SINGAPORE: Last week’s US action against WeChat and TikTok was one of the most important developments since March 2018, when US President Donald took formal action to avenge China’s unfair trade practices.
Not since the US government decided to block Singapore-based Broadcom’s attempts to acquire Qualcomm for national security reasons can the US-China trade war directly affect companies based in the region.
In particular, potential measures that prohibit doing business with WeChat may affect the way regional companies operate in the region.
WeChat plays a major role in daily communication, IT services and further when it comes to doing business with China. All types of activities between Chinese and foreign companies and internal company communication between a foreign company and Chinese offices for these companies end up on WeChat.
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Much remains unknown as to the extent to which business with WeChat will be prohibited and to which the prohibition will apply.
But the consequences and driving forces for this latest saga seem clear.
CHINA HAWKS WINS
Two distinct camps have always existed in the Trump administration regarding China: the Globalists and China’s hawks.
The globalists, typified by Treasury Secretary Steve Mnuchin and National Economic Council Director Larry Kudlow, argue that the United States and China live in a global economy and that negotiated trade agreements between the two countries benefit the United States.
The Chinese hawks, led by Secretary of State Mike Pompeo and White House Director of Trade and Manufacturing Policy Peter Navarro, believe that promoting the US public interest requires confrontation and decoupling from China.
Until now, President Trump has maintained something of a balance between these two factions. While sympathizing with the Hawks, he believed that his best path to re-election was a strong economy and the best would be achieved through trade deals with China.
But with record unemployment and falling US economic growth, Trump’s chances of re-election no longer rest on his economic record. The hawks are rising and are pursuing US policy towards China.
USA-CHINA RIVALRY STORES
Over a period of four speeches over the past two months, the Trump administration delivered a strong message of a once-a-generation ideological struggle between the United States and China. Such rhetoric promotes a very different narrative produced by previous administrations.
National Security Adviser Robert O’Brien began the rollout explicit warning of the threat posed by the Chinese Communist Party (CCP) “to our very lifestyle” at the Arizona Commerce Authority on June 24.
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Subsequently, FBI Director Christopher Wray described the CCP’s active espionage efforts in the United States as a threat to “our health, our livelihood and our security” at a Hudson Institute event on July 7.
Attorney General William Barr continued the administration’s case, specifically urging U.S. companies to share technology with Chinese partners and genoflecting to Beijing’s censorship and political demands on July 17 at the Gerald R Ford Presidential Museum in Michigan.
In what is now seen as a major political speech, Secretary of State Mike Pompeo at the Richard Nixon Presidential Library in California on July 24 argued that the CCP is driven by world domination and the United States and its allies must resist this global threat.
In line with the overall framework outlined by the four prominent cabinet officials, the Trump administration rolled out a series of announcements and policies aimed at China.
Earlier moves in the past month include the sudden closure of the Chinese consulate in Houston, sanctions against Chinese companies and officials in Xinjiang, and a statement that Chinese claims in the South China Sea are “completely illegal.”
WHAT WECHAT-BAN DOES
One of the highest profiles of the new policy is the White House Executive Order (EO) against WeChat.
EO believes that what WeChat collects from its users “threatens to give the Chinese Communist Party access to the Americans’ personal and proprietary information.” In addition, the application captures the personal and proprietary information of Chinese citizens visiting the United States, thus allowing the Chinese Communist Party a mechanism to keep track of Chinese citizens who can enjoy the benefits of a free society for the first time in their lives. “
With the authority of the sweeping International Emergency Economic Powers Act (IEEPA), the EO instructs the Secretary of Commerce to review all US interaction with social media platforms to make a detailed 45-day determination of prohibited transactions.
EO was able to ban the Chinese app from US platforms, including the Android and Apple operating systems.
Based on US preference, all prohibitions may apply to US individuals and companies. We do not yet know if it will cover any company related to a US company or just a subset of one.
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Something much less can come out after a month and a half review. Unlike the carefully crafted and administered tariffs imposed on Chinese coercive technology transfer policies, the WeChat order is poorly written and leaves open the possibility of a court challenge.
For example, EO prohibits “all transactions related to WeChat by any person, or with respect to property, under the jurisdiction of the United States, with Tencent Holdings”.
But what counts as a covered “transaction”? Exchange messages with another WeChat user? Are you reading an article from a Chinese entity published on the official WeChat account? Do you pay for a product or service with WeChat Pay?
In addition, WeChat parent company Tencent has a research office in Silicon Valley and a track record of paying significant sums for US content – $ 1.5 billion to broadcast NBA games in China, for example. It would probably give the company a real financial incentive to question a felt ban that could delay implementation.
While the courts have generally adjourned the U.S. executive branch on national security issues, the claim that there is an “economic emergency” is expansive and could go beyond the 1977 IEEPA Charter, originally adopted in the post-Watergate reforms to limit presidential power. .
POLITICS FEEDS WITH POLITICS
Nothing this major is happening at this time of a presidential campaign without politics being an important factor.
Trump’s governing actions have always been driven by whether they will help him get re-elected.
Now, with just over two months until election day, to become even tougher against China, even if it means moving away from phase I action commitments to buy American goods, Trump’s decision-making is driving.
Nothing has changed recently with regard to the national security problems that would justify a change of position.
What has changed is Trump’s chances of re-election. The administration is perhaps more interested in creating news coverage of the China threat before the November election than in taking the time to construct a sound legal position that would withstand a challenge in court.
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The Chinese government will try to come up with measures to be taken against US government officials and companies that create an appearance of balance. That said, in general, the Chinese government does not want to scare away US investment or companies from the domestic market, which is much more dependent on foreign participation than the US economy.
There is general agreement in many parts of the US bureaucracy – and not just among Trump’s political nominees – that the Chinese government’s behavior at home and abroad must be addressed through sanctions and naming and shame.
Politicians and bureaucrats mean that more measures are on the way, regardless of who wins in November.
EO must be written much more clearly and be executive on a firm legal basis. But do not expect the United States to change its position because of everything China can compete in upcoming trade talks between the two countries.
At the moment, there are more questions than answers. But given the trajectory of US-China relations and the urgency of the campaign, September 20, those covered by the order may have to be prepared to delete their WeChat accounts.
Steven R Okun and James Green, based in Singapore and California respectively, serve as Senior Advisors to the U.S. headquarters of geostrategic consulting firm McLarty Associates. Mr. Okun served in the Clinton administration as Deputy Director General of the U.S. Department of Transportation and Mr. Green as Secretary of State for Trade at the U.S. Embassy in Beijing during the Obama and Trump administrations.