By Baocheng Liu
At the beginning of this century, the Clinton administration delinked human rights with most favored nation treatment (MFNT) and granted permanent normal trade relationship (PNTR) with China, thereby set the stage for China’s accession to World Trade Organization (WTO) the next year. His rationale was to enrich U.S. national interest by expanding trade with the colossal economy in Asia. On the ideological front, it was also extrapolated that a fully-fledged market economy shall lead to continuous improvement of human right conditions under a liberalized institution and global engagement. Almost two decades later, the bellicose Trump administration has lodged an antilogy battle against this strategy blaming his predecessors for allowing the rise of a recalcitrant China. A defensive strategy under the slogan of America First is deployed on the ground of national security in blatant attempt to forestall the assumed challenge to U.S. dominance specifically in the ICT industry.
In view of China’s rapid technological advancement in emerging industries and rankled with its divergent mode operandi, obstruction of regular business connection between U.S. and China has been placed on top agenda by U.S. watchdogs, leading to accelerated decoupling between the two world biggest economies.
The definition of national security has been stretched to such a point where the U.S. Department of Commerce Bureau of Industry and Security (BIS) is empowered with almost a freewheeling decision on a swath of entity lists to sabotage normal commercial transactions between U.S. and Chinese firms. The initial introduction of Entity List of 44 Chinese firms in August 2018 was taken as a handy auxiliary to U.S. bargaining power amid the crossfire of trade war between the two countries. Now that the dust is settled in the phase-I bilateral trade agreement and both sides are willing to move on to phase-II negotiation, the torrential imposition of Entity List reveals a premeditated agenda to suffocate China’s rivalry for global leadership in 5G communication technology which is the engine for future growth.
The Entity List identifies entities reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States. Based on periodical review, the List can be adjusted for different degrees of export control. Adjustment means either removal from or addition to the List. Nonetheless, recent moves by BIS shows a one-way trajectory by adding 33 more Chinese entities this month. It is also noteworthy that 9 entities which are allegedly dealing with Xinjiang appeared on the List whereas human rights in Xinjiang has nothing to do with the manifested objective of the U.S. Export Administration Regulations (EAR) that enables BIS decisions.
With per capita income crossing the threshold of $10,000, China has undoubtedly stepped on a strategic stage to shift its gear for innovation-driven growth, and in the meanwhile, certain critical parts are still reliant on foreign supply where U.S. continues to play a dominant role. That is why the hawkish clan deems it the last window opportunity U.S. cannot afford to miss in order to contain China. But three questions are brought to the forefront：
First, in a world of sophisticated intertwinement, does the U.S. possess the hegemonic power to completely deny China’s access?
Second, is it impossible for China to break such bottleneck on its indigenous innovation regardless of procrastination?
Third, will such hostile move ultimately serve U.S. policy objectives?
Not to mention related equipment and technology, China alone pays a whopping $310 billion per year simply for the importation of semiconductor chips, contributing 2/3 of the global market revenue. In antithesis, its total annual expenditure on soybeans import is no more than $40 billion even though the country remains the world largest importer of nearly 100 million metric tons. So, will America get great again by voluntarily forfeiting this enormous market where U.S. firms takes a lion’s share?
Deprived of the opportunity for massive commercialization in order to recoup return on investment, how can R&D firms manage to finance continuous innovation? For any technology-intensive product, from automobiles to mobile phones, the sophistication level of supply chain network spanning across the globe is probably way beyond the imagination of a political leader who has been preoccupied in real estate development.
It is true that panic generated by Covid-19 epidemic is galvanizing the legitimacy for more home-made. However, it does not warrant a rebellion against the fundamental principle of global labor division which leads to overall efficiency and prosperity. Sweeping imposition of Entity List as part and parcel of trade embargo only serves to weaken U.S. competitive advantage in big way. Chinese entities are not sitting there to beg or wait for mercy; they are moving on under any circumstances notwithstanding probing in a circular path. Their level of innovation capacity and access to global resources can no longer be viewed with the Cold War vestige.
Now U.S. Commerce Secretary Wilbur Ross in turn expresses concern about indigenization of IC and related technology development by listed entities. Isn’t it an irony when U.S. comes a long way to accuse China’s violation of global trading rules by staging an import substitution program? Does a unilaterally initiated divorce have to end in the extinction of the spouse?
Cognizant of institutional differences, China has no intention to coax the world on Beijing Consensus, but it refutes unjust coercion and extortion, and is resolved to navigate its own course on a Chinese way. After all, when cornered on both ends, the confidence of Chinese entities is eventually vested in the support from their draconian government and its enormous domestic market.
Over a larger spectrum, with common interest mingled in persistent differences, bilateral relationship between U.S. and China is destined to be a love-n-hate one. When annual trade value amounts to such a gigantic number as $550 billion, decoupling is tantamount to suicide where no alternative can fill the gap artificially created with political myopia. The remaining question is: how far can the hawkish clan be tolerated by citizens either as consumers or producers to advance their decoupling agenda? The level of U.S. democracy is quickly put to test now that general election is at their doorstep.
*Baocheng Liu is a professor at the University of International Business and Economics in China. He is also the founder and dean to Sino-US School of International Management and Sino-French School of International Management.His area of research and teaching covers a variety of disciplines including marketing, business ethics, cross-cultural communication and business law.
(This article do not represent the editorial policy of TMTPost but rather views of the columnist)