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As Bob Marley said, “If you know your history, then you would know where you’re coming from.”

Wednesday’s post — My Proprietary Chipset — included hyperlinks to specific publications and websites from the 2000s. Some of these are more easily accessed than others. For instance, the link to my testimony before the U.S. China Economic and Security Review Commission in the 109th Session of Congress (2005) takes you directly to that testimony. However, the links to my testimony at the 108th (2003) and 107th (2001) sessions takes you to the full text of the Commission’s work covering the full session and it takes some perseverance to find one’s way to my testimony. In the spirit of presenting my work on these issues from the 2000s in one, easily accessed location, I will add here to the blog a few archive posts to fill in behind Wednesday’s My Proprietary Chipset post providing readier access to those harder-to-navigate publications.

2003 Testimony, 108th Session of Congress

SUMMARY:

In the information technology sector, Taiwan semiconductor and electronics manufacturing firms are major global actors, and their
expansion into China continues, but without noticeable erosion of Taiwan equity control. In testimony before the Commission, Merritt Cooke, former senior commercial officer at the American Institute in Taiwan, attributed this to the relative stability of ‘‘highly differentiated, high-value supply chains’’ as opposed to the ‘‘instability of far simpler manufacturer-retailer networks characteristic of commodity products.’’ Cooke believes this distinction helps explain the historical pattern of Taiwan investment into the mainland. While many light industry sectors that Taiwan moved to the mainland in the 1980s and 1990s ‘‘have been swallowed up by mainland competitors,’’ highly differentiated, relatively high-value consumer products such as brand-name athletic shoes and high-performance bicycles have remained largely in Taiwan equity hands. ‘‘If these product sectors, with their relatively lower levels of technology and slower product cycles, could stay in Taiwan control for decades, there is every reason to believe that the various IT [information technology] hardware sectors will stay even more firmly in Taiwan’s grip in years ahead,’’ Cooke said. Despite the large and growing Taiwan business presence in the mainland and burgeoning indirect cross-Strait trade and investment, there is a sense in the Taipei business community that Taiwan itself—as a venue for investment, manufacturing, logistics, or finance—is in danger of becoming marginalized within Asia. Kaohsiung’s container port—once the fourth busiest in the world— now ranks sixth, with the Chinese ports of Shenzhen and Shanghai jumping ahead. The American Chamber of Commerce in Taiwan reports that a number of U.S. corporations’ regional headquarters in Taiwan have been eliminated or downgraded to local offices.

2001 Testimony, 107th Session of Congress

TESTIMONY:

