Are Tech Giants the New Superpowers?
On China, Trade, and the Shifting Locations of Power
Nostalgia can have an intoxicating and powerful effect. Looking back through rose-tinted spectacles can create false pasts that cherry-pick only the very best, while ignoring the worst and the mundane. While harking back to a previous golden age often triggers warm memories of supposedly better times, the process can be deceptive, misleading and wrong. In fact, today’s world is better in almost every single way than the world of the past.
A child born today is not just statistically likely to live longer than their parents but longer than every single one of their ancestors. More children born today will grow up being able to read and write than at any time in history—both in sheer numbers (because global population is at its highest ever point), but also in percentage terms. Access to clean water and to medical care, to affordable and fast transportation, to energy and communication networks is not just high, but rising. There is much to celebrate and look forward to in the future.
That does not make coming to terms with change easier. It is not always easy to remain sanguine if one seems to be standing in the wrong place at the wrong time. That is the case in the United States, where the rise of China seems not only to pose systemic questions about America’s future but also to cast a shadow that makes yearning for the supposed golden years of the 20th century understandable. The sale of one major business after another, from hotels to aircraft-leasing companies, from biotech to General Electric’s Appliance Business—once the jewel in the crown of GE, itself the totemic institution of corporate America—can be difficult to adjust to.
Seeing big names fall to outside buyers armed with cash is a shock to the system—not least when expectations have rarely entertained the thought of buyers from parts of the world about which little is known and to which limited attention is paid. This runs true not only in the US but in Europe, where some of the most iconic names and brands—from Volvo to London taxis, from Warner Music to construction giant Strabag, have owners from abroad, mainly from the countries of the Silk Roads.
A perfect example of this new and often strange world comes with the sale of the largest stake in the firm that quarries the Carrara marble in Italy that was used for the Pantheon in Rome, the Duomo in Siena, the Marble Arch in London and the Peace Monument that stands in the grounds of the Capitol in Washington, DC. The principal shareholder is the bin Laden family—which in turn means that the marble that was used in the Freedom Tower in New York City comes from quarries now owned by the family of the man who masterminded the destruction of the Twin Towers that previously stood on the same site.Facebook had been sharing user data with four firms—Huawei, Lenovo, Oppo and TCL—that have been flagged as national security threats.
Acquisitions like these have prompted considerable soul-searching and calls for government intervention to block sales. One typical example comes from an article written in the influential Industry Week, one of the oldest trade publications in the US. An article titled “Should We Allow the Chinese to Buy Any Company They Want?” begins: “We Americans blithely ignore the long-term effects of allowing foreign corporations to purchase the assets of our country in the form of companies, land, and resources. We are selling off our ability to produce wealth by allowing many American corporations to be purchased by foreign corporations.”
Some go even further. “A lot of Americans don’t understand what’s happening in China and how good their tech companies have become,” said Senator Mark Warner, who sits on the Senate Intelligence Committee. That Chinese high-tech firms are globally competitive is bad enough. But for Warner, what was truly unforgivable was the fact that American companies “have bastardized themselves so much to get into the Chinese market”; in fact, he said, US businesses were guilty of nothing less than “prostituting themselves.” As it subsequently turned out, these include Facebook, which has data-sharing partnerships with at least four major Chinese electronics businesses—all of which have close ties to the government in Beijing.
The fact that this was not disclosed during high-profile hearings in Washington tells its own story about the steps corporations are willing to take in pursuit of opportunities—as a strongly worded statement from the bipartisan House of Representatives Energy and Commerce Committee explained. That was issued before it emerged that Facebook had been sharing user data with four firms—Huawei, Lenovo, Oppo and TCL—that have been flagged as national security threats by US intelligence.
The relentless search for profit is mirrored by Google’s decision to develop a search engine, code-named Dragonfly, to block websites and searches on topics to do with human rights, religion and other sensitive subjects, and that would be acceptable to the Chinese authorities—giving the company access to a huge market. Perhaps not surprisingly, this has led to considerable soul-searching within Google itself, a company that used to have the motto “Don’t be evil” enshrined within its code of conduct. The dropping of the slogan in the early summer of 2018 is not just a sign of the times; it is a sign of the realities that go with putting the priorities of shareholders above those of others.
Google itself was concerned that plans would meet with internal opposition from the company’s own staff that would slow down the development of the browser, so it began work on the project in conditions of strictest secrecy. News of the proposals brought about vociferous criticism when it became public knowledge in 2018, with Google employees threatening strike action unless the project was dropped. US Vice President Mike Pence made his own views clear: “Google should immediately end development of the Dragonfly app that will strengthen Communist Party censorship and compromise the privacy of Chinese customers.”Explaining the shift of the world’s center of gravity—and promising to do something about it—wins votes.
