Trump’s hardline trade negotiator Robert Lighthizer and China’s vice premier Liu He hunkered over a table in the Eisenhower Executive Office, the 1870s French Second Empire-style edifice that sits a nine-iron shot away from the White House.
Fortwo days they worked on the basicsof a deal that both sides eventually hope will be signed by Donald Trump and Xi Jinping this month. If not, the US has vowed to impose another round of tariffs on March 1.
Upping the ante
But, in a move that many on the Chinese side regard as an effort to increase Lighthizer’s leverage, the Trump administration dramatically upped the ante by theatrically unveiling more than two dozen counts of fraud and sanctions violations against Huawei, China’s national telecommunications champion and a key element of its ambition to build a global G5 network.
A phalanx of senior cabinet ministers attended theHuawei announcement, including the heads of the Department of Justice, Homeland Security, Commerce, and the FBI, alongside a host of other top officials.
“Companies like Huawei pose a dual threat to both our economic and national security, and the magnitude of these charges make clear just how seriously the FBI takes this threat,” said FBI director Christopher Ray.
Almost simultaneously across the Atlantic in Geneva, China was busy launching the legal process for the World Trade Organisation to hear Beijing’s challenge to the tariffs Trump has already slapped on $234 billion ($322 billion) of goods China exports to the US.
“This is a blatant breach of the United States’ obligations under the WTO agreements and is posing a systemic challenge to the multilateral trading system,” China’s representative said.China accused Washington of acting with “deep political intentions and manipulations” following the criminal allegations levelled at Huawei and the formal decision to push ahead with the extradition of the daughter of the company’s founder, arrested in Canada for violating trade sanctions.
New cold war
Across multiple fronts Beijing and Washington are at each other’s throats.
“It’s not just about economic power; it’s about military and strategic advantage,” says Bonnie Glaser, a senior Asia and China expert at the Center for Strategic and International Studies in Washington, of the growing Sino-US rivalry.
“The United States is increasingly focussed on preventing China from using the international system and its own authoritarian system to its advantage.”
“It really is about a broader, across-the-board competition like we have never seen because this administration has just finally decided to get serious about it,” Glaser says.
Historian Niall Ferguson, who will headline next month’s The Australian Financial Review Business Summit in Sydney, says the US-China relationship is “structurally bound to deteriorate” over a broad range of issues.
Unlike the last cold war’s focus on intercontinental missile dominance, the new rivalry will be fought in the realm of technology.
“The most important area of strategic competition is artificial intelligence, but it’s not the only one, because China’s attempts to build a 5G empire that extends around the world is another important front.”
“The anti-Huawei campaign that is now underway is an attempt to stop that,”Ferguson said in an interview.
Michael Pillsbury, a senior fellow at the Hudson Institute in Washington and frequent advisor to Trump on China, confirmed this week that the Huawei indictments help Lighthizer as he negotiates with his Beijing counterparts.
“It gives us more leverage,” Pillsbury told Bloomberg television this week, adding that the Chinese “frankly expect this kind of thing”.
“There’s a certain cycle or pattern to these negotiations, and usually applying pressure at the last minute through other means can be quite important, and we’re getting down to the last minutes; As of this Friday it’ll be 30 more days to go.”
Pillsbury also spelt out what the administration sees as a steadily escalating series of steps to force the Chinese to make concessions on trade and in areas such as IP theft and technology transfers.
“We’re now in the third year of Trump’s, I think, quite brilliant negotiating approach,” he said.
The first year involved Commerce secretary Wilbur Ross’s attempt to spur around $200 billion of Chinese “investments or purchases in America”, he said. “That didn’t work.”
“The second year was pretty much [Treasury secretary] Steve Mnuchin in the lead.”
“That led to the famous  May 3rd … breakdown, when our 24 [negotiating] points were attacked by China as humiliating. We didn’t accept their ten points, and both sides went home.”
“Now we’re in the third approach where Bob Lighthizer is going to try get a written agreement with enforcement and verification on the key details – maybe pick out the low-hanging fruit.”
In China, the rhetoric is vastly different. Beijing’s leaders and the country’s powerful state media have portrayed the arrest of senior Huawei executive Meng Wanzhou at Vancouver Airport on December 6 as a gross violation of human rights andpart of a campaign aimed at containing China.
But the technology cold war between China and the United States was brewing long before Meng’s arrest, pending extradition to the United States on charges of violating sanctions against Iraq. Despite the positive noises from China on Friday following the conclusion of the latest round of trade talks, Beijing is not expected to rollover and make significant structural changes to the way it runs its economy and hold back developing its booming tech sector.
“This has become a new cold war. Trade is only one aspect and not the most important aspect of this cold war,” says Willy Lam, an adjunct professor at the Chinese University of Hong Kong.
Lam says unease about China’s growing technological might, particularly its ability to access and control data, is not unlike America’s reaction when the Soviet Union launched Sputnik – the world’s first artificial satellite in 1957. The space race that followed saw former US president John F Kennedy put the first man on the moon.
