Regardless of the outcome of the challenge to US President Donald Trump’s powers under the International Emergency Economic Powers Act now
before the Supreme Court, Treasury Secretary Scott Bessent has made clear the administration will continue to use national security rationales to enact its disruptive trade measures.
It was not always thus. Nations have always had national security interests. Major powers have always engaged in espionage targeting adversaries –
even allies. But since the post-war founding of the rules-based international trading system, it was understood that governments viewed national security and trade matters as parallel worlds best kept at arm’s length. Conflicts were managed offstage, enabling the cool-headed diplomacy required.
A classic example was when a Boeing 767 plane delivered to China for then-president Jiang Zemin’s official use was found in 2002 to be
infested with bugging devices. Publicly, there were no fireworks. The Chinese government refused to confirm or deny the incident, only helpfully noting that
if such an incident had occurred it would not interfere with US-China relations. Meanwhile, a White House spokesman offered a curt: “We never discuss these types of allegations.” China continued to buy Boeing planes. That was the way it was done.
Fast forward to 2012. The United States, increasingly unsettled by the emergence of China as a peer competitor, begins to
issue grave warnings over Huawei Technologies’ links to the Chinese government and potential data collection threats. Then the
Snowden leaks hit, exposing US telecommunications and social media companies’ collaboration with US intelligence.
Unabashed, the US continues the airing of national security concerns with the imposition of national-security-driven tariffs on
steel and aluminium in 2018 and the targeting of TikTok in 2019. Not surprisingly, the World Trade Organization is petitioned to make only its second-ever ruling on its till then mostly dust-gathering Article XXI, which allows members in some circumstances to ignore their WTO obligations when required by “essential security interests”.
In December 2022, a dispute panel
ruled against the US. In response, the US
said the WTO had no authority to examine member states’ claims of national security issues. Then, in a cynical stroke of administrative sleight of hand, the US relegated the offending ruling to toothless legal limbo by appealing against it, knowing the WTO no longer had a functioning appeals system – because since 2017, the US had
purposely blocked all appointments of appellate judges to the WTO.
With the WTO securely leashed, America, with its new-found mania for trade actions inspired by national security, turned to Trojan horse “smart” devices. In January this year, the Biden administration, citing concerns that Chinese smart cars could surreptitiously gather data or be remotely controlled,
issued a ban on the sale of smart cars containing Chinese technology in the US from 2027. On similar reasoning, Teslas were barred from entering some Chinese military or government complexes in 2021. Those much more measured restrictions were lifted last year after Tesla passed relevant China data security requirements.
Advanced computer chips are the current focus of the national security vs international trade struggle. In addition to export controls, the Trump administration has initiated investigations into America’s reliance on semiconductor-tied imports from China. And for good reason: by some measures over 40 per cent of semiconductors used by US military systems pass through mainland China.
Faced with America’s erratic, sometimes overreaching, attempts to restructure its trading relationships to align with its national security interests, China has not been idle. Its recent extraterritorial
rare earth export controls were a warning that Beijing can mirror the US approach to trade and national security and do so in a market-convulsing manner.
There are no easy answers to the imbroglio.
Trade hawk proposals to contain China with a US-led multilateral hi-tech scheme – reminiscent of the Coordinating Committee for Multilateral Export Controls (Cocom) that targeted the Soviet Union in the Cold War era – are a pipe dream. The Soviet Union was an isolated, lumbering, quasi-autarkic state woefully behind in advanced commercial technologies. China is a technology leader and irretrievably integrated into a much more complex global economy.
Just getting the large number of countries needed to sign on – necessitating a declaration from many that their top trading partner is an enemy – would be a non-starter. Add the inevitable enforcement and compliance issues which plagued even Cocom and it is clear that this is not a serious option.
Bringing the WTO and the wider world back into the discussion would help bring in some order amid the chaos. Indeed, WTO President Ngozi Okonjo-Iweala’s statements suggest her organisation would welcome this role. Even the US recognises the WTO cannot be sidelined indefinitely. Private-sector actors who understand the complexity of the situation, such as the pro-engagement Nvidia CEO
Jensen Huang, should also be involved.
There are encouraging signs of a return to the more old-school approach to national security issues. Notably, Chinese President Xi Jinping and South Korean President Lee Jae-myung exchanged
lighthearted banter on security back doors after Xi presented Lee with two Xiaomi phones at their meeting on the sidelines of the Asia-Pacific Economic Cooperation summit. And Bessent has said that the preference is for “de-risking”, rather than decoupling, from China.
This is as it should be. Looking out for legitimate national security interests is a necessity. Manifesting enemies and retreating into meaner, less prosperous and inevitably more bellicose silos is not.