Wednesday, May 22, 2019

The Trump administration's decision to block Huawei from buying goods made from 25% or more of U.S.-originated technologies or materials is becoming a global incident. It is extremely rare in the world's history to find a major country using its state power against a company. In addition to raising eyebrows in the global market, the decision to ban U.S. companies from supplying goods to Huawei has also further lowered the standing of the U.S. in the world. It turns out that doing business with American companies comes with substantial risks as well.

From an objective point of view, the U.S. government's approach has violated the international economic and market rules. It also completely disregards the U.S. laws, principles of market economy and international practices. It should be pointed out that the U.S., often prided itself for its rule of law and the free market, dared to do this so blatantly might be related to the conservative approach of China in the ZTE incident last year. In that incident, China did not respond proactively and has indirectly led the Trump administration to blatantly extort ZTE twice for a total of US$ 2.3 billion. It is fair to say that the ZTE incident played a bad role in making the U.S. realize that it could take advantage and exploit China's "soft" spot.

The Huawei incident has caused a sensation in China. At the same time, we observed that there are many people who came up the so-called "ideas" against the U.S. sanctions, which have certainly created disturbances and affected the policy decision making process to a certain extent. This also makes it difficult for the central government to smoothly implement major policies formulated in the future.

The research team at Anbound, an independent think-tank, feels that the core of the problem should be clearly identified. From the Huawei incident, we should realize that the core of the real problem lies in the rules of the market economy. What the U.S. government is doing now is basically to strongly intervene in the market with its executive orders. It is directly targeting a company that competes with American companies. The "national security" argument of the U.S. government is made out of thin air with no solid evidence. The fact that the U.S. government has been keeping a close eye on Huawei for more than a decade with no convincing evidence to date, is in itself evidence of the absurdity of the current suppression.

Moreover, American politics is rife with specious claims that the Chinese are "making US$ 500 billion profit a year from America". Under the market economy, there is always profit or loss in free market transactions. Who ruled that the Americans can only make but not lose money? How does it make sense for the United States to take goods away from China, and in the meantime still make excess money from it? In our view, the current approaches taken by the U.S. government are typical practices that violates the principles of the market economy.

Getting to the core of the problem provides China the huge advantage of winning over more supporters and sympathizers based on the principles of the market economy. The reason is that if the classic principles of the market economy are overturned, it will have a huge impact on all countries in the world. It has little to do with alliance or ideology, but more to do with America political interests. In 2018, the U.S. trade deficit in goods reached US$ 891 billion (US$ 621 billion for the year after including the U.S. trade surplus in services). Among them, according to the U.S. Department of Commerce's data, the U.S. trade deficit with China is US$ 419.2 billion, but the trade deficit recorded by Chinese customs is US$ 323.3 billion. This means that the bulk of the U.S. trade deficit came from other countries (US$ 470 billion in U.S. terms and US$ 570 billion in Chinese terms).

If trump's logic is to punish countries that have trade surpluses with the U.S., then other countries that "make money" from the U.S. should be careful. According to the logic in the U.S. now, countries that make far more money than China from the U.S., such as Germany, Japan, and Mexico, are likely to suffer more punishments. They collectively make up the real source of the U.S. trade deficit, having a profit of nearly US$ 600 billion in the U.S. market.

Therefore, the crux of the problem lies in the principles of the market economy. If these basic principles which were adhered since 1945 are to be subverted, then any country in the world that has transactions with the United States should be careful. This is because the U.S. is pursuing principles that completely violate the principles of the free market. It is quite ironic that the pattern of economic globalization along with international economic and trade rules since World War II were created by the United States. Subverting the principles of market economy that most countries have long adhered to is one of the major controversies in the U.S. crackdown on Huawei. Under the market economy system, the world would be a mess if the U.S. continued its irrational practices.

Moreover, the Huawei incident shows that if the trade negotiations are not going well, the U.S. will crackdown on rival companies using non-legal means. It is also a key practice that will lead the world's trade negotiations to go astray. Should the rest of the world follow suits in attacking companies of the opposing party, how will small countries survive? Therefore, it should be a basic rational principle of our world to prevent the trade negotiations from intensifying or escalating to a comprehensive economic war.

In fact, the Trump administration's practices have caused resentment in western public opinion. The Financial Times commentary on May 21st said that "the U.S. siege of Huawei is a serious misjudgment", and the Trump administration's actions against Huawei have gone far beyond what was needed to address security concerns. If the U.S. government sticks to its course in the heat of massive corporate opposition, it will harm the interests of the U.S. and other Western companies. The article also stated that in spite of these measures that exposed the weaknesses of Huawei and other Chinese technology companies, such efforts of the U.S. are likely to fail. This is because such efforts are likely to prompt China to address its weaknesses and develop a fully independent supply chain.

Final analysis conclusion:
The U.S. crackdown on Huawei is a reckless challenge to the principles of the market economy. It is also an act which undermines the law, and disrespects market rules and fairness. In order to come up with a rational response to the U.S. crackdown, China needs to grasp the core of the incident and find more support from parties that share the same position in the world, thereby break through the containment of the United States.

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