China, China, China

Judging by the number of reports on its website, the CBC appears to have realized that Canada has a China problem. See here, here, and here. As coverage goes, it's C to C- grade stuff, the pedestrian sort of thing we've come to expect from Mother Corp.

In Tuesday's NYT, columnist Thomas Friedman had a more interesting China piece. He argues that the Berlin Wall may be an artifact of the past but there's a new wall emerging, one that will partition America's sphere of influence from China's.

On Nov. 9, European leaders gathered in Berlin to mark the 30th anniversary of the fall of the Berlin Wall. It was an anniversary worth celebrating. But no one seemed to notice that almost exactly 30 years after the Berlin Wall fell, a new wall — a digital Berlin Wall — had begun to be erected between China and America. And the only thing left to be determined, a Chinese business executive remarked to me, “is how high this wall will be,” and which countries will choose to be on which side.

This new wall, separating a U.S.-led technology and trade zone from a Chinese-led one, will have implications as vast as the wall bisecting Berlin did. Because the peace, prosperity and accelerations in technology and globalization that have so benefited the world over the past 40 years were due, in part, to the interweaving of the U.S. and Chinese economies.

...Former Treasury Secretary Hank Paulson gave a speech here a year ago trying to kick-start that discussion. “For 40 years,” Paulson noted, “the U.S.-China relationship has been characterized by the integration of four things: goods, capital, technology and people. And over these 40 years, economic integration between the two countries was supposed to mitigate security competition. But an intellectually honest appraisal must now admit both that this hasn’t happened and that the reverse is taking place.”

That reversal is happening for two reasons. First, because the U.S. is — rightly — no longer willing to accept China’s unfair trade restrictions on importing of U.S. goods and its stealing of the intellectual property of U.S. firms — something we tolerated for many years before China became a technology powerhouse. 

And second, because, now that China is a technology powerhouse — and technological products all have both economic and military applications, unlike the toys, T-shirts and tennis shoes that used to dominate our trade — the two sides are struggling to figure out what to buy and sell from and to each other, without damaging their national security. 

The net result, argued Paulson, is that “after 40 years of integration, a surprising number of political and thought leaders on both sides advocate policies that could forcibly de-integrate the two countries across all four of these baskets.” And if that trend continues, “we need to consider the possibility that the integration of global innovation ecosystems will collapse as a result of mutual efforts by the United States and China to exclude one another.”

That, Paulson concluded, is “why I now see the prospect of an Economic Iron Curtain — one that throws up new walls on each side and unmakes the global economy, as we have known it.” Yikes!

Trump Plays the Huawei Card.

...China’s most important technology manufacturer and scores of its affiliates across the globe were blacklisted and could no longer buy parts from their major U.S. suppliers — such as Google, Qualcomm, Intel, Micron and Microsoft — without a special license. U.S. officials argued that Huawei was guilty of facilitating Chinese espionage — or would do so in the future if China’s government asked it to — and had engaged in fraud, technology theft and violations on U.S. sanctions against Iran.

However much justified, this move was the equivalent of China freezing out Apple and Microsoft. In was an earthquake in China’s tech lands. It “woke up everybody in China,” a prominent Chinese telecom executive told me. “We now have to think about this world differently,” the executive explained. “We need to build on a mix of our own technologies to be sure that we are safe. They totally underestimated what they have done.”

Lots of Chinese tech companies are now thinking: We will never, ever, ever leave ourselves again in a situation where we are totally dependent on America for key components. Time to double down on making our own. 

At the same time, U.S. manufacturers are saying to themselves: We’d better think twice about building our next factory in China or solely depending on a supply chain from there. 

The ripping sound you hear is the sound of two giant economies starting to decouple.

Look Who's Here - Thucydides, and He's Brought His Trap!

For some time I've been following China's economic ascendancy and the ripples emanating from it. There's a powerful neo-nationalism spreading across China at the popular level, the government level and especially throughout the officer class of China's fast-catching-up military.

If Hank Paulson is right and the economic ties that bind China and the United States are dissolving that could be a very dangerous event in China's economic ascendancy. It could energize a Thucydides Trap scenario, a term that refers to the far better than even chance that the displacement of a dominant power by an ascendant rival will result in war between them. Remember, this is a country that still craves revenge for its "Century of Humiliation" that has been observing National Humiliation Day since 1916.

For decades we've assumed that the tight integration of the US and Chinese economies would deter open conflict between them. What if....