Tech wars

When US President Trump and Chinese President Jinping met in Argentina last November at the G-20 summit, and agreed to a truce in their trade war, little did they anticipate that it would not last long and instead spiral into a full-blown technology warfare that will set jitters across the financial markets and upset the global rules of trade.

The breakdown in talks led the US to raise tariffs from 10 to 25 percent on $200bn worth of China’s imports on May 10, 2018. China retaliated by raising tariffs on $60bn worth of imports from America just two days later. As the dispute deepened, in a set of fresh measures, the US banned Huawei, the leading Chinese supplier of equipment for 5G network, from selling its products to the US, and further imposed export control measures on US companies from selling technologies to Huawei without a licence.

The US commerce department has placed Huawei on the so called ‘Entity List’ after Trump issued an executive order declaring that the US telecom sector faced a “national emergency” in face of risk to national security posed by the rising Chinese telecom. Squeezing it further, the US has pushed its allies to ban Huawei calling it a threat to global cyber security, and threatened to limit cooperation with countries that use Huawei telecom equipment. Huawei denies the allegations and Beijing dismisses the charges as a misuse of state power.

Whether Trump’s fight against Huawei is on grounds of national security or a bargaining chip to extract trade concessions as part of a wider anxiety against China’s rising tech power is a matter of concern for analysts. America has accused Huawei of 23 crimes including technology theft, spying, cyber intrusion and threat to national security. In this context, Canada’s justice department arrested Meng Wanzhou, Huawei’s chief financial officer in Dec 2018 on America’s request. Ms Meng was released on bail and the Chinese authorities arrested two Canadians in retaliation.

The Trump administration has repeatedly used national security requirements to limit the access of Chinese telecom equipment companies to American technology. Last year, the target was ZTE, greatly dependant on US microchip technology for its manufacturing; the company barely recovered from bankruptcy when Trump revoked the trade ban. Recently it was Huawei, more cushioned than ZTE, which has taken steps for designing its own technology in face of the trade ban.

One opinion, shared by Beijing to a large extent, is that the US uses national security laws to create barriers to fair and free trade. This can be true and countries may justify trade protectionism in the garb of law. The WTO allows a country to take any action which it considers necessary for the protection of its essential security interests. ‘’ That has become a favourite justification for Trump, who is now threatening tariffs on Russia and China, the new antagonists, as well as the EU, Mexico, Brazil and Japan, old solid allies, using the same national security rationale.

National security is a reasonable exception to free trade, permitted by law, but cannot be proposed arbitrarily with a purpose to discriminate in trade and protect competition. So if national security trumps free trade, America has to cautiously prove that trade restrictions imposed on imports from China harm its security and defence and adversely affect its domestic economy. A blanket prohibition of trade, in the form of escalating tariffs and restricting companies, is not legally sustainable in the eyes of the law.

A recent ruling by the WTO has set a legal precedent that is likely to lead a clash with the US over its perception on tariffs. The landmark ruling, DS512: Russia-Measures Concerning Traffic in Transition, a dispute between Russia and Ukraine, on the one hand affirms the rights of nations to impose trade restrictions on national security grounds and on other asserts the WTO’s authority to determine whether a security threat warrants such restrictive measures. The ruling is likely to trouble the Trump administration, which argues that the WTO cannot decide whether measures are necessary to protect a country’s security interests because doing so would infringe on that country’s sovereign rights. But the US must realize that such an interpretation is deviation from the rules-based global norms of trade that it had been upholding since long.

Jacob Lew, former US secretary of treasury in an article in the Financial Times has cautioned the US against using measures as ‘bullying tactics’ to extract trade commitments from China because they are ‘damaging’ to the legal and national policy values of US global leadership. By confusing the principle of national security threats with trade concessions, he writes, the Trump administration ‘surrenders the moral high ground’ over Huawei.

There can be worries if China retaliates and drives out Western firms from doing business in China. Such a crackdown on each others’ companies would seriously jeopardize the economic relations between two countries besides become a great threat to the security of global industrial and supply chains.

Both countries have sidelined the WTO at present, the global framework for handling trade disputes, instead opting for a tariff war to tame the adversary. A system without rules could be abused to target legitimate business activity. When enforcement measures are directed at a country’s behaviour as opposed to specific violations of law, it undermines the legitimacy of the legal process, and subverts global rules of trade.

The writer holds an LLM degree ininternational economic law from theUniversity of Warwick.

Email: beelam_ramzan@yahoo.com