The beginning of a new Cold War
China has a commanding presence in rare earths which it could use to shut off supplies to the world
The writer is a former caretaker finance minister and served as vice-president of the World Bank
Since I live in Washington, I am a diligent reader of the American press. I follow the stories that directly or indirectly affect Pakistan. Of these, the one that takes up most space is the continuing American-Chinese conflict. This began as a trade dispute but has started to affect other areas. The other stories are about the elections in India, a possible US-Iran military conflict in the Middle East and the deep political divide in the United States. One of the themes that run through these stories is that of an interconnected world; developments in one part of the globe affect several other parts. For instance, The Washington Post in its May 21 issue told the story of a middle aged couple in the city of Lucknow in the state of Uttar Pradesh that was deeply split about their views of Narendra Modi who was on his way to win another term in office.
The story appeared under a telling headline: “US style political polarization has arrived in India.” Niha Masih and Joanna Slater, the authors of the story, quote a women’s rights activist saying that “people had different opinions earlier, as well, but the atmosphere was never so hostile. This is not healthy.” Looking for an explanation for this, the newspaper correspondents compared it to American politics. According to them, “at the heart of the growing divide stands the towering figure of Modi, who inspires either fervent loyalty or deep distrust, not unlike President Trump.” In the weeks to come, I will get back to all the stories but today I will focus on the China-US dispute.
The root of the problem the United States has with China is President Donald Trump’s strong belief that Beijing has taken Washington for a ride. This belief developed during Trump’s campaign for the presidency that took the candidate to the states that once made up America’s industrial heartland. There he came across people whose economic and social suffering had not registered with the country’s costal elite. This part of the country was often referred to as the “fly over” region by those who lived on the two coasts and flew over it, not bothering to find out what was happening to the people who lived there. A large number of them had been unemployed or had seen their incomes stagnate. They told Trump that the factories that employed them or coal mines they worked in had either closed or had reduced their output. Industrial jobs had moved to China and the elites’ concern with global warming had cut into the output of coal mines. In all this, Trump saw a political opportunity. Successfully, he turned these people into his political base. He promised action on both fronts if those who were in economic and social distress sent him to the White House. They did and Trump kept his word.
He took a number of steps to keep his appeal in the base. He threatened to use tariffs on trade to force Beijing to ease restrictions not only on imports from the United States but also on constraints under which American companies were made to operate in China. The Chinese leadership initially ignored the rhetoric coming out of the Trump administration but when Trump signalled that the threat was real by imposing tariffs on some of what China was selling in the United States, the Xi Jinping government agreed to negotiate. Several rounds of discussions did not produce a result the Americans would have considered satisfactory. When the final round collapsed in mid-May, the Trump administration placed a punishing import duty of 25 per cent on most Chinese imports. At the same time it singled out one Chinese company to punish to make the dispute costly for the Chinese people and its businesses.
China’s Huawei Technologies Co Ltd is the world’s largest telecommunications equipment maker that became the focus of American attention as the Trump administration continued to put pressure on China to change its economic policies. On May 15, 2019 Trump declared a “national emergency” and signed an executive order that expands the government’s powers to protect America’s communication networks. The order authorises the Commerce Department to block transactions involving communication technologies companies controlled by foreign adversaries that put US security at “unacceptable risk”. The order was issued under the International Emergency Economic Powers Act of 1977, the law used by every president since Jimmy Carter to impose sanctions on countries such as Russia and Iran.
The order was followed by the Commerce Department’s Bureau of Industry and Security adding Huawei to its “entity list” which makes it virtually impossible for the targeted entity to survive since US firms are discouraged from doing business with it. In the world of international commerce being placed on the entity list is called the “death penalty.” The move forces Huawei to obtain US government licence to buy American technology. Huawei smartphones use Google’s Android operating system. The chips used in the phones are also made in the United States. In 2018, Xi personally requested President Trump to remove the inclusion of ZTE, another Chinese telecommunications giant to remove it from the entity list. This was done.
According to The New York Times in an analysis published on the front page of its May 21 issue, “China has spent nearly two decades building a digital wall between itself and the rest of the world, a one-way barrier designed to keep out foreign companies like Facebook and Google while allowing Chinese rivals to leave home and go across the world. Now President Trump is sealing up that wall from the other side.” To comply with the new rules signed into an order by President Trump, Google said on May 20 that it would limit the software services it provides Huawei. A new cold war had begun and the United States had lowered the digital curtain. China has several ways it can and will react. On May 20, President Xi was reported by the Chinese state-controlled media to have visited a site that mines rare earths which are essential minerals for a number of high-technology products. This was a gentle reminder that China has a commanding presence in rare earths which it could use to shut off supplies to the world. The new cold war was on; the last one took almost half a century to wind down. This one could last a long time.
