Without ado, a few quick hits on the trade fight, cyber security and critical infrastructure, and CFIUS reform:

Maybe do mince words: This CNBC piece, regarding President Trump’s position on China’s involvement in the World Trade Organization, argues that, “Like many of Trump’s policy pronouncements, this one was clumsily framed and misleading, but had a grain of truth to it.” The piece notes that President Trump has hit on an important factor in the global economic relationship with China: China is self-categorized as a “developing nation” by the WTO and thus receives more lenience in a number of areas. While parts of China are certainly still “developing,” the second largest economy in the world—and soon to be largest economy in the world—probably ought to be treated differently from, say, Vanuatu.

Most things are convincing when you ignore all evidence to the contrary: This piece on The Hill argues that President Trump is wrong on tariff policy. It’s written by two PhDs, but a serviceable freshman in Econ 101 should have been able to write the same analysis with exactly the same errors. They claim because people from both China and the U.S. freely decide to trade, the trades are inherently “mutually beneficial.” They ignore that free trade generally only works when both sides play by the same rules. If one country (more or less) observes labor and environmental standards, for instance, and the other does not, trades between those two countries are not necessarily “mutually beneficial.” Want proof? It’s rather hard to come by: laborers in China have resorted to mass suicide in protest of their working conditions, and there aren’t a lot of electronics manufacturing laborers in the U.S. for related reasons.

So does that make Trump right on tariffs?

No! At least, not according to another Ph.D., but this one also has a Nobel Prize and provides a more thoughtful analysis. Basically, Krugman’s point is that if you put a tariff on steel (an “intermediate good,” that is, one that is used in the making of something else), then to compensate for the higher costs of making the good, manufacturers have to cut their workers’ wages to keep cost to the consumer consistent. That’s generally fair, but he cheats a little in the analysis: First, he assumes that the end price of the manufactured good (a car) must remain the constant. It doesn’t; the price can rise if the cost of inputs rises, and is only bounded by the price of comparable goods on the market, which, for American-made cars, should rise relatively equally. Second, he ignores the benefit to U.S. steel workers by switching the analysis to auto workers. The point of Trump’s tariffs would be to save the domestic steel industry. It’s not about the U.S. auto industry. That’s the point of Trump’s demand that China lift its restrictions on U.S. auto manufacturers’ ability to sell directly into China.

 “Not!”: Several outlets are reporting that Chinese telecom giant Huawei is under criminal investigation by the Department of Justice for providing banned U.S. goods to Iran. The news reportedly so spooked the company that it yanked a bond offering—its first ever Euro-denominated offering, for $500€ aggregate principal of 5-year notes—moments before its interest rate was set to price. The move shocked bond traders, given the very high demand for Huawei’s debt. “I have never seen this before. If a deal is cancelled, it’s because there is low demand,” said one Hong Kong-based fixed income investor. Huawei is reportedly sitting on a mountain of cash, so pulling the bond offering is unlikely to impact its operations in any meaningful way. Some very optimistic observers indicated that cancelling the offering was a generous, in that it protected investors from buying into a security that could immediately tank. May sound outlandish, but gut instinct is that the decision had more to do with the legal risk than an altruistic desire to protect investors. One wonders if they considered the middle ground approach of revising the offering documents to include one whopper of a risk factor.

Huawei’s ties to Iran have been reported for years, and in what was seen as an olive branch to the U.S., in late 2011 it said it was voluntarily restricting its business there. The U.S. government appears unconvinced. The news comes on the heels of last week’s report that the U.S. is re-sanctioning the other Chinese telecom giant, ZTE, for trading banned goods with North Korea. The general theme that is emerging should be clear.

 Next time, stab us in the front: Here’s something one does not get a chance to write often: it looked like a great week, PR-wise, for North Korean dictator Kim Jong Un. First, he announced that he would shut down his country’s nuclear testing site and halt all missile tests. This announcement was welcomed by the global community, including by President Trump. Thursday, he literally walked to South Korea, performed impressively at a summit with  South Korean president Moon Jae-in, and danced his way back into North Korea.

All this great news provided a hopeful gloss on the run-up to the historic summit with President Trump.

