A Chinese Perspective on the Growing High-Tech Cold War

In Chinese online discussions, many people are using the expression “one sword throat-slashing strike.” [一剑封喉] This forbidding term refers to the United States’ seven-year export ban on China’s second-largest telecom supplier, ZTE, which threatens its very existence and has put the company “in a state of shock.” In the Chinese language, the “one sword throat-slashing strike” means that in battle a master swiftly strikes a death blow before the victim has a chance to resist. Chinese use of this idiom with high frequency in the context of the Sino-US trade war shows that there is both a feeling of helplessness and a fighting atmosphere dispersing though the Chinese society.

In January this year, the United States blocked Chinese tech company Alibaba’s acquisition of American remittance company MoneyGram; also in the name of national security it forced AT&T to end cooperation with Huawei. At the same time, the Trump administration ordered high tariffs on imported steel and aluminum and threatened several rounds of tariffs on China. On March 22nd, Trump signed the presidential memorandum and announced the Section 301 investigation of China, which was widely regarded as the focus of the outbreak of trade disputes between China and the United States. In April 16th, the United States launched its “throat-slashing strike” on ZTE. While some analysts are still discussing whether a Sino-US trade war will happen, on the other side of the Pacific the war fire has already begun to burn, as a sense of economic conflict develops between the two largest economies in the world. The New York Times Chinese version characterized the Sino-US dispute over technology and trade as a “New Cold War Era.”

After the news of the US sanctions on ZTE came on April 16, all of China is engaged in a big discussion of this event. A large number of articles about it emerge in the mainstream media and social media platforms every day. The strength of the reaction have probably exceeded the expectations of American society, and even China’s own. On the whole, Chinese society has discovered that its high-tech industry is weak and unable to resist the US punch, especially because of its dependence on US semiconductors. It has been pointed out that none of the 20 top semiconductor companies in the world is in mainland China (see the table below, which shows only the top 10). Civil society, academia, industry, and even the government are contemplating the fragility of China’s industrial development and trying to provide effective solutions. The fact that ZTE violated American law has not been evaded in China. But China fears  that just as a few days ago America launched a precise strike against Syria, the United States is now launching an accurate and fatal strike to Chinese national enterprises.

After ZTE’s violation of the embargo two years ago, it has paid  892 million US dollars for its mistakes and has reached a settlement agreement with the US government. Because this strong penalty against ZTE was closely followed by the fierce Sino-US tariff war, Chinese people do not believe that America’s main concern is just ZTE’s violation of the sanctions. According to the Wall Street Journal, the US Trade Representative Office (USTR) is considering actions against the business of Alibaba Cloud in the US. A US congressional report also accuses other Chinese companies, such as Huawei and Lenovo, of facilitating commercial espionage. The latest news shows that the US Justice Department has launched an investigation into whether Huawei breaks the Iran embargo. This series of actions make the Chinese worry that ZTE is just the first step in a bigger war.

Americans may not realize that these actions can be counterproductive. They provoke nationalistic sentiment in Chinese society. In history, whenever China has encountered damaging and perceived unfair treatment from outside, there was always a strong nationalistic reaction. Signs of this familiar pattern are appearing again. On April 6, China’s central news agency used very tough words and phrases after the extra tariff on China’s $100 billion exports to the US was announced, such as “the Chinese will struggle resolutely! And do not blame us for not having forewarned you!” [勿谓言之不预！] These words are generally used for the announcement of a war in Chinese diplomatic rhetoric. The ZTE chairman said that “we have the support of 1.3 billion (Chinese) people, and we have the ability and determination to tide over this difficulty,” after Hou Weigui, the founder of ZTE, retired and at 76 years old, rushed to the United States to plead but without any fruit, which aroused huge empathy by a picture spread widely in WeChat, the biggest social media in China . Then ZTE further issued a statement that the sanction was “unacceptable.” Subsequently, a spokesman for China’s Ministry of Commerce also made a strong statement, saying that China is “ready to take necessary measures to safeguard the legitimate rights and interests of Chinese enterprises.” Chinese netizens even began to discuss whether the country should take corresponding measures on Apple, widely quoting an article in Forbes which suggests that if China retaliates against Apple, it will cause massive layoffs and crash in its stock price.

The US moves have also encouraged high-level political leaders in China to push for abandoning American products and developing their own high-tech industries. Chinese President Xi Jinping stressed on April 21st that “core technology is the pillar of the country” at the national network security and information conference. And the Premier Li Keqiang also spoke at the Executive meeting of the State Council to promote a national innovation system aiming at science and technology development. In fact, Chinese are concerned not only about the economic losses of the US sanctions, but also about inadequate self-protection, and, what is more, about the future of international trade.

In a more profound context, these actions of China and the United States are not only solutions to the trade deficit, but an abandonment of globalization. Since the end of the US-Soviet Cold War, the world entered a golden age of “neoliberal” globalization. International trade promoted the growth of the world economy. According to the statistics of the World Bank, whereas the average growth rate of world trade in goods was 1.5 times that of the world’s GDP since the end of World War II, and in the 1990s trade grew more than twice as fast as GDP. Trade exchanges between China and the United States have brought great benefits to both sides. The low-cost manufacturing industry in China provides a continuous supply for the high consumption society of the United States. The huge demand and advanced industrial technology of the United States have brought a strong pull to the Chinese economy. While the order of economic globalization was established by the United States, it is now the United States who destroys it. Today’s trading system is so closely intertwined that it is not all beneficial for the US to undermine the order it built. The share prices of ZTE’s U.S. suppliers fell on the news of the ZTE ban. Research by Brookings also points out that China’s proposed tariffs would affect about 2.1 million jobs spread across 2,783 US counties.

The damage wrought to the Sino-US economy and the global economy by a trade war will be huge, but it is even more worrying that the global free trade order is being disrupted. On the Boao Asia Forum on April 10th, Xi Jinping announced further opening up of the Chinese market and strengthening the protection of intellectual property to integrate China deeper into the world trade system. But the Trump administration seems to ignore this deliberately. As mentioned above, Chinese society is worried mainly about the prospect of its national development in the context of the times. Therefore, if more trade wars happen, it is not only likely to lead to China’s aggressive self-protection measures but also is likely to have a far-reaching impact on how Chinese understand international rules. Solving the impartiality of trade rules is a process that requires stakeholders to sit down and negotiate. A direct blockade might well backfire.

If we look at the Sino-US trade dispute from the perspective of Internet governance, it can be found that the Internet seems to be splitting up. A one-world Internet should be interconnected across the borders of states, but now territorial governments are trying to strengthen their control by aligning the Internet with national jurisdictions. China has selectively rejected the products of some American Internet giants, and now, the United States has also begun to block China’s products. The United States is becoming Chinese. The state has labeled Internet equipment one by one and excludes it from its own territory in the name of national security or the protection of its own industries. Some commentaries assert that the actions by the United States against Huawei and ZTE are trying to keep the US the leading position in the 5G technology. But the establishment of walls to exclude competition deviates from liberalism. The United States is a strong advocate of the freedom of the Internet. It developed the multi-stakeholder model, advocated bottom-up technical autonomy and open industrial competition; it has resisted giving governments too much control of the Internet. But now, on the contrary, the government of the world’s most powerful Internet country is holding high the banner of national security to expel market actors who place it at a competitive disadvantage.

When the advocates of rules break the rules, global confidence is badly damaged. But it is still hopeful that United States Secretary of the Treasury Mnuchin is on his way to China to negotiate. So the rule of free trade and Internet openness has not been completely abandoned yet.