“That is why JFK [John F Kennedy] set up this space program to catch up with the USSR. Technology played an important role in the cold war between the US and USSR and the same thing is happening now,” Lam notes.
The issue is clear cut for China’s leaders. They say the United States is seeking to contain China’s rise as a major world power by targeting its booming technology sector. In their eyes, at least publicly, the cold war is not about spying, data breaches or China stealing technology, but an unfair crusade by Washington to stifle its best-performing companies.
“This is an all out challenge by the United States against China. It is almost a global manouevre. It is not China challenging the United States. It is a concerted effort to contain and deter China’s rise,” Chen Hong, director of the Australian Studies Centre at Shanghai’s East China Normal University toldAFR Weekend.
“China has been forced into this position. China will have to take some measure to counter or counter the negative impact.”
But with the United States gaining growing support from western allies to block companies like Huawei selling 5G telecommunications equipment, what can China do to counter the offensive?.
“In the end countries will make their own choices about whether they want to adapt the best technology that it is years ahead or not,” London School of Economics professor Keyu Jin said in an interview this week.
“In the end it is individual countries that will prioritise different things. Huawei still has a big domestic market in China, its technology is unparalleled when it comes to 5G. It will do just fine,” Jin, the daughter of the China-ledAsian Infrastructure Investment Bank (AIIB)president Jin Liqun, adds.
Chen says efforts to contain China’s technology companies are an incentive to speed up the development of China’s technology sector. China is not the Soviet Union of the 1950s. It has a powerful government willing to subsidise its technology titans and already has access to much of the world’s intellectual property and skills.
Beijing announced a blueprint for its hi-tech ambitions with the “Made in China 2025” plan in 2015, a policy to support industries such as aerospace, robotics, energy-efficient cars and 5G telecommunications. While it has downplayed the initiative recently in an attempt to ward off more trade tariffs, Beijing’s ability to subsidise targeted domestic firms at the expense of foreign players will not be abolished in a trade truce expected to be signed by March.
Xi again emphasised China’s need to be “self-reliant” in a Lunar New Year address to the nation this week, which many see as a signal of China’s willingness to pursue the growth of its booming tech sector whether the US opposes it or not.
Many of the concerns about China’s advance technological capability amongst Washington’s allies, including Australia, were summed up in a provocative speech by American billionaire George Soros at the World Economic Forum in Davos a little over a week ago.
“On the broader question of global internet governance, there is an undeclared struggle between China and the West,” Soros said.
“China wants to dictate the rules and procedures that govern the digital economy by dominating the developing world with its new platforms and technologies.
“This is a threat to the freedom of the internet and open society itself,” he said.
John Lee, a former advisor to Julie Bishop and Hudson Institute fellow, says thepressure is largely on Chinato crack a deal, rather than the US, where attitudes are hardening.
“It’s not just the Trump administration; the Congress is right behind most of the tough action and the American business community has really toughened on China quite decisively,” he said in Washington on Friday.
“And my personal anecdotal experience is that even among American households there is a general feeling that they’re losing out to China.”
Lee believes America has some right on its side.
The Chinese “have been gaming the economic system for some time without much pushback … unlike now.”
The political pressures are also heavier for Xi than Trump.
“Firstly, the Chinese economy is suffering as a direct result of the trade issues. And secondly, that there’s much more agreement in America for what Trump is doing than there is in China for what’s occurred,” says Lee.
“From the political point of view, I think the Americans have more negotiating leverage than the Chinese.”
Douglas Paal, a distinguished fellow at the Carnegie Endowment, and a former National Security Council official under Ronald Reagan and George H.W. Bush, has warned about the direction things are headed.
“Great nations fail, in their own mythologies, because of things done by great rivals, rather than their own mistakes.”
“The United States and China are setting each other up to be rival bogeymen. This is not a good direction, yet corrective forces like businesses and universities, which traditionally have supported engagement, do not seem able to stop it,” he said this week in an interview on the endowment’s website.
Political risk consultancy Eurasia group warns that this rivalry will create an “innovation winter”, a consequence of thetech cold warit believes has already been playing out for some time.
“Over the course of 2018, technology competition grew extremely political. This is the year investors and markets will start paying the price.”
“We’re heading for a global innovation winter – a politically driven reduction in the financial and human capital available to drive the next generation of emerging technologies,” it said in a report released last month, just as the Huawei dispute was brewing.
Eurasia’s analysts warn that US efforts to ring-fence Chinese technology will lead to increased scrutiny of Chinese students and workers, sapping the flow of creative talent into America.
This will also work in reverse for China as American engineers and entrepreneurs find it harder to work in China. It expects the European Union and Japan to follow with similar restrictions.
While Americans and Chinese lead this game of global one upmanship, the technology-skewed cold war is playing out across the globe.