No limits, p.4
No Limits, page 4
The Belt and Road Initiative, as the Chinese government subsequently rechristened it in English, was barely on the US radar screen. Having spent much of the year traipsing around the world hearing about little else from China’s friends and rivals alike, returning each time to a curious radio silence about the subject in Washington, DC, I wondered whether it might at least feature during Xi’s visit. In a series of speeches in Central and Southeast Asia, he had laid out a scheme for a globe-spanning set of Chinese-financed infrastructure connections, which anyone talking to officials in Beijing or potential recipient countries could already see would have at least hundreds of billions—if not trillions—of dollars deployed behind them. I sheepishly raised questions about this vast Chinese investment initiative in the pre-briefings and readout meetings from the White House and drew slightly quizzical looks as the officials batted me away and went back to Taiwan, trade, the South China Sea and the other traditional staple issues in the bilateral relationship. When I asked a contact who had sat in on the meetings with Xi if the issue had featured even in passing, he shrugged and said that they had prepared talking points but it hadn’t come up.
This was not the byproduct of a soft-minded view among the individuals centrally responsible for crafting China policy. Most of the officials were clear-eyed and critical in their views of the Chinese Communist Party and the consequences of China’s growing power and assertiveness, just as their predecessors had been. Some were minded to harden US policy considerably and would have the chance to do exactly that a few years later. But this was what China policy looked like in 2015, and had for a long time. Except on the margins, everyone stayed in their separate lanes. The trade people did trade, the security people did security. Problems in the bilateral relationship were at least superficially addressed through meetings and summits, embodied by the unwieldy “Strategic and Economic Dialogue,” a vast edifice that brought together virtually every US cabinet official with their Chinese counterparts. One of the highlights of the Xi visit was an earnestly negotiated agreement that China would restrain the extent of its commercial spying activities. The belief was that these deals stuck. As one White House official at the time put it:
The sense was that when Xi gave his word, it was solid. He said he would get the climate deal done. He said he would get visa reciprocity done…We felt good about the cyber-deal.
If there was already an impression during the trip that something was amiss, it was still nascent. “At their private dinner, Obama beat the shit out of Xi for two hours over the South China Sea” noted one of the US officials in attendance. The next day, Xi made the announcement in which he pledged the non-militarization of the South China Sea: “He said this on his own—we hadn’t expected it.” Cui Tiankai, the Chinese ambassador, and the other officials with him were fidgeting when Xi spoke. “We tried to follow up immediately to talk about what it meant, what the definition of ‘militarization’ was. They were very resistant.” Chinese officials would initially claim that “he didn’t say that, that’s not our policy” and stonewalled US officials on the subject during future meetings.
Looking back, one of the officials noted that the experience would affect the mental frame on China for many of those who returned to serve in the Biden administration: “From that point forward it felt like: these fuckers are acting in bad faith.” But at the time, there was little sense that decades of the relationship should be turned on its head, let alone that this was imminent.
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The shift in the years that followed seems so abrupt that it is easy to attribute almost everything to the radical discontinuity of the Trump administration. The story tells itself nicely. Trump arrives, ready to take steps that no previous US government would ever have contemplated in pursuit of a trade deal. After an initial phase of factional battles over the direction of US policy, a group of hawkish officials use the political space provided by Trump’s trade war to push through measures that send the US-China relationship into a state of open confrontation. China’s access to US technologies is squeezed, its investments and acquisitions are restricted, the two intertwined economies start to decouple, ideological hostility intensifies, and then COVID-19 tips things over the edge. More and more facets of US policy are subsumed in the counter-China agenda as the president blames Beijing for the damage the pandemic wreaks and allows the administration’s hardest-edged voices to run the China show as they see fit. The rest of the world is reluctantly forced to adjust to the new US-China rivalry, despite their wish not to “choose sides.”
The speed and breadth of the changes bely this account. Within barely a year of the new US administration taking office, a new National Security Strategy and National Defense Strategy were codified and agreed, stipulating that “inter-state strategic competition, not terrorism, is now the primary concern in US national security,” with China named as the only all-fronts competitor.[3]
For anyone working in Washington, DC at the time, it was clear that the hardening of China policy was the one issue that many career civil servants and serious political appointees were very happy to take on. During what was otherwise an often-demoralizing time to be working in US foreign policy, the mobilization of energy and inventiveness on any China-related matter was apparent across an array of US government departments and agencies. Where on other topics there was often some combination of disbelief and horror among officials about the measures the Trump administration was considering, when it came to China more often than not there was a degree of relief and enthusiasm.
