What US China Trade War is really about

Forget soybeans, auto imports, iPhones, crude oil, and cheap Chinese gadgets. Also forget tariffs, duties, and subsidies. Even forget weapons.

The real reason behind the US-China "trade" war has little to do with actual trade, and everything to do with what China's president, Xi Jinping, said when he visited a memory chip plant in the city of Wuhan earlier this year. In a white lab coat, he made an unexpectedly sentimental remark, comparing a computer chip to a human heart: “No matter how big a person is, he or she can never be strong without a sound and strong heart”.

What is really at the basis of the ongoing civilizational conflict between the US and China, a feud which many say has gradually devolved into a new cold war if few top politicians are willing to call it for what it is, are China’s ambitions to be a leader in next-generation technology, such as artificial intelligence, which rest on whether or not it can design and manufacture cutting-edge chips, and is why Xi has pled.

Washington plans to ramp up export controls next year on so-called foundational technologies — those that can enable development in a broad range of sectors — and the equipment for manufacturing chips is one of the key target areas under discussion.

This is a concern for China as the $412 billion global semiconductor industry rests on the shoulders of just six equipment companies, with three of them based in the US. Together, these companies make nearly all of the crucial hardware and software tools needed to manufacture chips, meaning an American export ban would choke off China’s access to the basic tools needed to make their latest chip designs.

"You cannot build a semiconductor facility without using the big major equipment companies, none of which are Chinese,” said Brett Simpson, the founder of Arete Research, an equity research group. "If you fight a war with no guns you’re going to lose. And they don’t have the guns."

To be sure, under Beijing’s auspices, Chinese chip companies have made enormous gains in semiconductor design as well as chip testing and packaging, in an attempt to catch up to the US. Several private and state-owned Chinese companies — Intel-backed Tsinghua Unigroup, Cambricon Technologies and Huawei’s HiSilicon among them — have already begun to venture into designing the leading edge chips capable of AI applications.

But the real difficulty is not in designing the chips, but in making them: "From a design perspective, Chinese companies are at least on par with anyone else in the world,” said Risto Puhakka, president of VSLI Research. “Where they have a challenge is if they decide to make a very cutting-edge chip."

Foremost among them is the Netherland’s ASML, which makes the photolithography machines that print and etch designs on to silicon wafers. It is the only supplier of the extreme ultra violet (EUV) lithography machines needed to make a 7-nanometre processor, the industry’s current gold standard.

Over in the US, Lam Research and Applied Materials as well as Japanese company Tokyo Electron dominate the market for equipment that can deposit billions of transistors and other active components on to a single chip. Another US company, KLA Tencor, sells much of the technology used in testing and monitoring the quality of chip production.

It is China’s reliance on these companies, more than any down swing in the stock market, that has made it vulnerable.

Bank of America's Michael Hartnett said half a year ago: for all the talk of the escalating confrontation between the US and China, the "trade war" of 2018 should be recognized for what it really is: "the first stage of a new arms race between the US & China to reach national superiority in technology over the longer-term via Quantum Computing, Artificial Intelligence, Hypersonic Warplanes, Electronic Vehicles, Robotics, and Cyber-Security."

Which is why, at this point delaying Beijing may be the best option for the US which is slowly but surely losing its one insurmountable technological advantage. But while that may win the short-term battle, will it merely lead to an even faster victory for China in the war, first trade and eventually, real.

Dangerous Move

If, as Mark Twain reputedly said, history often rhymes, our era increasingly recalls the period preceding 1914. And as with Europe’s great powers back then, the United States, led by an administration intent on asserting America’s dominance over China, is pushing the world toward disaster.

The context of the arrest of Huawei CFO Meng Wanzhou – a dangerous move by U.S. President Donald Trump’s administration in its intensifying conflict with China – matters enormously. The United States requested that Canada arrest Ms. Meng in the Vancouver airport en route to Mexico from Hong Kong, and then extradite her to the United States. Such a move is almost a U.S. declaration of war on China’s business community. Nearly unprecedented, it puts American business people travelling abroad at much greater risk of such actions by other countries.

The United States rarely arrests senior business people, U.S. or foreign, for alleged crimes committed by their companies. Corporate managers are usually arrested for their alleged personal crimes (such as embezzlement, bribery or violence) rather than their company’s alleged malfeasance. Yes, corporate managers should be held to account for their company’s malfeasance, up to and including criminal charges, but to start this practice with a leading Chinese business person – rather than the dozens of culpable U.S. CEOs and CFOs – is a stunning provocation to the Chinese government, business community and public.

Ms. Meng is charged with violating U.S. sanctions on Iran. Yet, consider her arrest in the context of the large number of companies, U.S. and non-U.S., that have violated America’s sanctions against Iran and other countries. In 2011, for example, JP Morgan Chase paid $88.3 million in fines in 2011 for violating U.S. sanctions against Cuba, Iran and Sudan. Yet Jamie Dimon wasn ’t grabbed off a plane and whisked into custody.