The demonization of China in various forms played an important role in the presidential election campaign. The Chinese “want to take your throat out, they want to cut you apart,” Donald Trump said in one interview. The Chinese “have waged economic war against us,” he said in a speech in Staten Island in April 2016. “They’re ripping us left and right. [The Chinese] abuse us beyond belief,” he said, finishing by claiming that “in the history of the world, this is the greatest theft ever perpetrated by anyone or any country, what China has done to us.”
This was an escalation of claims six months earlier, which called “the money [that China] took out of the United States [is] the greatest theft in the history of our country.” But such statements play well with a core part of the electorate: the economist Branko Milanović observed that “the great winners” of the redistribution of global wealth “have been the Asian poor and middle classes; the great losers, the lower middle classes of the rich world.” Explaining the shift of the world’s center of gravity—and promising to do something about it—wins votes.
Given Trump’s rhetoric—and key appointments in his administration, such as Peter Navarro (whose views are hinted at by the titles of his recent books Death by China and The Coming China Wars)—the only thing that came as a surprise was how long it took for a sweeping range of proposed tariffs to be announced on Chinese goods, including steel and aluminum. The explanation for the delay lay partly in the concern about the North Korean missile and nuclear program, and the need to work carefully around antagonizing Beijing as pressure was applied to try to bring Kim Jong-un to the negotiating table.
This was one reason why President Trump insisted on removing references to China in a speech announcing a year-long investigation into intellectual property violations—despite his senior advisors making clear that China was the main target of the inquiry. “We’re going to need their help for North Korea,” he told them. As it was, over a year had passed after becoming president when Trump announced tariffs on more than 1,000 products, which would affect some $50–60 billion of imports. The action, said Trump, would be the “first of many.” Targeting China should have been done “many, many years” ago. Besides, he added, doing so was “probably one of the reasons I was elected. Probably the main reason.”
A few days later, the president ordered a further slab of tariffs. He did so despite being warned by powerful retailers that consumer prices in the US would rise as a result. Rather than helping American families, advised the CEOs of businesses like Costco, Gap and IKEA, tariffs “would worsen and punish” them by resulting in “higher prices on household basics like clothing, shoes, electronics and home goods.” Too bad, said Peter Navarro. “This is a historic event and President Trump should be applauded for his courage and vision on this.”“If you just shut the fuck up,” he reportedly said to the President and Navarro, “you might learn something.”
Some commentators believe that Trump’s actions are negotiating techniques whose ultimate aims are not to collapse global trade agreements but, rather, to bring a better deal for the United States. “We view US trade actions targeting China more as an opening gambit for negotiations than the start of a trade war,” said Richard Turnill, chief strategist at the investment manager BlackRock. After all, the president has openly mused about rejoining the Trans-Pacific Partnership trade agreement signed in 2016, which would have reduced trade barriers between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States.
Gambits and gambles have consequences, however, especially when trumpeted with loud fanfare. Days after the president’s announcement of a second wave of tariffs, Peter Navarro declared China’s response to “Mr. Trump’s legitimate defense of the American homeland has been a Great Wall of denial.” This was not quite true, since the Chinese government had not responded with denial or silence at all, but instead had promptly issued a retaliatory list of tariffs that targeted American exports, many of which are produced in states won by Trump during the 2016 election, and which also happen to be areas represented by leading Republican politicians.
According to Wang Yong, professor of economics at Peking University, the decision was taken to target US agricultural sector, because of its influence in Congress. “China wants the American domestic political system to do the work,” he said. In other words, Beijing is not just taking on the US at its own game, but using its rival’s strength as its weakness.
The imposition of sweeping tariffs of more than $200 billion that came into effect in September 2018 is bound to have an impact on “our business, our customers, our suppliers and the US economy as a whole,” wrote Walmart, the largest retailer in the country, in a letter to the US Trade Representative, warning that it would force prices up. The introduction of tariffs on Chinese goods is rooted in the idea that trade deficits are detrimental. The Trump administration is seeking to rebalance the fact that the US imports $375 billion more goods from China than it exports, and to force Chinese markets to open to US corporations and businesses. But as Gary Cohn, one of the president’s most senior officials, tried to explain repeatedly at the White House, trade deficits are irrelevant and could even be seen in a positive light—as they effectively enable American consumers to buy the goods they want at the cheapest price.
The problem, according to some, is that while almost all economists agreed with this view, Peter Navarro did not. Cohn, a former Goldman Sachs banker, tried to use evidence and reason to show that tariffs make products more expensive, rather than less, and can prove counter-productive. “If you just shut the fuck up,” he reportedly said to the President and Navarro, “you might learn something.” They were not interested. Instead, a policy has taken root that sees that the best way to manage China is to put pressure on its economy—regardless of the impact on American consumers, taxpayers and voters.
Excerpted from The New Silk Roads: The Present and Future of the World by Peter Frankopan. Copyright © 2019 by Peter Frankopan. Excerpted by permission of Alfred A. Knopf, a division of Penguin Random House LLC.