In on-off ‘trade war’ with China, where do US national security and Trump family interest lie?

By Patrick Mendis and Joey Wang

US President Donald Trump has decided to help the Chinese telecommunications giant ZTE by tweeting on May 13 that “President Xi [Jinping] of China, and I, are working together to give [the company] . . . a way to get back into business, fast. Too many jobs in China lost. [The US] Commerce Department has been instructed to get it done!”

In a follow-up tweet on May 25, Trump explained that Democratic Senate leader “Schumer and Obama administration let phone company ZTE flourish with no security checks. I closed it down then let it reopen with high level security guarantees, change of management and board, must purchase U.S. parts and pay a $1.3 Billion fine. Dems do nothing.” The president then continued that the Democrats “complain and obstruct. They made only bad deals (Iran) and their so-called Trade Deals are the laughing stock of the world!”

Recognising that ZTE is possibly “one of the world’s most notorious intellectual property thieves – perhaps even the most notorious of all,” according to Techcrunch, the flawed logic in Trump’s belief that these changes will alter China’s behavior has hardly been lost on either side of the political spectrum. Both Republican and Democratic congressional leaders led by Senator Chris Van Hollen are now working to prevent the Trump White House from giving aid to what is arguably a Chinese state-owned enterprise, and certainly one that compromises US national security.

Indeed, US concerns have also rippled to India and elsewhere, where the intelligence agencies are investigating ZTE, as well as Huawei, another leading Chinese multinational company.

Private profits or national interests?

While correlation is not causation, it is interesting that just prior to Trump’s decision to help ZTE, his daughter and White House senior advisor Ivanka Trump has received approval from the Chinese government “for at least five new trademarks” allowing her operations “exclusive rights to market a variety of products in China that could potentially amount to millions of dollars in profits.”

In addition, an Indonesian company called MNC Group, with whom the Trump Organization signed a deal to build a six-star hotel and 18-hole golf course, has struck a partnership on May 15 with the “Metallurgical Corporation of China, a state-owned construction company.” The splashy $500 million complex called Lido City is billed as an “integrated lifestyle resort and theme park,” where it would be built next to the planned Trump properties. It is also a part of China’s Belt and Road Initiative. MNC claims that “the theme park and the Trump properties are separate projects within the Lido development.”

The awkward timing of these transactions may not be an immediate matter of concern, but it certainly does not ameliorate the concerns of the attendant “emoluments clauses” in the US Constitution that “prevent a president from accepting government-bestowed benefits either at home or abroad.”

The evasive presidency

It is not clear whether Trump’s ZTE decision has played a role in any of this, and without access to the Sanctum sanctorum of the Trump administration, it would be hard to know. It would not be unreasonable, however, to argue that the president is mortgaging the long-term national security interests of the US for personal gain—whether it be for Ivanka, the Lido project, or to the American agricultural sector, or other regions of the electorate vulnerable to being flipped ahead of the November 2018 mid-term elections. This argument has even greater validity if one is to believe that ZTE poses less of a national security threat than the steel and aluminum tariffs invoked under Section 232.

Some have argued that Trump’s ZTE decision is based on the need for China’s help with North Korea. Beijing knows all too well it would be a great coup for the Trump administration to not only have a successful summit with North Korea, but also the denuclearisation of the peninsula under the Trump’s watch, and it needs China as a facilitator. Perhaps, but it is also well-known that China intends to maintain “the presence of a Communist buffer state, even an irritating one,” between China and South Korea. Otherwise, it would not be a patron of a state for which it is dependent on for approximately 85% of its external trade.

Like South Korea, China favours a “commitment for commitment, action for action” approach toward the denuclearisation of the peninsula. The US, however, wants to see a faster approach, “with a timetable as quick as six months to a year, and economic benefits coming only at the end.”

If, in fact, Trump’s ZTE decision was a factor in obtaining China’s help with North Korea, it remains to be seen just how much China will do. In any event, China holds most of the cards; therefore, it will likely decide the pace and direction of any negotiation.

Innovative superpower

In the long-term view, any issues related to the ZTE decision must be viewed in the context of the Made in China 2025 initiative, which “seeks to gradually replace foreign with Chinese technology.” The initiative emphasises future capabilities such as “indigenous innovations” and “self-sufficiency” and aims to increase the domestic market share of Chinese suppliers for “basic core components and important basic materials to 70 percent by the year 2025.” The on-going ZTE episode only serves to underscore these objectives.

A case in point is the ZTE flagship Axon M smartphone, of which about 60% of the electronics comes from US suppliers such as Qualcomm and Sandisk. If China has learned anything, it is the fact that heavy dependence on imported semiconductors carries significant risk to its supply chain of disruptions by US sanctions. Tencent Holdings chairman and CEO Pony Ma has pledged to advance China’s semiconductor industry, calling it a “wake-up” call.

Additionally, since the US commerce department’s denial order covered not only hardware but also software, ZTE has also lost its license to use Google’s Android operating system, meaning “Google has stopped providing software updates and other services to ZTE.”

The ZTE fallout has only reinforced the belief that China needs to accelerate its technological capabilities. At the Chinese Academy of Sciences and the Chinese Academy of Engineering on May 28, Xi urged scientists and engineers to help make China a world leader in high-tech industry.

A low-rhetoric, high-impact China

Trade relations between US and China have been fraught for some time, especially in the area where advanced technologies are concerned. Given the dizzying array of factors currently in play in the Trump White House, it is difficult to see where the ZTE issue is headed. Surely, China’s advances may be slowed, but it will not stop simply because technology transfer is not zero-sum. If China cannot directly obtain technology from the US, it will likely form joint ventures with other interested parties such as Israel. The proliferation of technology means that, with or without the US, China is already well on its way to becoming an innovation superpower in the key areas of science and technology.

As the US commemorated Memorial Day on May 28, Trump proclaimed that “we pause in solemn gratitude to pay tribute to the brave patriots who laid down their lives defending peace and freedom while in military service to our great Nation.” One should like to think that those called upon to face potential adversaries such as Iran or North Korea would not be laying down their lives because of advantages gained from the violation of sanctions. This is neither a Republican nor a Democrat issue. It is a national security issue and is the sine qua non for the US’s global leadership. As Trump said, if the US is truly “duty bound to honor those who made the ultimate sacrifice on our behalf and to remember them with thankfulness and unwavering pride,” it should start by not giving ZTE a free pass.

---

Patrick Mendis is a former US diplomat and the author of Commercial Providence, Trade for Peace, and Peaceful War. He is currently an associate-in-research at the Fairbank Center for Chinese Studies at Harvard University.

Joey Wang is a defense analyst.