Published in The Express Tribune, May 27th, 2019.
The story appeared under a telling headline: “US style political polarization has arrived in India.” Niha Masih and Joanna Slater, the authors of the story, quote a women’s rights activist saying that “people had different opinions earlier, as well, but the atmosphere was never so hostile. This is not healthy.” Looking for an explanation for this, the newspaper correspondents compared it to American politics. According to them, “at the heart of the growing divide stands the towering figure of Modi, who inspires either fervent loyalty or deep distrust, not unlike President Trump.” In the weeks to come, I will get back to all the stories but today I will focus on the China-US dispute.
The root of the problem the United States has with China is President Donald Trump’s strong belief that Beijing has taken Washington for a ride. This belief developed during Trump’s campaign for the presidency that took the candidate to the states that once made up America’s industrial heartland. There he came across people whose economic and social suffering had not registered with the country’s costal elite. This part of the country was often referred to as the “fly over” region by those who lived on the two coasts and flew over it, not bothering to find out what was happening to the people who lived there. A large number of them had been unemployed or had seen their incomes stagnate. They told Trump that the factories that employed them or coal mines they worked in had either closed or had reduced their output. Industrial jobs had moved to China and the elites’ concern with global warming had cut into the output of coal mines. In all this, Trump saw a political opportunity. Successfully, he turned these people into his political base. He promised action on both fronts if those who were in economic and social distress sent him to the White House. They did and Trump kept his word.
He took a number of steps to keep his appeal in the base. He threatened to use tariffs on trade to force Beijing to ease restrictions not only on imports from the United States but also on constraints under which American companies were made to operate in China. The Chinese leadership initially ignored the rhetoric coming out of the Trump administration but when Trump signalled that the threat was real by imposing tariffs on some of what China was selling in the United States, the Xi Jinping government agreed to negotiate. Several rounds of discussions did not produce a result the Americans would have considered satisfactory. When the final round collapsed in mid-May, the Trump administration placed a punishing import duty of 25 per cent on most Chinese imports. At the same time it singled out one Chinese company to punish to make the dispute costly for the Chinese people and its businesses.
China’s Huawei Technologies Co Ltd is the world’s largest telecommunications equipment maker that became the focus of American attention as the Trump administration continued to put pressure on China to change its economic policies. On May 15, 2019 Trump declared a “national emergency” and signed an executive order that expands the government’s powers to protect America’s communication networks. The order authorises the Commerce Department to block transactions involving communication technologies companies controlled by foreign adversaries that put US security at “unacceptable risk”. The order was issued under the International Emergency Economic Powers Act of 1977, the law used by every president since Jimmy Carter to impose sanctions on countries such as Russia and Iran.
The order was followed by the Commerce Department’s Bureau of Industry and Security adding Huawei to its “entity list” which makes it virtually impossible for the targeted entity to survive since US firms are discouraged from doing business with it. In the world of international commerce being placed on the entity list is called the “death penalty.” The move forces Huawei to obtain US government licence to buy American technology. Huawei smartphones use Google’s Android operating system. The chips used in the phones are also made in the United States. In 2018, Xi personally requested President Trump to remove the inclusion of ZTE, another Chinese telecommunications giant to remove it from the entity list. This was done.
According to The New York Times in an analysis published on the front page of its May 21 issue, “China has spent nearly two decades building a digital wall between itself and the rest of the world, a one-way barrier designed to keep out foreign companies like Facebook and Google while allowing Chinese rivals to leave home and go across the world. Now President Trump is sealing up that wall from the other side.” To comply with the new rules signed into an order by President Trump, Google said on May 20 that it would limit the software services it provides Huawei. A new cold war had begun and the United States had lowered the digital curtain. China has several ways it can and will react. On May 20, President Xi was reported by the Chinese state-controlled media to have visited a site that mines rare earths which are essential minerals for a number of high-technology products. This was a gentle reminder that China has a commanding presence in rare earths which it could use to shut off supplies to the world. The new cold war was on; the last one took almost half a century to wind down. This one could last a long time.
Published in The Express Tribune, May 27th, 2019.