STATEMENT OF MERRITT TODD COOKE, JR., CHIEF, COMMERCIAL SECTION, AMERICAN INSTITUTE IN TAIWAN

Mr. COOKE. Mr. Chairman, thank you. I hope the Commission will feel free to overlook the confusion that my parents introduced
with my legal name and call me by the name that I most often respond to, Terry. [Laughter.]
I will also request that, with the consent of the Commission, some paragraphs that I delete in the interest of brevity do be entered into the record. I will spare the Commission a recap of Taiwan’s ten-year structural transformation in the 1990s.
It is an honor to be asked to testify in front of this distinguished panel of Commissioners. In the following brief statement, I will bring to bear my perspective as current Chief of the Commercial Section at the American Institute in Taiwan to address the issues
identified by the Commission in its July 24 invitation letter, specifically the growing interdependence of the U.S., Taiwan, and Chinese high-tech economies.
The strategic interdependence of the U.S. and Taiwan economies has grown steadily throughout the 1990s as Taiwan’s economy has shifted from its traditional structure as a labor-intensive export-oriented economy towards a more service-oriented investment and technology-intensive economy. While Taiwan’s industrial sector has shrunk in relative terms over this period, capital and technology-intensive industries have expanded dramatically. These industries accounted for approximately 75 percent of total manufacturing in 2000, compared to 48 percent in 1986.
Taiwan now supplies 60 percent of the world’s motherboards and is the world’s leading supplier of notebook computers, monitors,
mice, keyboards, video cards, sound cards, on/off switches, LAN cards, graphic cards, scanners, and laser disk drives. Through the
strength of its foundry model, Taiwan has emerged as a preeminent semiconductor supplier to the world.
This transition from the production of labor-intensive goods to high-tech goods has to date proceeded relatively smoothly, even
against the background turbulence of the Asian financial crisis in 1997–98 and a major earthquake occurring on September 21, 1999.
Against the broad backdrop of its structural transformation, two major dynamics have emerged: First, the growing regional partnership and global interdependence of the U.S. and Taiwan high-tech industries, and secondly, the accelerating shift of the lower end of Taiwan’s high-tech production offshore, particularly to mainland China.
One clear indicator of the degree of evolving interdependence with the U.S. was the fact that following the 9/21 earthquake in
Taiwan, the tech markets in New York dropped more in percentage terms than in Taipei.
The scale of this interdependence is likewise highlighted in other ways. For example, four of the top U.S. suppliers of PCs alone procured $20 billion of components from Taiwan to support their 1999 global sales. Additionally, Taiwan will soon have more state-of-the-art 300-millimeter chip wafer fabs in operation than the U.S., Germany, Japan, or any other world market.
The accelerating shift of high-tech production from Taiwan to mainland China has been equally pronounced over this period. The
Taiwan government’s Office of Budget, Accounting, and Statistics reported in February that government approved Taiwan investments in China for 2000 more than doubled from the 1999 levels.
The Taipei Computer Association reported in the same month that 30 percent of Taiwan’s 411 high-technology companies had established major investments in mainland China and that fully 90 percent of those 411 companies planned to be invested in China by the end of 2001.
Lastly, China edged out Taiwan in 2000 for the first time for the number three slot in world IT production value. China came in behind the U.S. and Japan, with $25.5 billion of production value, against Taiwan in fourth place with $23 billion. The key point to
note, however, is that Taiwanese companies generated fully 70 percent of that $25.5 production value in mainland China.
The impending accessions of China and Taiwan to the WTO will likely further accelerate this process of growing cross-straits commercial interdependence in high-tech, with consequent implications for the already highly interdependent U.S. and Taiwan high-tech economies. Although Taiwan’s relatively late liberalization and privatization of its fixed-line monopoly regime will limit somewhat the impact of this development in the telecom sector, the likely effect will be continued fast accelerating cross-straits interdependence in sectors such as PC and notebook assembly, motherboard and other PC component manufacture, production of chip sets for mobile telephony and other applications, scanner and computer peripheral production, and lower end IC production.