I personally sat through numerous conversations with US officials in which I was regaled with “it’s worse than you think” stories about goings on in the administration before they would pivot to some variant of: “But I have to admit that I like the fact that we’re not pulling our punches with China anymore.” Well before the Pence speech that gave public expression to it, the scale of the shift underway across the US government was palpable. It was equally evident in Congress. While Trump was still holding up the tougher measures that his staff hoped to pursue, bipartisan majorities passed bills on China-focused export controls, China-focused investment screening and support for the financing and instruments to compete with the Belt and Road. For all the stops and starts, and internal battles, the general direction of flow was clear. Whatever changed in the United States, it ran far deeper than the ephemeral administration-initiated moves in other policy areas.
To make sense of this, career officials closest to the changes in US China strategy point their fingers away from the colorful accounts of Trump administration cabinet members screaming at each other in the Oval Office. They return to a set of debates that played out in the Obama administration at precisely the time that Xi was having his celebratory visit. In particular, a set of initiatives and concepts that were couched in the very driest of bureaucratic defense-speak.
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In April 2016, Obama’s deputy secretary of defense, Robert Work, arrived in Brussels for a rare visit, his trips away from the Pentagon being so infrequent that he compared his role to the tethered goat in Jurassic Park. It was the peak of the counter-ISIS campaign, and much of Bob Work’s agenda was nominally focused on Iraq, Syria, terrorism and a list of issues that had been familiar ones over the preceding decade-and-a-half. But the real purpose was to move beyond them. It was time, he contended in his speech, for NATO to revisit the question of deterrence, “a concept that NATO really hasn’t thought about since the end of the Cold War.”[4] We were in a “new era of great power competition” with a resurgent Russia and a rising China, and we needed to draw lessons from the Cold War on how to prevent war between nuclear-armed powers.
After over a decade of “out of area” operations in Afghanistan, NATO was only just starting to come to terms with Putin’s annexation of Crimea and what it implied for the European security order. Any institutional thinking about China was at best embryonic. His argument was that deterrence relied on “increasing our margin of technological superiority” with China and Russia “that unquestionably has been eroding over the last 20 years.”
To contextualize it, he went back to two prior US efforts to offset Soviet capabilities during the Cold War. The first was in the 1950s when the United States used its superiority in nuclear weapons to offset the huge Soviet conventional advantage, including the threat of using tactical nuclear attacks against Soviet forces in Europe. The second was in the 1970s and 1980s, when precision-guided strike and stealth technologies achieved the same effect. Scale would be trumped by technological prowess. He proposed a new effort to “overmatch” not only the Russian capabilities that most worried NATO but the Chinese capabilities that were becoming the graver concern to the United States. Hence the infelicitous name for the initiative: the Third Offset Strategy.
Work was on a mission. “The only reason he took the job was the Third Offset, and he drove the shit out of it,” noted one former White House official. The technologies he cited were less important than the principles the strategy embodied. The bare fact of putting Russia and China at the center of US national defense strategy was itself by no means a reflection of the prevailing view in the administration at the time. There was also a big difference between the Third Offset Strategy and its predecessors, with implications for the United States and its allies that went well beyond what its architects envisaged. While the technological advances in the 1950s and 1970s were catalyzed by government-led research and development efforts, now “almost all of the technology that is of importance in the future is coming from the commercial sector, and all of the technology base is global.”
It was not just about Lockheed Martin and Boeing anymore. When it came to AI, autonomous vehicles, virtual reality, robotics, blockchain technology and an assortment of other areas, the cutting edge of the research was being conducted by companies that had no such hand-in-glove relationship with the US defense sector. China was drawing on precisely the same technology base. And it was indeed global. Making sure that the United States ran faster was all very well, but if China was able to benefit from the fruits of the most advanced research in the United States, Europe, Japan, Korea and elsewhere, there was still the danger that it would catch up regardless. “Any competitor and any adversary is going to have access to these types of technologies, and they can quickly mimic even the most powerful state.” At the time, Work claimed to be “okay with that.” The United States simply had to deal with a world of “fast followers.” But the thinking would soon change.
A few months earlier, the Pentagon had set up a new unit to do the kind of liaison work with Silicon Valley that the strategy envisaged. After a rocky start, which saw Congressional threats to withhold funding until it tightened up its plans, and a quick turnover of leadership, the Defense Innovation Unit Experimental—DIUx—found its feet with a mission to fund fast turnaround contracts that would get advanced commercial technologies quickly into the hands of the US military. Headquartered down the road from Google in Mountain View, it would finance solutions for tightly defined problems such as how to design drones that could do advance work for US special forces teams going into buildings on kill-capture missions, a bargain at $1.5 million.
When the Trump administration took over, DIU—by then it was no longer “experimental”—was given another task: to see what the competition was doing. Michael Brown had been the CEO of another firm headquartered in Mountain View, Symantec, before joining the Obama administration as a White House innovation fellow. He was sent back over to the Bay Area to look into Chinese investment activities.
