The other wall

Author: | Published: 26 Feb 2019
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In the history books it is likely that 2018 will be seen as the year that US President Donald Trump put his quest to prevent immigration between Mexico and the US into fifth gear. His mission to build a wall stretching the entire southern land border of the US sparked the longest government shutdown in US history. Until he caved – temporarily – then declared a national emergency.

Not content with one battle, late last year Trump was also busy fighting another front with Chinese authorities in the form of a bitter tariff war. The ongoing dispute has the potential to send millions of hardworking Americans into destitution if left to ferment much further. It is no exaggeration to say that the US-China tariff war is costing the US economy billions.

But it is not only tariffs stopping the US from doing business with China. New regulations imposed by the section of the Foreign Investment Risk Review Modernisation Act (Firrma), which beef up how the Committee on Foreign Investment in the United States (Cfius) looks at inbound acquisitions, have greatly impacted the volume of Chinese investment in the US, especially in the technology sector.

The statistics back up the theory. Chinese investment in the US took a swan dive last year, and it isn't the case that investors are no longer interested. They appear acutely aware that these new provisions won't allow them to buy anything Cfius considers even remotely sensitive, which under Firrma is basically everything they could possibly want.

Meanwhile, Chinese investment into the EU tech sector grew over the same period, ipso facto at the expense of the US.

It is fair to say the anxieties of the US government are legitimate. In the age of modern warfare, the scope and increasing sophistication of the Chinese economy – particularly in the tech space – is genuinely concerning for US policymakers, so taking measures to protect national security by closing back doors is surely sensible. But when parts of the country begin to suffer, and inward investment decreases as a result, perhaps it is time to take a step back and look at the bigger picture.

Rather than introduce policies that throttle Chinese investment by putting out a closed-shop mentality, shouldn't the new Cfius regulations be a little more constructive? It is possible to take measures to protect technology, or data, or whatever it is that the US is so terrified that the Chinese will take, while also ensuring that national security remains supreme.

In early February, this conversation took another turn as the US government outright banned all American firms from selling pretty much anything to the Chinese telecoms technology company ZTE for seven years. The impact that this may have on ZTE itself is obvious – it's potentially ruinous – but on the flip side, the volume of sales that will now be lost from US firms unable to sell to the company are also enormous. US semiconductor company Qualcomm, for example, itself already directly impacted by Cfius in 2018, will take a major hit as the main provider of chips to ZTE. It may be forced to downsize to compensate.

Protecting national security is important, but so is the domestic workforce, and one should not have to come at the expense of the other. Future administrations, Democrat or otherwise, should be open to re-examining recent changes to Cfius and tariff wars to ensure that stifling Sino-US relations isn't damaging the very thing it is meant to be protecting.