A number of important trends will reinforce WTO financial linkages and commercial disciplines and tend to produce this outcome.
First, the network of business relationships which Taiwan firms have established in China represents largely an extension into
China of preexisting product and service supply chain relationships originally established in Taiwan. This greater Taiwan phenomenon in China, localized in growth centers such as Donguan in Guangdong, Xianen in Fujian, and increasingly in the greater Shanghai area, has now reached a critical mass sufficient for greater efficiency in the global supply chain.
Second, the commoditization of IT production worldwide is increasingly pressuring production costs, forcing manufacturers to
distribute a growing number of lower end steps in their production processes to the world’s lowest-cost production centers. Under more than a decade of the KMT or Guangdong’s ‘‘Go South’’ policy, Taiwan manufacturers have quite fully exploited the advantages of relatively low-cost production centers in the Philippines, Thailand, and elsewhere in Southeast Asia, the one exception to that probably being an expected spurt of Taiwan investment in Vietnam following the ratification and implementation of the U.S.-Vietnam bilateral trade agreement.
At the same time, the KMTs, and now the new administration, the DPP’s ‘‘go slow’’ policy vis-a-vis investment in the mainland has tended to limit the degree to which Taiwan firms could take advantage of the even lower costs of production in China. However, since cost pressure started mounting sharply in March 2000, Taiwan high-tech firms have found themselves no longer able to maintain global competitiveness without relocating a greater share of their production to China, the lowest cost major production center in the Asian production platform.
A third trend really represents a number of technology trends that underlie an emerging division of labor in high-tech production
between Taiwan and the PRC. Without trying to go into any of these, I would just note the increasing specialization of national
economies in the globalized IT industry segments. For instance, fully half of Finland’s GDP is dedicated to wireless telephony.
Secondly, the migration of value away from hardware assembly and towards embedded software technologies in scanners, in peripherals, in Internet appliances, and so on.
And a third technology trend being the steep rise in investment costs and shorter product cycles in the IC semiconductor sector.
A fourth and final trend, the Taiwan and China markets are
largely complementary, creating unique opportunities for commercial cooperation between these political rivals. For instance, Taiwan firms have generally failed to establish global brand and to capture the higher valuations that accrue to brand-name products. However, the large size of the China market, the skill and cultural familiarity of Taiwan business managers, and the high regard which China’s consumers have for Taiwan’s products are now giving Taiwan firms a chance to establish brand names on a large-scale regional basis as opposed to global basis.
Each one of these trends holds important implications for U.S. interests. The establishment of Taiwan regional brands might, for
instance, tend to weaken the existing cooperative bonds between U.S. and Taiwan alliance partners and foster more direct competition in the region. Conversely, the combination of U.S. innovation, Taiwan regional management skill, and the largely untapped potential of the developing China market is already creating a set of
opportunities for enhanced commercial cooperation among traditional U.S. and Taiwan partners.
The rapid proliferation of commercial ties between Taiwan and China is of major importance to U.S. interests. There are the narrower set of commercial implications for the U.S. competitive posture in regional and global markets, to which I have just alluded. Also, as Rupert Hammond Chambers, President of the U.S. ROC Business Council suggested in his June 14 testimony to this Commission, there are equally important implications which fast-growing commercial interdependence between Taiwan and China have for traditional U.S. military and security interests in the Straits of Taiwan.
I commend the Commission for focusing attention on the extent to which commercial dynamics in the computer electronics and telecommunications sectors are affecting these interests. It is my personal observation that these market and technology-driven dynamics are not always fully captured in the dialogue regarding our key
interests in this potential flash point region of the world. Thank you very much.