And JP Morgan Chase was hardly alone in violating U.S. sanctions. Since 2010 , the following major financial institutions paid fines for such violations: Banco do Brasil, Bank of America, Bank of Guam, Bank of Moscow, Bank of Tokyo-Mitsubishi, Barclays, BNP Paribas, Clearstream Banking, Commerzbank, Compass, Crédit Agricole, Deutsche Bank, HSBC, ING, Intesa Sanpaolo, National Bank of Abu Dhabi, National Bank of Pakistan, PayPal, RBS (ABN Amro ), Société Générale, Toronto-Dominion Bank, Trans Pacific National Bank (now known as Beacon Business Bank), Standard Chartered and Wells Fargo.

None of the CEOs or CFOs of these sanction-busting banks were arrested and taken into custody for these violations. In all of these cases, the corporation – rather than an individual manager – was held accountable. Nor were they held accountable for the pervasive lawbreaking in the lead-up to or aftermath of the 2008 financial crisis, for which the banks paid a staggering US$243 billion in fines, according to a recent tally. In light of this record, Ms. Meng’s arrest is a shocking break with practice. Yes, hold CEOs and CFOs accountable – but start at home in order to avoid hypocrisy, self-interest disguised as high principle and the risk of inciting a new global conflict.

Quite transparently, the U.S. action against Ms. Meng really seems to be part of the Trump administration’s broader attempt to undermine China’s economy by imposing tariffs, closing Western markets to Chinese high- technology exports and blocking Chinese purchases of U.S. and European technology companies. One can say, without exaggeration, that this is part of an economic war on China – and a reckless one at that.

Huawei is one of China’s most important technology companies and therefore a prime target in the Trump administration’s effort to slow or stop China’ s advance into several high-technology sectors. America’s motivations in this economic war are partly commercial – to protect and favour laggard U.S . companies – and partly geopolitical. They certainly have nothing to do with upholding the international rule of law.

The U.S. appears to be trying to target Huawei especially because of the company’s success in marketing cutting-edge 5G technologies globally. The U .S. claims the company poses a specific security risk through hidden surveillance capabilities in its hardware and software. Yet the U.S. government has provided no evidence for this claim.

快乐指数

今天给大家讲一个有趣的故事。
在上世纪70年代美苏争霸的时候，赫鲁晓夫和尼克松曾经有过这么一段故事。在一次会面中， 赫鲁晓夫向尼克松展示了苏联当时最先进的太空科技和武器，以表示苏联社会主义的优越性。 尼克松则展示了美国的一个普通人家的厨房，以及里头的各种现代化的电器设备。 尼克松提出一个问题， 我们美苏两国的年轻人， 以后会选择选择生活在哪种体质的社会里呢？ 赫鲁晓夫觉得很可笑， 答案当然是伟大的社会主义制度的苏联。

这次会面之后， 苏联统计局专门找人做了一番研究， 看看如何定量的计算苏联人的生活快乐程度，以此来判断苏联人民是否比西方国家过得更加好。 当时有一名数学家名字叫米哈伊尔-布林接受了这个任务。 这位布林先生是个犹太裔天才， 毕业于莫斯科国立大学。 本来志愿是当宇航员。 但是由于他是犹太人， 他被拒绝于物理研究门外。 毕业后只能进入统计局算算幸福指数。 但是他还是非常敬业， 每当看到自己国家的幸福指数远远高于西方国家的时候， 他心里面暗自为自己的工作感到自豪和高兴。

直到有一次机会他参加了一次国际会议。 会议他与世界各地的专家交流。他很惊讶的发现，其他发达国家并没有专门算过他们的幸福指数。 会议以后他很纳闷， 便开始反思他自己的工作到底有么有意义。 他最后觉得， 如果连自己喜欢的专业都不能从事， 那哪里谈得上幸福呢？ 他想到自己孩子的将来。

最后他决定要移民到美国。当他到移民局申请的时候，他统计局的公务员工作马上被开除。在等待移民的过程做， 他到处打零工来维持家庭开资。 最后在8个月后如愿移民到美国。

由于受过高等教育， 布林和他妻子在美国都找到了很好的工作。布林在马里兰大学教书， 他妻子进入了美国宇航局工作。 这在苏联根本没法想象。

他们的儿子， 从小学习优秀并显露超凡的数学天才。 最后进入了斯坦福大学。 毕业后，儿子创立了一家公司。 这家公司名字叫谷歌。

故事讲完了。 最后还是回到尼克松当年问赫鲁晓夫的问题，我们两国的年轻人，最后会选择在内个社会生活呢？ 苏联的快乐指数计算者布林给出了完美的答案。

Owning the Choke Points

As China charts its global reach, six zones demand special attention: the maritime choke points.

The entryway to the Black Sea from the Mediterranean. The passageway from the Pacific to the Indian Ocean via the Strait of Malacca. The corridor separating Europe from Africa at the Strait of Gibraltar. Bab el Mandeb, off Djibouti in the Horn of Africa. The Strait of Hormuz in the Persian Gulf. Access to the Mediterranean from the Red Sea through the Suez Canal.

At any one, an outbreak of hostilities could imperil China’s free movement around the globe, jeopardizing its exports and access to resources.

These zones have historically been policed by American naval power, which has made China’s access dependent on peaceful relations with the United States. To liberate itself, China has been lavishing investment on governments that control the choke points.