By – The Washington Times – Thursday, August 23, 2018

With the Trump administration’s trade war with China showing no signs of easing, U.S. intelligence agencies fear Beijing is linking the trade issue to a larger challenge to American interests and power, including the South China Sea, artificial intelligence and cyberspace.

Chinese tactics have evolved to include outright cyberespionage campaigns, including one uncovered last week at China’s top engineering institution, Tsinghua University.

President Trump has said China was able to build up an enduring trade surplus and steal American technology because previous administrations failed to focus on the trade issue and maintain pressure on Beijing.

China has matched U.S. tariffs tit for tat. On Thursday, both countries imposed duties of $16 billion on automobiles, factory goods and commodities. But analysts say Beijing’s response has been more multifaceted and strategic.

In addition to the militarization of the disputed South China Sea islands and the more shadowy deployment of artificial intelligence to influence diplomacy, Chinese neo-cold war tactics include cyberespionage.

From a Tsinghua University campus in Beijing, cybercampaigners targeted the state government of Alaska and Chinese Communist Party opponents in the Tibetan community, according to research published by the cybersecurity firm Recorded Future.

Although analysts told The Washington Times that a 2015 bilateral agreement slowed state-sponsored hacks against the U.S., Chinese cyberstrikes are accelerating again.

A relatively low-level Chinese delegation was in Washington Thursday for the first high-level U.S.-Chinese talks in two months, but there was little sign of progress as Mr. Trump ordered preparations to target another $200 billion in Chinese goods, The Associated Press reported.

The clash between the two economic superpowers has rattled global markets and threatened to further inflame conflicts in the security and intelligence fields.

“Thus far, we have seen a sort of trade ‘reconnaissance by fire’ with each side hitting each other to provoke a reaction,” said Dean Cheng, senior research fellow at the Heritage Foundation’s Asian Studies Center. “Both sides have recognized [that] their relationship is much more complicated than even experts could have imagined.”

Michael Collins, deputy assistant director of the CIA’s East Asia mission center, told the Aspen Security Forum in Colorado last month that China was confronting the U.S. in a kind of bipolar rivalry, but he said it is different from the Cold War confrontation between the Soviet Union and the West in the decades after World War II.

Mr. Collins said Chinese President Xi Jinping tapped all of his “avenues of power, licit and illicit, public and private, economic, military,” with one ultimate goal: to replace the U.S. as the world’s leading superpower “without resorting to conflict.”

National Intelligence Director Daniel Coats and FBI Director Christopher A. Wray expressed similar concerns at the forum.

Focus on investment

One sign of the shifting nature of the conflict was tucked into the massive defense authorization bill President Trump signed this month. The Pentagon spending and policy blueprint contained a bipartisan provision to expand the powers of the Committee on Foreign Investment in the United States (CFIUS), the interagency body that reviews significant foreign investments for national security threats.

CFIUS, advocates say, can be a major weapon in the trade wars. The defense law marked its first update in a decade and a major victory for Mr. Trump, who pledged during his presidential campaign to use hard-line trade negotiating tactics against China to stop the theft of American technology.

A strengthened CFIUS was pushed through Congress by Sen. John Cornyn, Texas Republican, and Rep. Robert Pittenger, North Carolina Republican, backed by China trade hawks such as Commerce Secretary Wilbur L. Ross Jr., senior trade adviser Peter Navarro and U.S. Trade Representative Robert Lighthizer.

Chinese Foreign Ministry spokesperson Lu Kang expressed Beijing’s “deep dissatisfaction” with the U.S. law.

But a more active CFIUS could have an uncertain impact on foreign investment in the U.S. and the attractiveness of the American market.

“The question is: How many more deals are we reviewing?” David Dollar, a senior fellow and China scholar at the Brookings Institution, said in an interview. “Will this put sand in the gears of commerce, or is it just a readjustment?

“It would be ironic if we overregulate and become too much like China,” said Mr. Dollar, who served as the Treasury Department’s emissary to China in the Obama administration.

Derek Scissors, American Enterprise Institute resident scholar and chief economist at the China Beige Book, worried that the stronger law is too long and could make “it hard to understand for all investors, not just Chinese.”

But he said the updated CFIUS addresses a critical weakness in U.S. export controls by “blocking American firms from transferring technology [to China] that could be used to upgrade Chinese military capabilities.”

Investment as warfare

Critics of Mr. Trump’s withdrawal of the U.S. from the Trans-Pacific Partnership trade deal, which was designed to contain China’s economic clout, said his administration lacked a clear trade policy for the region and opened the door for Beijing to expand influence over its neighbors.

The South China Morning Post recently argued that Secretary of State Mike Pompeo is trying to address what the influential newspaper called a “strategic blunder” in the administration’s approach to China and East Asia. Washington is now courting nations in Asia and attacking Beijing’s financial ability to project power abroad, particularly Mr. Xi’s massive Belt and Road Initiative, which has doled out tens of billions of dollars in infrastructure loans and financing to countries across Asia, Africa and Eastern Europe.

Robert D. Atkinson, president of the Washington-based Information Technology and Innovation Foundation, recently told the House Committee on Foreign Affairs that “intellectual property theft is one important tool in the Chinese arsenal.”

The updated CFIUS, Mr. Atkinson said in an interview, sends a clear signal to Beijing that “under the Trump administration it is clear that the U.S. intends to reject some acquisitions and will take a much harder line on deals than the Obama [administration]” regarding intellectual property.

With China’s slowing economy, a series of health scares and a wobbly stock market, the press has reported a groundswell of unhappiness with Mr. Xi and wondered whether the increasingly powerful president has a strategy to counter the unpredictable Mr. Trump. But the hunger for Chinese investment dollars, especially in states and cities far removed from Washington policy debates, remains an asset for Beijing.

Erin Ennis, senior vice president of the U.S.-China Business Council, said that although Chinese investment may not be as welcome in Washington, the story is different outside the nation’s capital.

“Governors and mayors are still interested,” she said. “Chinese investment grows the U.S. economy and brings jobs to communities. And the Chinese, for their part, they want to remain active in the world’s most dynamic economy. This balance between national security concerns and trade concerns is not all black and white.”

The Heritage Foundation’s Mr. Cheng said that as chaotic as the trade battle appears, American flexibility could prove a secret weapon for the Trump team.

“The Chinese are used to a much more regulated economy, so this is all dangerous and scary for them,” he said. “Americans are capitalists and used to turmoil and unpredictability. You roll out New Coke. Maybe it works. Maybe it doesn’t.”

⦁ This article is based in part on wire service reports.

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