[The statement follows:]
PREPARED STATEMENT OF MERRITT TODD COOKE, JR.
It is an honor to be asked to testify in front of this distinguished panel of Commissioners. It is also, personally, a distinct pleasure to see again a number of former Departmental and Embassy colleagues as well as others with whom I have had the
past pleasure of working on various overseas and stateside activities. In the following brief statement, I will bring to bear my perspective as current Chief of the Commercial Section at the American Institute in Taiwan to address the issues identified by the Commission in its July 24th invitation letter.
The strategic interdependence of the U.S. and Taiwan economies has grown steadily throughout the 1990s as Taiwan’s economy has shifted from its traditional structure as a labor-intensive, export-oriented economy towards a more services-oriented,
investment- and technology-intensive economy. While Taiwan’s industrial sector has
shrunk in relative terms over this period, capital- and technology-intensive industries have expanded dramatically. These industries accounted for approximately 75 percent of total manufacturing in 2000, compared to 48 percent in 1986. During this
structural transition, labor-intensive industries, such as toys, footwear, umbrellas,
and garments, relocated offshore. Their place was taken by petrochemicals, metal products, machinery, and ‘‘most dramatically during the 1990s’’ by technology-oriented industries, such as electronic, electric, and information products.
By 2000, more than half of the top ten manufacturing firms in Taiwan were electronic and computer manufacturing firms, compared with only two in 1993. More than half of the top ten manufactured products were in the areas of integrated circuits (ICs), personal computers, and computer peripherals, whereas in 1993, only ICs had been among the top ten. Taiwan now supplies 60% of the world’s motherboards and is the world’s leading supplier of notebook computers, monitors, mice, keyboards, video cards, sound cards, on-off switches, LAN cards, graphics cards, scanners, and laser disk drives. Through the strength of its foundry model, Taiwan has emerged as a preeminent semiconductor supplier to the world. This transition from the production of labor-intensive goods to high-tech goods has, to date, proceeded relatively smoothly, even against the background turbulence of the Asian Financial Crisis in 1997–98 and a major earthquake occurring on September 21, 1999.
Against the broad backdrop of this structural transformation, two major dynamics have emerged: (1) the growing regional partnership and global interdependence of the U.S. and Taiwan high-tech industries and (2) the accelerating shift of the lowerend of Taiwan’s high-tech production offshore, particularly to mainland China. One clear indicator of the degree of evolving interdependence with the U.S. was the fact that, following the 9–21(–99) earthquake in Taiwan, the tech markets in New York
dropped more in percentage terms than in Taipei. The scale of this interdependence is likewise highlighted in other ways. For example, four of the top U.S. suppliers of PCs alone procured $20 billion (USD) of components from Taiwan to support their
1999 global sales. Additionally, Taiwan will soon have more state-of-the-art 300mm chip-wafer fabs in operation than the U.S., Germany, Japan or any other world market.
The accelerating shift of high-tech production from Taiwan to mainland China has been equally pronounced over this period. The Taiwan Government’s Office of Budget, Accounting, and Statistics reported in February that government-approved Taiwan investments in China for 2000 more than doubled from the 1999 levels. The Taipei Computer Association reported in the same month that 30 percent of Taiwan’s 411 high technology companies had established major investments in mainland China and that fully 90 percent of those 411 companies planned to be invested in China by the end of 2001. Lastly, China edged out Taiwan in 2000 for the first time for the number three slot in world IT production value. China came in behindthe U.S. and Japan with $25.5 billion of production value against Taiwan in fourth place with $23 billion. The key point to note, however, is that Taiwanese companies generated fully 70% of that $25.5 production value in Mainland China.
The impending accessions of China and Taiwan to the WTO will likely further accelerate this process of growing cross-straits commercial interdependence in hightech, with consequent implications for the already highly interdependent U.S. and Taiwan high-tech economies. Although Taiwan’s relatively late liberalization and privatization of its fixed-line monopoly regime will limit somewhat the impact of this development in the telecoms sector, the likely effect will be continued fast-accelerating cross-straits interdependence in sectors such as PC and notebook assembly, motherboard and other PC component manufacture, production of chipsets for mobile telephony and other applications, scanner and computer peripheral production, and lower-end IC production. A number of important trends will reinforce WTO financial linkages and commercial disciplines and tend to produce this outcome:
—First, the network of business relationships which Taiwan firms have established in China represents largely an extension into China of pre-existing product and service supply-chain relationships originally established in Taiwan. This ‘‘Greater Taiwan’’ phenomenon in China, localized in growth centers such as Dongguan (Guangdong), Xiamen (Fujian) and, increasingly, the Greater
Shanghai area, has now reached a critical mass sufficient for greater efficiency in the global supply chain;
—Second, the commoditization of IT production worldwide is increasingly pressuring production costs, forcing manufacturers to distribute a growing number of lower-end steps in their production processes to the world’s lowest-cost production centers. Under more than a decade of the KMT’s ‘‘Go South’’ policy, Taiwan manufacturers have quite fully exploited the advantages of relatively low-cost production centers in the Philippines, Thailand and elsewhere in Southeast Asia. (The exception to this being an expected spurt of Taiwan investment in Vietnam following the ratification and implementation of the U.S.-Vietnam Bilateral Trade Agreement). At the same time, the KMT’s (and now the DPP’s) ‘‘Go Slow’’ policy vis-a`-vis investment in the mainland tended to limit the degree to which Taiwan firms could take advantage of the even lower costs-of-production in China. However, since cost pressures started mounting sharply in March 2000, Taiwan high-tech firms have found themselves no longer able to maintain
global competitiveness without relocating a greater share of their production to China, the lowest-cost major production center in the Asian production platform;
—Third, a number of technology trends underlie an emerging division of labor in high-tech production between Taiwan and the PRC. Among these, are (a) the increasing specialization of national economies in globalized IT industry-segments (e.g., fully half of Finland’s GDP is now generated from wireless related technologies); (b) the migration of value away from hardware assembly and towards imbedded software (e.g., scanners and other peripherals, Internet Appliances, etc.); and (c) the steep rise in investment cost and shorter product cycles in the IC/semiconductor sector; and
—Fourth, the Taiwan and China markets are largely complementary, creating
unique opportunities for commercial cooperation between these political rivals. For instance, Taiwan firms have generally failed to establish global brands and to capture the higher market valuations that accrue to brand-name products. However, the large size of the China market, the skill and cultural familiarity of Taiwan business managers with that market, and the high regard which Chinese consumers have for Taiwan products, are now giving Taiwan firms the chance to establish brand-names on a large-scale regional basis. Further, Taiwan’s proven skills in development and service-oriented management of global IT technologies, coupled with the breadth and potential of China’s basic research capabilities, create distinct opportunities for partnership in regional innovation.
Each one of these trends holds important implications for U.S. interests. The establishment of Taiwan regional brands might, for instance, tend to weaken the existing cooperative bonds between U.S. and Taiwan alliance partners and foster more direct competition in the region. Conversely, the combination of U.S. innovation, Taiwan regional management skill, and the largely-untapped potential of the developing China market is already creating a set of opportunities for enhanced commercial cooperation among traditional U.S. and Taiwan partners.
The rapid proliferation of commercial ties between Taiwan and China is of major importance to U.S. interests. There are the narrower set of commercial implications for the U.S. competitive posture in regional and global markets, to which I have just
alluded. Also, as Rupert Hammond-Chambers, President of the U.S.-R.O.C. (Taiwan) Business Council, suggested in his June 14 testimony to this Commission, there are equally important implications which fast-growing commercial interdependence between Taiwan and China have for traditional U.S. military and security interests in the Straits of Taiwan. I commend the Commission for focusing attention on the extent to which commercial dynamics in the computer electronics and telecommunications sectors are affecting these interests. It is my personal observation that these market- and technology-driven dynamics are not always fully captured in the dialogue regarding our key interests in this potential flashpoint region of the world.