The results were troubling. Precisely the early-stage technological advances that DIUx was supposed to be focused on were fully accessible to China too and sucking in ever-greater volumes of Chinese venture capital. It wasn’t even clear that the United States was better placed to make use of some of them. China’s own civil–military fusion program had its deficiencies but was being turbo-charged under Xi Jinping. Some of it mapped onto an ambitious new industrial strategy that had been laid out a year earlier, called Made in China 2025, which named all and more of the areas that the Department of Defense (DOD) had identified as the most critical. Brown’s report argued that “the Crown Jewels of US innovation” were available to a “strategic competitor,” and that what China was doing was perfectly legal under existing investment screening and export control rules.[5] When combined with cyber-theft, economic espionage, Chinese research centers in the United States, partnerships with US academia and an assortment of other channels, it added up to a technology transfer strategy that would render plans such as the Third Offset strategy virtually useless. “If we allow China access to these same technologies concurrently, then not only may we lose our technological superiority but we may even be facilitating China’s technological superiority.”
While the Third Offset terminology would soon fade during the Trump administration, the principles underpinning it were on their way into US legislation and strategic planning well before Trump had imposed a single tariff. The US saw itself losing its technological edge.
The implications cut to the core of US deterrence in Asia and Europe. The openness of the US system was becoming a security liability. But changing a few rules about foreign ownership stakes would only chip away at the problem. The US and Chinese economies had been deeply intertwined, with talent, finance, research, production facilities and supply chains distributed from Zhongguancun to Boston. Decoupling them would be a wrench. And the problem didn’t end there: if the United States adjusted alone, China could acquire many of the same technologies, techniques and components from other advanced economies. Semiconductor production spanned Taiwanese fabrication plants, Dutch photolithography and specialized German design tools. Chinese academics denied access to Stanford and MIT could still study graphene in Manchester and autonomous technologies in Tel Aviv.
That would mean getting a wide array of US allies in line too, some of whom had major economic interests in the current state of interactions with China continuing. The scale of what this required went well beyond what could be diplomatically cajoled or legislatively coerced. China was not the DPRK, Iran or even Russia. This was a market really worth fighting for, and some of the world’s most powerful lobbyists would do exactly that. But those battles were still to come. What the DIUx paper and the debates around it confirmed for many officials and legislators was that the balance of openness and security was landing in the wrong place. It also posed a fresh set of questions: if the US advantage was eroding, what was the broader plan to support the forms of innovation the country required? What happened to the competitiveness of the US tech sector if it lost its access to the huge Chinese market? How far could US national security rely on the current framework of commercial incentives for its firms? Should the United States consider the notion of an industrial strategy, once unthinkable to market purists?
The proposals emanating from the DOD were only a snippet of the wider debates that had been unfolding over the trade-offs involved in the economic relationship with China. But while US firms and US trade strategists landed in an assortment of different places on what they thought the right balance looked like, this put a floor under them. Whatever the mammoth Trump trade talks with Beijing accomplished, there was now a deeper appreciation that economic, technological and military competition were too intertwined for these issues to be determined purely by questions of market access, trade deficits, production costs and bilateral purchasing agreements. Where negotiations on a trade deal oscillated between hope, crisis and face-saving, the national security dimensions of the nascent US–China decoupling followed a logic of their own.
Even more striking, however, were some of the positions that emerged from Western industry itself. The most illuminating were not coming from Silicon Valley or Wall Street. They were coming from the single cluster of firms that could most unambiguously have been said to benefit from the Chinese economy in the preceding decade, on the other side of the Atlantic.
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In January 2019, an unusual paper started gaining traction. The Bundesverband der Deutschen Industrie (BDI), the Federation of German Industries, embodies what had once been the unequivocal success story of Western economic engagement with China. Its biggest companies, from the car and chemical companies to the myriad smaller engineering and component firms, had seen the Chinese market as a lifeline during a period that was defined by the eurozone crisis and deep stagnation in the principal European markets. Whatever impact China’s economic ascent had elsewhere on the continent, Germany had unfailingly remained aloof. When industries in Spain and Italy had been hit by waves of imports after China’s accession to the WTO, their experience was seen as yet another indicator that—unlike Germany—they had not reformed their economies to be sufficiently competitive in this next phase of globalization. As Chinese money started to roll in, and Southern European ministers and European commissioners raised the prospect of European investment screening mechanisms, it was BDI members who lined up to dismiss it as base protectionism.
Yet by 2018, the mood had soured. Some claimed that the turning point was the takeover of the Augsburg-based robotics firm KUKA by the Chinese appliance manufacturer Midea in 2016. After years of acquiring dumb infrastructure and fading brands, China was increasingly training its sights on the crown jewels of advanced German industry, much as it was also doing in California. KUKA was not such a jewel itself, as its lackluster performance after the acquisition confirmed. But the incident demonstrated that there were no ready means of recourse if Chinese firms decided to snap up the firms dubbed the country’s “hidden champions,” the small and medium-sized companies that dominated niche sectors from tunnel-digging equipment to hydraulic presses.
