Yahoo Finance Biden redraws battle lines in the tech war with China
As the elevator ascended the headquarters of the African Union in Addis Ababa, Ethiopia, James Lewis’s guides offered word of advice. “You know, the Chinese built this building,” the former US diplomat remembers them saying, “so when you speak, speak clearly into the wall”.
It was December 2019, about two years after the explosive allegation that Chinese spies had snooped on the Union’s business through its Huawei-made communications network. But in June, the body had approved Huawei for an expanded contract, and now everyone in the lift was laughing about it.
Their joke illustrates a challenge that lies ahead for US President Joe Biden as he picks up Donald Trump’s tech war.
On Wednesday the Pentagon agreed to remove the Chinese smartphone maker Xiaomi from its blacklist, the latest in a series of retreats by US officials – raising questions over how far Biden will follow his predecessor’s bellicose approach.
"There was always a powerful tension in the Trump administration between people who wanted to basically embargo trade with China and people who were a little more reasonable," says Lewis at the Center for Strategic and International Studies in Washington DC who previously ran backchannel cybersecurity talks with Chinese academics.
"That led them into a number of erratic decisions... and one thing Biden's people have told me is that they’re going to be more reasonable, they’re going to take a step back, they’re going to be more balanced."
The first ban to unravel was against WeChat, a "super-app" owned by Shenzhen-based tech giant Tencent. WeChat is ubiquitous in China and critical for many of America's 2.5m Chinese immigrants (as well as US-born Chinese Americans) to keep in touch with relatives.
When Trump attempted to block that channel, Californian lawyer Clay Zhu, who uses WeChat to speak to friends and family across the Pacific, formed the WeChat Users' Alliance and organised a lawsuit that succeeded in blocking the ban. The White House has now suspended the case, saying it needs more time to review the previous administration’s policies.
“I expect that the Biden administration will withdraw the WeChat ban in the next two months,” says Zhu, who is relieved that Biden appears to be taking a different tack. If not, he says the lawsuit will continue, adding: “And our chance of winning in court is more than 90pc.”
Zhu’s battle also helped keep TikTok, the Chinese-owned video app hugely popular with Generation Z, on American phones. Two federal judges opposed Trump’s ban on new US downloads of TikTok last year, and it was stopped by a court following the WeChat decision in October.
Now ByteDance, TikTok’s Beijing-based owner, is said to still be negotiating with the US Department of Commerce for a compromise. Amid the uncertainty, TikTok has accrued even more users thanks to the pandemic.
Trump’s extraordinary insistence on a forced acquisition of TikTok by a US company (suitors included Walmart and Oracle) in the interests of “national security” has also fallen by the wayside. "I think it's very unlikely to happen," says Adam Segal, director of cyberspace policy at the DC-based Council on Foreign Relations.
Indeed, a recent report by the non-profit Citizen Lab, known for its investigations into government spyware, found that “TikTok’s program features and code do not pose a threat to national security."
TikTok, Walmart and Oracle did not respond to requests for comment.
Xiaomi was one of Trump's last targets. Just before leaving office, he signed an executive order banning American investments in the Nasdaq-listed smartphone maker, giving shareholders 60 days to sell their assets. He claimed it posed a national security risk because its founder received an award from the Chinese government for his services to the state.
"The naming of Xiaomi surprised a lot of people," says Segal. "It was kind of rushed as the Trump administration was on its way out of the door ... it was not really on anybody's radar as a company that was connected to or suspected of having PLA [People's Liberation Army] connections."
A judge agreed, ruling in March that US defence officials had failed to establish that Xiaomi was a military puppet. When the US Department for Defense agreed to remove it from a blacklist this week, shares popped by 6pc. Ironically, it had previously benefited from Trump’s assault on Huawei, a key rival, leading its shipments and share price to soar this year.
After that, one might expect Biden’s officials to fall back. Instead, however, they conceded the battle while doubling down on the war, saying they were "deeply concerned" about companies linked to the PLA and "fully committed to keeping up pressure".
In fact, experts say that US retreats on TikTok and Xiaomi have been accompanied by even harder approaches to other Chinese firms.
Since taking office, Biden has imposed new limits on companies that sell 5G equipment to Huawei and tightened the scrutiny of export licences for suppliers of the Shanghai chipmaker SMIC. It has kept Trump's last-gasp order allowing the Commerce Department to block some business transactions with non-US tech firms and extended his national emergency declaration over tech supply chains for another year.
"These people are not soft when it comes to China," says Lewis. "That surprised me. They're as strong as or stronger than Trump, but they're doing it in a more rational way."
While Trump's rapid-fire orders later faltered in court, Biden is expected to pursue similar goals through a more grinding process.
Lewis describes the new White House as deeply concerned about not appearing soft to US legislators, saying: "If there’s one thing Congress is united on, it's opposition to China." The administration's first face to face (or mask to mask) talks with Chinese diplomats in Alaska featured bitter barbs and no lunch offered.
The best example of Biden’s China policy is his emphasis on diplomacy, which has seen him dispatch his longtime friend and now secretary of state Antony Blinken around the world to repair bridges that Trump burned. Nevertheless, much of the charm is still aimed at persuading other countries to help counter China's rise.
Steve Feldstein, a senior fellow at the Carnegie Endowment for International Peace who has interviewed politicians across the developing world about Chinese tech, says the outreach is working. But he warns that Huawei's sheer cheapness, with prices subsidised by the People's Republic, makes it hard to supplant.
"Officials would say, 'there's this geopolitical competition between the US and China, and frankly, I don't want any part of that'," says Feldstein. "But what I do care about is access to technology at a cost we can afford."
Hence, flipping Huawei's customers will require an equally tempting offer from Western nations, perhaps leaning on technology from Samsung or Ericsson. While they may be restricted in offering direct subsidies, they could offer favourable state-backed loans and deploy diplomats to counter China's army of third world sales reps.
Even so, it will be a tall order. In Feldstein's new book The Rise of Digital Repression, a Philippines minister outlined the situation bluntly: "If we pull out all Huawei equipment, our telecommunication industry will fall apart."
