In 2019 and 2020, the economic conflict between the US and China reached a peak. There was a months-long tariff battle that is still not fully resolved. After blocking Chinese-centered equipment manufacturer Huawei from its own markets, the US pushed hard to get the Five Eyes and all of its allies to block Huawei from foreign markets, too. Then the US started blocking its own companies from selling to Chinese firms, by imposing sanctions and export controls on sales of high tech goods to Chinese firms. Less visibly, but equally important to the economic relations between the countries, the U.S. tightened restrictions on incoming Chinese capital in the tech sector. It even started backpedaling on its own policies of free trade in telecommunication services markets. US Government pressure terminated landing rights for an international cable from Hong Kong because of partial ownership by a Chinese firm, and the Executive branch asked the FCC to withdraw licenses to Chinese telecommunication services firms trying to operate in the United States. In both cases it justified the moves with unsubstantiated claims about national security threats. The FCC’s de-licensing move was a blatant violation of WTO commitments in the Basic Telecommunications Services agreement of 1997, and a dramatic reversal of almost 30 years of US policy in internet and telecommunication. Now the US is de-funding the World Health Organization and accusing WHO of being Chinese-dominated. We cannot even cooperate on a pandemic.
Is China a victimizer or victim?
Though China is clearly being targeted, it was not completely innocent of precipitating this change. Chinese government’s efforts to shield its residents from foreign information services via censorship have for many years kept American companies out of its market. As social media platforms become the economic engines of the internet, China’s blockage of Google and Facebook started looking more and more like a trade barrier and not just a form of online censorship. While Apple phones and Amazon e-commerce have been allowed in, much of China’s large and lucrative national market is shielded from foreign firms and investment, even while Chinese firms are expecting access to the markets of other countries. With its new Cybersecurity Act, China suddenly imposed market entry restrictions on American cloud service companies, claiming that foreign ownership of databases and storage was a national security threat. Most important, China’s willingness to empower the state to surveil and control its population started to make Americans’ NSA look benign by comparison. The conflict in Hong Kong throughout the summer and fall of 2019 served as a grim reminder of how China’s government is unable to tolerate basic liberal-democratic freedoms.
The US response is making things worse
But the fact that China is authoritarian does not necessarily mean that we need to cut off economic relations, nor does it mean that its political system is a threat to people and nations that are not under its sovereignty. For months now, our blogs have expressed astonishment at the sheer irrationality of Trump era trade and cybersecurity policy towards China. We will not open ICT markets in China by getting them to buy arbitrary soybean quotas. We cannot gain freer trade with China by asserting that every Chinese provider is an agent of the Chinese state and any use of their products is importing Communism to America. Aside from being untrue, those kind of arguments can easily be applied to American firms by the Chinese. We do not protect ourselves against authoritarian models of the Internet by letting generals propose a government takeover of 5G infrastructure in the U.S. We don’t reduce trade deficits with China by ordering our chip companies to stop selling to Huawei, where we have billions in surplus. If we are concerned about China using industrial policy to erode our competitive advantage in certain ICT sectors, we shouldn’t impose sanctions that will only accelerate China’s efforts to develop substitutes for our products. The Cyber Solarium Commission’s statement that “Chinese national companies like Huawei are part of an integrated strategy to use predatory pricing to dominate and eventually monopolize key information and communications technology supply chains” grossly exaggerates the actual market situation and militarizes commercial competition in a way that only reinforces tendencies toward self-reliance and protectionism. Tech nationalism is the problem, not the solution.
What is really behind this conflict?
It all starts to make a bit more sense, however, when one realizes that the driving force behind the US-China conflict is not really trade or even cybersecurity. It is all about the geopolitical power competition between the US and China. Specifically, it is rooted in U.S. fears of a hegemonic transition – what Graham Alison calls the Thucydides Trap. China is an emerging power that is reaching parity with the US. Not for a century has the US had to deal with another nation with economic clout that rivals its own. Rightwing nationalists in the Republican party interpret China’s rise as an affront to American military and economic dominance, and want to confront it. Liberals and progressives in the Democratic party, who would normally tilt towards internationalism and peace, are neutralized by their antipathy to China’s authoritarian and undemocratic mode of government.
The US is not thinking clearly about what this means and how to react to it. It does not seem to have the wisdom to plan for long-term co-existence and complementarity with another economic giant. Instead, it interprets all indications of China’s rise as a threat, and indulges in the fantasy that blockades and negativity will somehow turn back the clock to 1998, when China’s economy was a fraction of its current size and the US held uncontested dominance in the ICT sector.
Internet governance is at the center of this conflict. The internet provides the common meeting point for ICT goods and services. It is the nexus of common technical standards and some of the shared governance institutions through which China and the West interact. Telecommunication equipment, telecommunication services and information services are the main battleground upon which the conflict is being fought. The US and China are unable to reach agreement about how their digital economies will become integrated with each other. Both sides do not trust each other’s private ICT companies to participate in their markets. In the US-China conflict, the entire digital economy is being used as a hostage.
This is not a good strategy. Hostages are often killed; at best they can be rescued. One thing they do not do is grow and thrive. The Internet economy is transnational; its biggest players include both American and Chinese multinationals. Current policies promoting a digital Cold War – if not a broader military and strategic conflict – are likely to hurt all of them.