Since leaving the Foreign Service in 2002, my work with Greater China is most often associated with U.S.-China clean energy cooperation. That makes sense — that was the focus of the non-profit I founded in 2011, the book I published through the Wilson Center in 2012 and the BE Better program for low-carbon industrial park built environments which the China Partnership of Greater Philadelphia (CPGP) team and I developed through 2021.

However, the prior decade of work which I had done previously through the GC3 Strategy consultancy had a very different focus –on Taiwan as the world’s leader in advanced chip manufacturing and on the vulnerability of global supply chains due to Taiwan’s proximity to China. That earlier work became less active and visible as CPGP’s U.S.-China clean energy cooperation work earned support from Mayor Nutter (2012) and was subsequently competitively selected by the U.S. Departments of State and Energy for one of a very limited number of official U.S.-China EcoPartner awards (2014-21) in partnership with the TEDA EcoCenter in Philadelphia’s Sister City, Tianjin. But my Wikipedia profile gives equal prominence to both sets of work and noted “Cooke is known for his work on U.S.-China-Taiwan commercial interactions. As early as 2002, he was drawing attention to the issue of advanced semiconductor manufacturing in Taiwan and the vulnerability of global information and communication technology (ICT) supply chains.”

Cooke Testimony, 108th Congress (see below)

In 2022, my old chip chops have acquired some new relevance in light of China’s no-holds-barred bid for technology supremacy and the passage of the Biden Administration’s CHIPS Act. Here is a dusting off of some of the accomplishments from that earlier set of work:

  • Three-time Invited Congressional Commission Expert Witness at the U.S.-China Economic and Security Review Commission’s Public Hearings on Global Supply Chains and Cross-Straits Security Issues (109th108th, and 107th Sessions of the U.S. Congress)
  • Director and Head of Partnership Development, Asia at the World Economic Forum  (with strategic focus on ICT, Energy, Transportation, Finance industries)
  • Author of The Politics of Greater China’s Integration into the Global Info Tech Supply Chain in The Journal of Contemporary China, Vol. 13, No. 40; and of Taiwan’s FTA Prospects from the Global IT Supply Chain Perspective in Economic Integration, Democratization and National Security in East Asia, edited by Peter C.Y. Chow
  • Green Team Leader on Cross-Straits Economics, U.S. Dept. of Defense/Defense Intelligence Agency Strategic Coercion Wargame convened by Science Applications International Corporation (SAIC)
  • Invited Non-Governmental Expert Participant, Asian Scenario Seminar Game at the Army War College, Carlisle, PA
  • Co-organizer of The Role of Taiwan in the Post-WTO Global Supply Chain Workshop at the 19th Modern Engineering & Technology Seminar
  • Official Host (“Ambassador”) for the Taiwan Delegation at World Congress on Information Technology XV in Austin TX
  • Featured Speaker & Seminar Consultant – RAND Corporation, MITRE Corporation
  • Keynote/Plenary Speaker at large scale media (Forbes, BusinessWeek, Reuters, The Economist Conference Group) and investor (Berkshire-Hathaway-themed 3rd Annual Global Investment Conference, China’s Financial Markets Conference, New York Cleantech Investors Forum, National Association of Business Economists/NABE) conferences
  • Moderator at Fabless Semiconductor Association and Wharton China Business Forum annual conference events
  • Advisor on Global Business Outreach, The Lauder Institute, University of Pennsylvania
  • Invited Think-tank Speaker: CSIS, AEI, Heritage, Brookings, etc

Since the termination of the U.S-China EcoPartnership program in 2021 and, in particular, since China’s unilateral breaking off of all bi-national coooperation for climate change mitigation following Nancy Pelosi’s visit to Taiwan, I have returned exclusively to the issues of Taiwan, microchips and vulnerable ICT supply chains in my commercial work with Greater China. Currently, I am pursuing that primarily through consultancy engagements with private companies and through introductions provided by GLG, CapVision and other expert networks.

I hope that this retrospective review will help readers keep pace with the sharp break I am taking from the past decade-plus of China-centric work supporting U.S.-China clean energy programs at the bi-national level and stepping back to Taiwan-centric advanced technology markets. This change in my personal focus entails a change in posture towards China — from cooperation to reduce green house gas emissions through a bi-national program to stark competition to help the U.S. and its allies maintain leadership in 21st c. technologies vital to national security. (More prosaically, this change also entails a change in business platforms — from the CPGP non-profit to the GC3 Strategy consultancy S-corp.). This change in focus will become increasingly apparent here in the Assessing China/TEA Collaboration blog over the months and years ahead.

A shift in gears but I hope you’ll continue to enjoy the ride.

Volume 2, Number 3 in Global TECHtonics: U.S./China Fault-line series

A U.S.-led initiative to reach out to China and to welcome it into the community of Western nations began with President Nixon trip to Beijing in February 1972.  Orchestrated by Henry Kissinger, Nixon’s National Security Advisor at the time, the trip was a brilliant Cold War gambit to exploit the growing rift between Moscow and Beijing. The trip kicked off a seven-year process of “normalizing” relations between the West and “the sleeping dragon” of Asia and, in so doing, divided the Soviet bloc. Through almost half-a-century and a bipartisan succession of Presidents, the effort to engage with China continued as that country woke from its Cultural Revolution nightmare and began to rise up, shaking the world as it did so.

