Looking ahead to next week, we expect to join in the chorus of reactions to whatever will have transpired between now and then. As for this afternoon, it seems as good a time as any to share a few thoughts on what to us is the nub of the difficulty in the U.S.-China trade relationship, namely the fact that it is only partially about trade. It is about everything from lingerie to long range missiles. The former figures in America's concerns about the yawning trade deficit with China, and the latter are but one of a number of stand-ins for the growing geopolitical rivalry between the two countries, and the security threats and challenges that each sees in the other.
At the moment, Huawei, China's giant technology firm, is perhaps the most prominent symbol of the security issue. This headline from the front-page of today's Wall Street Journal captures the issue:
"China to Insist U.S. End Huawei Ban, Or No Trade Deal." Our impression, which reality may soon correct, is that the Journal may have overstated the issue in a sense - but they also nailed it. We suspect that many Americans who read that headline today, answered it in their heads with the response, "But Huawei is national security. You can't bargain away security for trade." Indeed. But it is all so very complicated.
John Neuffer, the president and CEO of the Semiconductor Industry Association talked about Huawei during the panel discussion at the GBD China event on June 11. He said:
JOHN NEUFFER
Huawei is a very complex issue for the semiconductor industry. As a company, it's the number one telecom equipment provider. It's the number two cell phone maker in the world. And it is the number three purchaser of semiconductors, after Apple and Samsung. So it's a very big customer for us, no doubt. And, I've said this publicly, when the Huawei order was issued [banning the sale of certain U.S. technology to Huawei]: we've asked the U.S. government to better balance its national security concerns with the country's economic security. I'm not exactly sure how that manifests, but in the broader context of the agreement, I think the president has suggested that it could be part of the bilateral trade agreement. I've talked to a lot of folks, and folks kind of think it's hard to imagine a trade agreement getting finished without this very volatile issue being dealt with. So it seems to me that's probably the direction this would go, but again, not entirely clear to me that we would get a U.S.-China bilateral trade agreement finished.
Wendy Cutler was on that same panel, and one of the things she talked about was the difficulty of trying to handle a large number of significant trade issues in a negotiation that also includes national security issues. Ms. Cutler picked up where Mr. Neuffer left off:
WENDY CUTLER
Just to build on that, I agree with John and I think that maybe though the Huawei discussion should be in parallel to the trade negotiations. I think if you introduce that issue into the trade negotiations, you're trading off tariffs for Huawei, you know, it kind of blurs the distinction between national security measures and trade measures. It leads me to think that maybe it's time for the administration to think about Vice President Pence kind of overseeing the negotiations, both the trade side and the Huawei discussions, kind of having a different structure for the negotiations which would allow both issues to be addressed, but not immediate trade-offs at the same table.
If the Trump-Xi meeting is a success, the larger portion of that success will lie in future negotiations - whatever the results in Osaka. No genie is going take the tension out of the U.S.-China relationship, but if there is a more positive path for the relationship than the current one, it will of necessity involve a deepening of the security dialogue as well as a smoothing out of the trading relationship. For us, that was the take-away from the GBD session on June 11, and it is our hope for the period ahead.
