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[Markets] Bolton's Exit Raises The Odds Of A US-China Trade Deal Bolton's Exit Raises The Odds Of A US-China Trade Deal

Authored by Spengler via The Asia Times,

President Trump needs a trade deal with China as quickly as possible to avert a sharp slowdown of the US economy, as recent polls have made clear. There won’t be any deal unless the US finds some way to walk back its efforts to keep China’s top telecommunication firm Huawei out of world markets. The summary dismissal today of National Security Adviser John Bolton increases the prospects of a deal, although the immediate motivation for Bolton’s departure most likely lies elsewhere.

China and the United States seemed on track for a trade deal in early December 2018 when XI Jinping and Donald Trump dined on the sidelines of a summit meeting in Buenos Aires – except that Canada arrested Huawei CFO Meng Wangzhou at the Vancouver Airport. Trump didn’t know about the arrest, but his national security adviser John Bolton did, as Bolton later said in a radio interview.

A few weeks earlier, the US government began a campaign to persuade its allies to exclude Huawei from the rollout of 5G broadband networks, as the Wall Street Journal first reported Nov. 23, 2018. The Meng Wanzhou arrest, the first use of extraterritorial powers in the case of an alleged sanctions violation, was a declaration of war on the Chinese national champion. In the ensuing months, the United States banned US technology firms from supplying components and software to Huawei and demanded that its allies boycott its 5G network systems.

All of the presidential orders targeting Huawei were drafted by Bolton’s staff at the National Security Council offices in the Executive Office Building next to the White House. Trump’s national security adviser didn’t devise the campaign against Huawei, but he represented the views of the US intelligence community to the White House and helped formulate the rationale for the effort to derail Huawei’s market leadership. Huawei, the US government alleged, might build secret back doors into its routers and steal data, compromising the cybersecurity of any country it supplied. So dangerous was Huawei, US officials alleged, that the US might cut back on intelligence sharing with such countries.

This in my view was a willful deception on the part of America’s spies, intended to distract attention from a different sort of problem. I do not believe that Ambassador Bolton set out to deceive anyone, but it seems likely that he was captured by the intelligence community’s agenda. As I wrote in Asia Times July 7:

The US intelligence community’s alarm at Chinese leadership in 5G mobile broadband has less to do with a threat of Chinese eavesdropping than with the likelihood that electronic eavesdropping will become next to impossible, thanks to quantum cryptography. I have had a number of conversations on the topic with US as well as Chinese sources, but this conclusion appears obvious from public sources.

America’s intelligence community spends nearly $80 billion a year, including $57 billion for the National Intelligence Program and $20 billion for the Military Intelligence Program. Signals intelligence (SIGINT), mainly electronic eavesdropping, takes up the lion’s share of the budget. Among other things, the National Security Agency recorded more than half a billion calls and text messages of Americans in 2017.

In response to a Freedom of Information Act lawsuit by the American Civil Liberties Union, the National Security Agency admitted – for the second time — that it improperly eavesdropped on Americans. The spooks’ ability to tap the conversations of prospective terrorists, foreign leaders like Germany’s Angela Merkel and pretty well anyone it wants is a source of enormous power as well as justification for continued funding.

In the meantime, America’s efforts to suppress Huawei have taken on a life of their own. In the Wall Street Journal today, financier George Soros, a bitter political enemy of President Trump, demanded to know if Trump will “sell out the US on Huawei” by including the technology issue in an overall trade deal. Soros wrote, “China is a dangerous rival in artificial intelligence and machine learning. But for now it still depends on about 30 U.S. companies to supply Huawei with the core components it needs to compete in the 5G market. As long as Huawei remains on the entity list, it will lack crucial technology and be seriously weakened… However, President Trump may soon undermine his own China policy and cede the advantage to Beijing.”

I do not think that the ban on exports of US components to Huawei will slow down its efforts in 5G broadband. With few exceptions, these components are easily sourced elsewhere, and China has had a blank check program to eliminate dependence on US technologies since March 2018, when the US banned sales of handset chips to China’s ZTE.

Still, it is odd to find the liberal Mr. Soros attacking President Trump, as it were, from the right. The US Establishment wants to throw whatever monkey-wrenches it has into the works in the hope of delaying Huawei long enough to figure out what it wants to do next. It doesn’t appear to be working. Last week Deutsche Telekom became the latest European country to inaugurate 5G networks using Huawei equipment.

Morris Lore reports at lightreading.com, “Before Deutsche Telekom’s 5G launch, Three, Vodafone and BT-owned EE had all turned on Huawei-built 5G networks in the UK, despite government indecision on the future role of Chinese suppliers. Vodafone is also using Huawei’s equipment to support 5G services in Italy, Romania and Spain, explaining why it has been Europe’s most vociferous opponent of the anti-Huawei campaign. Elsewhere, Huawei is live in Switzerland and Finland, where it equips Sunrise and Elisa respectively.”

To America’s great embarrassment, the whole of Eurasia has ignored its imprecations against Huawei. Bolton’s high-profile campaign, joined by Secretary of State Mike Pompeo, has failed, and President Trump doesn’t like to fail.

Bolton is quite the China hawk. In January 2018, three months before he took office, he argued in the Wall Street Journal that the US should station troops in Taiwan. China is glad to see the back of him. Global Times editor Hu Xijin tweeted, “Bolton has never played a positive role on China issues either, although it won’t be the reason why he was fired. I believe people who hold extreme political stance are paranoid and difficult to get along with. The news of Bolton being fired likely drew applause in the White House.”

Just what form a trade-and-technology deal might take is far from clear. The US cannot simply let the Huawei matter drop, but it might agree to comprehensive testing and screening of Huawei products. Huawei founder Ren Zhengfei told New York Times columnist Thomas Friedman that Huawei is “open to sharing our 5G technologies and techniques with US companies so that they can build up their own 5G industry.” He added that American companies can “change the software code. In that case, the US will be assured of information security.”

In short, Huawei has offered to call the American bluff about its purported data theft and open its proprietary technology to American inspection. The intelligence community and the China hawks, in general, will not like that, and Bolton’s departure removes one hawk from a particularly important nest.

My view is that Huawei’s dominance of a game-changing technology does indeed present a threat to the United States, but that John Bolton’s weasel war dance won’t do the United States any good. If the US wants to maintain technological superiority, it has to create national champions that can best Huawei, and that requires a massive commitment of federal R&D funding. In the meantime, President Trump may have to compromise with China to avoid a recession and defeat in the 2020 elections.

Tyler Durden Thu, 09/12/2019 - 14:57
Published:9/12/2019 2:03:42 PM
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