But…reality. North Korea didn’t so much choose to shut down its subterranean nuclear program as it was forced to. When the mountain on top of it collapsed. And spewed radiation. Separately, the parents of Otto Warmbier, the UVA student who was tortured in North Korea and sent back to the U.S. to die, decided to sue North Korea for murdering their son. Also, North Korea is behind a pervasive and persistent cyberattack that has spread to the critical infrastructure networks of 17 nations.

Oscar Wilde’s old epigram seems downright prophetic.

What a difference a line makes: A proposal by Senator Diane Feinstein would expand on DHS’s ability to order civilian federal agencies to remove compromised software from their networks upon a finding of a national security vulnerability. While not specifying any company, the bill is seen as a response to the order last September that civilian agencies remove Kaspersky software from their systems (the Defense Counterintelligence and Security Agency issued a similar order to all classified contractors). At the time, relevant authorizations required DHS to give Kaspersky concurrent notice, and gave the companies 90 days to remove the subject software. That process was criticized as unduly lenient as it provided any malicious actor three months to strike before removal.

Feinstein’s proposal, essentially a one-line amendment, clarifies that DHS may order an agency to remove software without having to give notice to the software provider. As opposed to providing a very short window to all parties, this approach strikes a sensible balance of providing the relevant agency time to act in a somewhat orderly fashion without the threat of a malicious actor having that same forewarning. Of course, many enterprise-grade software companies would notice when significant changes to the host network begin to take place. Speaking in support of a more aggressive approach back in September, Senator Claire McCaskill noted, “Do you think if this happened in Russia, if they found a system of ours was looking at all their stuff, that they would give their government 90 days to remove it, seriously?”

While it’s easy to support the reform, invoking a reckless and authoritarian regime as the model raises an eyebrow.

The Boeing Streamliner: Rep. Mac Thornberry, Chairman of the House Armed Services Committee, has introduced a bill to streamline and reorganize the Pentagon’s acquisitions machinations. Specifically, the Comprehensive Pentagon Bureaucracy Reform and Reduction Act would eliminate the Defense Information Systems Agency, DISA, a very common point of entry for DOD IT contractors, and absorb many of its functions in other corners of DOD. Thornberry also seeks to revamp the federal acquisition process—a byzantine and extraordinarily cumbersome process—through the introduction of the Accelerating the Pace of Acquisition Reform Act of 2018. Efforts to revamp the federal acquisitions process have been initiated many times (several times by Rep. Thornberry), but nevertheless, federal IT contractors should keep these initiatives on their radars. Given the complexity of the system, even small changes would likely have profound effects.

Perfect is not the enemy of good, but slow is the enemy of the fast…: This piece from the American Enterprise Institute highlights that, notwithstanding vagueness around exactly which technology sectors are targeted by the current CFIUS reform effort, U.S. policymakers should push ahead in finalizing and passing the Foreign Investment Risk Review Modernization Act (FIRRMA) if they hope to slow technology transfers to China. The article’s main point is that Chinese acquisitions in the U.S. are not commercial investments that seek to maximize economic return, but rather they are intended to be folded into China’s strategic capabilities—both militarily and through its technological leadership. The longform version of the article contains a number of interesting data points and analyses regarding Chinese global investment patterns.

…And fast is the enemy of the business community: Inside U.S. Trade reports that Senator Mike Crapo (R-ID), chairman of the Senate Banking Committee, and Rep. Andy Barr (R-KY), the chairman of the House Financial Services subcommittee on monetary policy and trade, are advocating a much more cautious and deliberate approach to CFIUS reform than the approach staunchly advocated by Senate Majority Whip John Cornyn (R-TX). “It’s difficult to draw the right line between stopping investment and promoting a very vibrant investment environment,” Crapo told Inside U.S. Trade. “And so finding the right line there, not just in regard to a specific country or even a specific industry, but in general, determining how best to set the system up isn’t that easy, and that’s what we’re having difficulty on.” Opponents of the current version of FIRRMA may find themselves in a difficult position: The Trump administration is considering unilaterally implementing the reform bill under Trade Act or Emergency Economic Powers Act authorities if deliberations drag on too long.