February 1972 was the Year of the Rat (Water Element) in the Chinese zodiac.  Forty-eight years later we are again in the Year of the Rat under the Metal Element.  In Chinese traditional thinking, we have gone from a time of suppleness and fluidity to a time of hardness and intransigence.  In the minds of most Western observers, we have passed from a strategic engagement with China to, under President Trump, a time of open competition on the world stage and strategic disengagement (“de-coupling”) in the technology arena.

This post will save for another time the broader discussion about how and why this shift came about other than to make three general, even obvious, points.  First, there was undoubtedly a measure of optimistic naïveté in the West in assuming China’s willingness to dutifully assume the role of a ‘responsible stakeholder’ in the post-WWII world order.  If the Chinese had conceived of their nation as only having been born in 1949, assuming the mantle of responsible Pax Americana stakeholder might have fit more comfortably. As it was, Chinese conceived the People’s Republic of China as the heir to a Chinese polity which had been the dominant economy in the world for sixteen of the previous eighteen centuries.  They weren’t predisposed to simply adopting some newcomer’s rules and norms as to how China should conduct itself on the world stage. Second, there has undoubtedly been tactical overreach and ill-advised swaggering by President Xi Jinping since his triumphalist speech at the 19th Party Congress in September 2017.  U.S.-China relations would undoubtedly be on a more stable track today had Xi Jinping played his cards differently, following suit more with Deng Xiaoping’s opening bid of “keeping a low profile (hiding one’s capacity) and biding one’s time” (韜光養晦、有所作為) rather than flashing his Made in China 2025 card so conspicuously. It can be argued that it’s better from the U.S. standpoint for this “world order competition” to be out in the open. Third, the horse is definitely out of the barn.  No U.S. Administration is going to try to get that horse back on the 1972-2017 normalization track. The world has changed and what is needed is a U.S. Administration which recognizes real challenges from China but does not exaggerate them and which marshals the resources to address those challenges in an efficient and effective way, rather than wastefully and non-productively.

The remainder of this post uses last week’s The Four Levels of Risk post as a backdrop to a quick sketch outlining just how wasteful and ineffective the Trump Administration’s policy of technology de-coupling from China is becoming.  I’ll do this sketch with three brushstrokes – the view from U.S. boardrooms, the view from the cultural sidelines and the view from history.

 

The View from U.S. Boardrooms

A CNBC.com article by Arjun Kharpal published on June 4, 2019 made no reference to the Tiananmen anniversary but did point out that the Trump Administration’s Huawei policy was quickly hoisted on its own petard  – failing to get allies to broaden the campaign but leading to a marked acceleration of China’s efforts to develop its own semiconductor industry to supplant U.S. semiconductor supply in the Chinese market and, eventually, in world markets.  “The Huawei incident has indeed stimulated the development of China’s domestic chip industry,” Gu Wenjun, analyst at China-based semiconductor research firm ICWise, told CNBC by email” wrote Kharpal at the time. Now, one year later, Trump Administration policy is digging this hole deeper and at a faster pace:

  • Qualcomm is reported to have lost current orders worth as much as $8 billion as a result of the Trump Administration’s May 2020 tightening of trade restrictions imposed against Huawei. The new regulations block all chipmakers that use U.S.-made equipment or software from producing chips for Huawei (though companies can apply for a license to continue supply)
  • Following the Trump Administration’s August 6th signing of an Executive Order banning transactions by U.S. companies with Tencent, the owner of the WeChat app, market research firms scrambled to assess the impact on Apple and its installed base of iPhones in the strategically vital Chinese market. The surveys all pointed to the same result – as many as 90% of iPhone users in China would drop the Apple product and switch to Android devices if the WeChat app were no longer available on their iPhones.
  • The same August 6th Executive Order targeted Bytedance, parent company to the massively popular TikTok app. Seasoned observers who are able to gauge the U.S.-side push-back against this action and know the sloppiness with which the Executive Order was drafted, expect an eventual climbdown by the Administration – if not before the November 3rd election, then shortly after it.

