Escalation. First, the White House is barring Chinese telecom Huawei from selling its technology in the American market. Second, Washington will require American companies to obtain licenses to sell critical tech to Huawei. These are not insignificant moves, especially the latter given that Huawei has said it devotes about a third of its budget — some $11 billion annually — to the acquisition of American components and about a third of its suppliers are US companies. “This could potentially lead to Huawei’s destruction,” one expert told Bloomberg.

A woman looks at her phone as she walks past a Huawei shop in Beijing, China May 16, 2019. REUTERS/Thomas Peter

And how exactly do these actions have anything to with the US-China trade deficit? That gap — and President Trump’s obsession with it — was the supposed cause of the economic conflict. But preventing the sale of those of those key components would actually worsen the deficit, not to mention take a financial toll on our patriotic tech companies. Perhaps squeezing a flagship Chinese tech firm is part of the White House negotiating strategy.

Then again, maybe it’s a sign that the president no longer prioritizes bilateral trade balances. Maybe the president has taken a hawkish step toward supporting a technological Cold War with China that attempts to disentangle our economies to the greatest extent possible. If so, Beijing directing greater sorghum and soybean purchases will hardly be sufficient to restore economic calm.

But maybe the president’s reasoning is unimportant. Similarly, whether the move is one of deal-making tactics or great power strategy. Even if licenses are granted and Huawei isn’t moved from the US Department of Commerce’s Entity list to their Denied Person list, the White House has cast a dark cloud over the company’s products and raised the risk to using them. And as with an earlier temporary ban on ZTE, the moves against Huawei will encourage China to redouble its efforts to greatly lessen its tech dependence on the US

But let’s not lose the story here. The US should want China to veer back into a more pro-market mode — especially given economic linkages that provide benefits to both nations. This objective should infuse all our demands. On this point, good stuff on Twitter from Patrick Chovanec, Chief Strategist at Silvercrest Asset Management

The distinction between private and state companies is China is blurry, and Xi has blurred them further. Huawei is a special case where its ownership has always been a mystery of genuine concern. But there is a real private sector in China, which has expanded liberty for both producers and consumers, and given rise to a growing popular stake in the rights to property and protection from arbitrary power. It is under assault, but still vital. Many of our hopes for a China that is more open economically and politically, one that the US need not inevitably face across a bloody battlefield, lie in that private sector, which we should seek to recognize and encourage in the face of CCP statism.

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