SINGAPORE — One of the most negative byproducts of the Trump presidency is that all we talk about now is Donald Trump. Don’t get me wrong: How can we not be fixated on a president who daily undermines the twin pillars of our democracy: truth and trust?
But there are some tectonic changes underway behind the Trump noise machine that demand a serious national discussion, like the future of U.S.-China relations. Yet it’s not happening — because all we talk about is Donald Trump.
Consider this: On Nov. 9, European leaders gathered in Berlin to mark the 30th anniversary of the fall of the Berlin Wall. It was an anniversary worth celebrating. But no one seemed to notice that almost exactly 30 years after the Berlin Wall fell, a new wall — a digital Berlin Wall — had begun to be erected between China and America. And the only thing left to be determined, a Chinese business executive remarked to me, “is how high this wall will be,” and which countries will choose to be on which side.
This new wall, separating a U.S.-led technology and trade zone from a Chinese-led one, will have implications as vast as the wall bisecting Berlin did. Because the peace, prosperity and accelerations in technology and globalization that have so benefited the world over the past 40 years were due, in part, to the interweaving of the U.S. and Chinese economies.
The messy, ad hoc decoupling of these two economies, driven by miscalculations by leaders on both sides, will surely disrupt those trends and the costs could be huge. We might want to talk about that.
Former Treasury Secretary Hank Paulson gave a speech here a year ago trying to kick-start that discussion. “For 40 years,” Paulson noted, “the U.S.-China relationship has been characterized by the integration of four things: goods, capital, technology and people. And over these 40 years, economic integration between the two countries was supposed to mitigate security competition. But an intellectually honest appraisal must now admit both that this hasn’t happened and that the reverse is taking place.”
That reversal is happening for two reasons. First, because the U.S. is — rightly — no longer willing to accept China’s unfair trade restrictions on importing of U.S. goods and its stealing of the intellectual property of U.S. firms — something we tolerated for many years before China became a technology powerhouse.
And second, because, now that China is a technology powerhouse — and technological products all have both economic and military applications, unlike the toys, T-shirts and tennis shoes that used to dominate our trade — the two sides are struggling to figure out what to buy and sell from and to each other, without damaging their national security.
The net result, argued Paulson, is that “after 40 years of integration, a surprising number of political and thought leaders on both sides advocate policies that could forcibly de-integrate the two countries across all four of these baskets.” And if that trend continues, “we need to consider the possibility that the integration of global innovation ecosystems will collapse as a result of mutual efforts by the United States and China to exclude one another.”
That, Paulson concluded, is “why I now see the prospect of an Economic Iron Curtain — one that throws up new walls on each side and unmakes the global economy, as we have known it.” Yikes!
One could argue that a digital Berlin Wall began rising years ago when China created its Great Firewall to seal off the internet inside China from the global internet — so Beijing could censor all news and online internal discussions, freezing out Google, Facebook and Twitter. China, as well as other countries, has also begun ring-fencing certain data pools, software and technology stacks to make sure that all of them, or at least key elements, are stored on domestic servers and not accessible from abroad.
But the digital Berlin Wall took a big step up on May 17, when Trump placed China’s Huawei — the world’s second-largest maker of smartphones and the world’s largest manufacturer of 5G telecom equipment — on the U.S. “Entity List.”
That meant that China’s most important technology manufacturer and scores of its affiliates across the globe were blacklisted and could no longer buy parts from their major U.S. suppliers — such as Google, Qualcomm, Intel, Micron and Microsoft — without a special license. U.S. officials argued that Huawei was guilty of facilitating Chinese espionage — or would do so in the future if China’s government asked it to — and had engaged in fraud, technology theft and violations on U.S. sanctions against Iran.
However much justified, this move was the equivalent of China freezing out Apple and Microsoft. In was an earthquake in China’s tech lands. It “woke up everybody in China,” a prominent Chinese telecom executive told me. “We now have to think about this world differently,” the executive explained. “We need to build on a mix of our own technologies to be sure that we are safe. They totally underestimated what they have done.”
Lots of Chinese tech companies are now thinking: We will never, ever, ever leave ourselves again in a situation where we are totally dependent on America for key components. Time to double down on making our own.