 

The View from the Cultural Sidelines

There are two culture wars raging – a partisan one in U.S. domestic politics and an international one between a suddenly tarnished U.S. model and a much-hyped “bright and shiny” new Chinese model.  The same dynamics at play with the COVID-19 pandemic are at play in the technology sphere.  Domestically, Trump works to energize his base with claims that China is the enemy and that his Administration’s COVID response and China de-coupling response are “the best” that any President could possibly do.  Front-line health workers and tech experts know that, in both cases, the claim lies far afield from the truth.

In China, the popular view cuts to the bone of Trump Administration posturing.  His new nickname is 建国 (Jiànguó), a popular name given by parents to their infants especially during the nationalistic years of the Cultural Revolution.  It means “Build the Country.”  In other words, Trump Administration policies are widely seen as accelerating the same nationalistically-driven Sputnik-type race to advanced semiconductors, artificial intelligence, robotics and the tech future which the policies ostensibly are meant to forestall.  Trump’s impulsive “Only I Can Fix It” approach playing to a grandstand of partisan supporters has made the challenge which Xi Jinping’s China presents the U.S. more acute.   An approach which takes measured and deliberate stock of that challenge and which aligns interests and works closely with the U.S. business community and international partners would be far more effective.  Pumping up nationalist sentiment in both the U.S. and China serves only to narrow options and increase risks of conflict spiraling.

 

The View from History

A pithy take on Trump’s approach to the U.S.-China technology challenge comes from a widely-respected former colleague who has decades of high-level experience with China from political, national security, economic and think-tank perspectives.  He writes “(Trump is like) King Canute trying to fight, instead of the ocean tides, the tides of technology.”

I’ll conclude with another, somewhat longer historical reference which illuminates Trump’s campaign of China-bashing as a central element of his re-election strategy.  It is drawn (almost) verbatim from Episode 66 of The History of Rome podcast series by Mike Duncan:

“Conscious that his standing with the people was taking a hit, the Emperor decided he needed to find someone to take the fall for the fire.  Someone he could point to and say it was them, not me, I didn’t have anything to do with it.  But he couldn’t just grab someone off the street because, with his popularity sinking like a stone, that would just engender the further charge that he was setting up some innocent to take all the blame.  What Nero needed was someone, some group that the people disliked even more than him, someone that the people were ready, willing and able to believe had done this horrible thing if for no other reason than that the people were looking for an excuse to round up and punish them. Enter the Christians. In the thirty odd years since the death of Christ, nascent Christian communities had begun cropping up throughout the Empire.  At first, they were primarily Jewish in character but through the missionary work of St Paul, known later as the Apostle to the Gentiles, this new religion began to spread into the Greco-Roman world.  By the Emperor’s reign, a tiny community of believers, led according to tradition by St. Peter, had established a religious beachhead in Rome itself. The problem the early Christians faced in Rome, though, was not just that their religion, in comparison to the wider pagan world, struck the average Roman as downright weird, but also that at this point most Christian adherents were non-citizen resident aliens in the city who spoke primarily Greek or Hebrew. So the Christians in Rome looked different, spoke a different language, usually came from the lower rungs of the social ladder, and belonged to a strange monotheistic cult that seemed to have cannibalistic overtones. All in all, they were capital O Other in every sense of the word. And as has been proven over and over again by history, whenever terrible things happen to a community – economic problems, floods, plagues, fires – it is the capital O Others who usually get blamed. So desperate to shift responsibility for the great fire away from himself, the Emperor looked at these Others and decided to lay it all on them.”

The only change I have made to this podcast text, recorded in August 2009, was my substitution of the central character’s title instead of his name.  Even with that switch, there’s little surprise who that Emperor was.

Nero.

 

 

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