, and the US withdraws the boycott.

July 2018: In response, China prevents U.S. semiconductor company Micron from selling certain semiconductor chips in China. In addition, China stops U.S. company Qualcomm from acquiring NXP, in what would have been a significant merger deal.

December 2018: Meng Wanzhou, CFO of Huawei and the daughter of the company’s founder, is arrested in Canada on suspicion of fraud. The United States requests that she extradited to the U.S. to face charges. The move comes right after Japan forbids Huawei and ZTE from supplying components to Japan’s 5G networks. Japan also forbids Huawei from participating in tenders, fearing that its equipment could be used by China for espionage. In doing so, Japan has joined the United States, Australia and New Zealand in prohibiting Chinese companies from participating in the development of their 5G networks (see infographic).

German President Frank-Walter Steinmeier Visits China
Photo: Getty Images

Five days later, the Chinese court announces that it has decided to ban Apple Inc. from selling certain products in China. The next day a Canadian diplomat was arrested in China. Two days later another Canadian citizen was arrested on vague national security allegations. On December 19, China arrests a third Canadian citizen.

Following that, HSBC and Standard Chartered Bank also announce that they have stopped providing banking services to Huawei, for fear that the U.S. will fine them after officially announcing that Huawei has violated sanctions on Iran.

In addition, the U.S. Department of Justice published a photograph of two Chinese hackers who carried out cyber-attacks on government agencies and companies in the United States. A day later, a Chinese named Tan Hongjin was arrested on U.S. soil for stealing trade secrets from an American oil company. Earlier, in August, a Chinese engineer who stole technology from a LED manufacturing company and a former Chinese employee at General Electric, were both arrested on charges of stealing turbine technologies.

In January 2019, the Canadian government announced that 13 of its citizens have been detained in China since Meng Wanzhou was arrested. The Canadian government later stated that “At least” eight of those 13 had since been released, without disclosing what charges, if any, have been laid.

Forecast for 2019:

The Chinese Communist Party has announced that it is ready to compromise with the U.S. and make some adjustments: The first changes to be implemented are in the “Made in China 2025” program, which provides huge government subsidies and unfair benefits to about ten technological industries in China, aiming to render them completely independent of foreign technologies. Industries can turn independent by acquiring foreign technologies or by copying them. Second, the Chinese Communist Party is willing to implement reforms in the way foreign companies will be allowed to operate in China (foreign companies wishing to operate in China today are required to enter into a partnership with a Chinese company, giving the Chinese another unfair advantage). At the same time, a bill is being introduced in China which is aimed at protecting the intellectual property rights of foreign investors in China. Today, foreign investors are sometimes forced by law to allow Chinese authorities to peek into their source code. They are also forced to store all their data on Chinese servers, through which the company’s activities can be monitored. But even if the bill is passed, there is no guarantee that Chinese authorities will actively enforce it.

In his annual speech on Dec. 22, 2018, China’s leader Xi Jinping stressed that there are things that cannot be changed and should not be changed. According to Xi, the Chinese regime should obey “the leadership of the Chinese Communist Party”, “advocate Marxism,” and “insist on socialism with Chinese characteristics”. In other words, what Xi wants are two completely opposite things–on the one hand he wants to carry out certain reforms in China’s economy in order to bring it closer to Western business standards, but on the other hand he wants to increase the influence the Chinese Communist Party has on the economy.

For example, Beijing is exploring the option of allowing private investors from abroad to receive shares in Chinese government companies that are failing, in the hope of helping these companies become more efficient. But at the same time, it continues to ensure that the law compels private companies (both Chinese and foreign) to establish internal “Communist Party cells”, that are above the company’s board, and supervise all its activity. It also continues to subsidise (outside of the “Made in China 2025” program) many Chinese companies that try to acquire foreign technologies, giving them an unfair advantage.

In other words, the reforms proposed by the Chinese regime are insufficient. In light of the above, if there are no unexpected changes in what the Chinese propose, the trade war is expected to continue into 2019, even if China will present a new agreement that will seem like a breakthrough during the “armistice period”, which is due to end on March 1. Since the U.S. is expected to continue its blockage on Chinese access to U.S. technologies and to worldwide markets, China is expected to increase its attempts to steal intellectual property from U.S. companies, and even increase its cyber-attacks against them. Owing to that, Chinese intelligence officers and Chinese collaborators are expected to be arrested for intellectual property theft from American companies, whether those companies are located on U.S. soil or abroad. In response, the Chinese regime can be expected to try to arrest American senior executives or citizens working for U.S. companies in China, on vague charges of the endangerment of China’s national security.

US President Donald Trump
Photo: Getty Images

How the U.S. pushes Chinese Companies out of 5G Market

Major players in the 5G market:

U.S. (6): Apple, Broadcom, Intel, Qorvo, Qualcomm, SkyWorks

China (3): Hua-Wei (Disqualified), ZTE (Disqualified), Spreadtrum

Taiwan (2): MediaTek, TSMC

U.K. (1): ARM

Japan (1): Murata

Sweden (1): Ericsson

Finland (1): Nokia

South Korea (1): Samsung

Out of which – companies that are capable of building 5G network infrastructures:

China: Hua-Wei (disqualified), ZTE (disqualified)

Sweden: Ericsson

Finland: Nokia

South Korea: Samsung

Translated from Epoch Times Israel

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