At the same time, U.S. manufacturers are saying to themselves: We’d better think twice about building our next factory in China or solely depending on a supply chain from there.
The ripping sound you hear is the sound of two giant economies starting to decouple.
And now that tear is moving to people. Since June 11, the State Department has been restricting visas for Chinese graduate students studying in sensitive fields — like aviation, robotics and advanced manufacturing — to one year, instead of five years. There has also been a crackdown on Chinese investments in anything close to American infrastructure or military-related industries.
On June 25, MIT’s president, L. Rafael Reif, warned the MIT community that “looking at cases across the nation, small numbers of researchers of Chinese background may indeed have acted in bad faith, but they are the exception and very far from the rule. Yet faculty members, post-docs, research staff and students tell me that, in their dealings with government agencies, they now feel unfairly scrutinized, stigmatized and on edge — because of their Chinese ethnicity alone.”
Protracted visa delays and “harsh rhetoric against most immigrants,” Reif added, are sending a message that “the U.S. is closing the door — that we no longer seek to be a magnet for the world’s most driven and creative individuals.”
Over dinner last week in Bangalore, India, with a group of young Indian tech starter-uppers, I heard this message: The number of people who want to stay in India and work on local startups versus going to the U.S. has sharply increased in the last two years. And many of those who do go abroad now prefer Canada and Australia over America. We will pay a price for that over time.
This decoupling is not all Trump’s fault — not by a long shot. China’s president, Xi Jinping, also overplayed his hand, taking over islands in the South China Sea, announcing plans to invest massive amounts so China can dominate critical technologies of the 21st century, tightening Communist Party rule over Hong Kong, sending Muslims in Western China to “re-education” camps and resisting pressures to reduce China’s most abusive trade practices.
The country benefited tremendously from the globalization system that the U.S. and its allies built since World War II, but Beijing has often been grudging about making any sacrifices to maintain it.
Speaking broadly about America’s role in the world versus China’s, a senior Indian diplomat remarked: “America has been fighting without winning for 20 years. China has been winning without fighting for 20 years.”
All this has fed a backlash in the U.S., where even Democrats are now supporting Trump’s hard line on China. “There’s a very quiet debate in China in the party on who lost America,” Jim McGregor, chairman of APCO Worldwide for greater China, said during the recent Times DealBook conference discussion on China. “The extreme direction China has gone has really pushed America away.”
What to do?
I am not blasé about letting China sell technologies in America that might be used for espionage, but I am increasingly of the view that everyone spies on everyone — and always will. I am increasingly of the view that while surely some Chinese students are engaged in espionage, a vast majority are not, and their talents nourish our industries and schools. And I am increasingly worried that by imposing more and more export and visa controls we will be cutting ourselves off from the access we need to the global investment pools, customers and collaborative scientists and engineers to maintain our technological lead.
I still believe that the most open systems win — they get all the signals of change first, they attract the most high-IQ risk-takers/innovators and they enrich and are enriched by the most global flows of talent, ideas and capital. That used to be us.
We need to pause and ask ourselves exactly where we are heading with this whole tech/trade war with China. And Beijing needs to do the same.
China is our economic competitor, economic partner, source of talent and capital, geopolitical rival, collaborator and serial rule-breaker. It is not our enemy or our friend.
The only effective way to manage a relationship this complex is: 1) with an all-of-government approach. You can’t have the Justice Department doing one thing, the Pentagon another, the Treasury another, the trade negotiators another, the State Department another and the president tweeting another. There has to be a tightly coordinated strategy to get the best out of this relationship and cushion the worst. And 2), we need as many Pacific and European allies as possible so it’s “The Whole World Versus China” on the right rules for trade and technology integration in the 21st century, not just Trump versus Xi over who has the biggest tariff.
Unfortunately, Trump has deployed a totally disjointed, impulsive “America First” strategy that has ended up “America Alone” — and weaker. And Xi has been no better. So a relationship that the world needs to work, to drive growth and deal with global problems like climate change, is slowly unraveling. We will miss it when it’s gone.
Or, as Kishore Mahbubani, the Singaporean academic, former diplomat and author of the forthcoming book “Has China Won?” said to me: “I wonder if one day future historians will look back at this contest between Americans and Chinese and compare them to two families of apes fighting with each other while the forest around them is burning.”