Iran JCPOA, Canada, Germany, CFIUS reform and cyber attacks: there was plenty of non-China trade war news this week, but also some China trade war news.
JCPO-Nay: President Trump pulled America out of the international accord restricting Iran’s pursuit of nuclear weapons, the Joint Comprehensive Plan of Action (JCPOA). A balanced assessment of the JCPOA and Trump’s criticisms of it can be found here. The immediate result is the re-sanctioning of Iran, thus forbidding U.S. businesses from trading with Iran (other than during a brief ‘wind-down’ period), and an aggressive secondary sanctions program preventing non-U.S. businesses from trading with Iran. It’s going to be expensive and complicated for companies that had opened trade channels with Iran during the 28 months previous U.S. sanctions had been lifted to unwind their dealings, and the impact on America’s broader trade policy is far from certain, writes friend and sanctions expert Brian O’Toole for the Atlantic Council.
This decision is more evidence of a fundamental difference in opinion regarding how, or how much, America can lead the world. To President Trump, America doesn’t want Iran to enhance its weapons program or harm American interests in the region, so how could we accept an agreement that leaves it any room to do so, whatever the other benefits of the agreement may be? President Obama undoubtedly saw America as a member of a global, multilateral world. A fair criticism would be that he quickly—and in some cases, too quickly—saw the limits of American power. Conversely, President Trump does not acknowledge that limits exist—thus, international agreements that do, in fact, require sacrifice by America are simply unacceptable.
It’s hard to quantify the cost of frayed alliances. But President Trump, in addition to rejecting the JCPOA, has also rejected the Paris climate accord and the Trans Pacific Partnership, called into question our commitment to NATO, and initiated a trade war with our allies. In so doing he has rejected decades of diplomacy and the foundations of the post-World War II global order. A global order that, at root and despite many problems, has been extremely beneficial to the world.
Our allies are now openly questioning their ability to trust American leadership at a time when the main event isn’t Iran or Europe, it’s China. As we’ve said before on this site, it’s important to have allies when preparing for a trade war, and China has been working overtime to court our erstwhile allies. Every action we take to alienate those allies emboldens China to make hardline demands of the U.S. in our trade negotiations.
Expert in ignoring experts: Remember when thousands of ‘experts’ said that Donald Trump would not win the presidency? Now 1,100 experts signed an open letter explaining the folly of imposing tariffs on steel and aluminum imports. This Forbes article summarizes the economists’ most basic arguments against the tariffs. And they’re economists from all angles of the ideological spectrum. But they’re all experts. And this is a Presidency with a tenuous—at best—relationship with experts. It likely does nothing to help that the European Central Bank is warning that a trade war could derail the global economic recovery.
And yet: There are reports that Europe is considering the “voluntary” export restrictions we discussed here last week. It will be interesting to see, in light of the decision to abandon the Iran accord, how interested Europe is to accommodate American demands.
But of course: Tech trade associations are warning that all these lashings of Chinese companies will redound back on U.S. tech firms. Filed under “Go figure.”
Meanwhile, back at the ranch: Farmers in Trump country are closely watching as the trade dispute with China unfolds. The basic political math shows that helping the steel industry will hurt the farming industry, given Chinese counter-tariffs on soy, sorghum and a number of other U.S. agriculture products. Reports show that in anticipation of tariffs, Chinese buyers have already cut their purchases of U.S. soy. Currently the cuts are not significant, but the real action will be in the fall, when China typically shifts its buying from South American to U.S. soy. How this will impact the midterm elections this year is the billion dollar question.
Blamed by Canada!: An official document from the Canadian government reportedly explicitly names Russia and China as perpetrators of cyber-attacks to undermine networks of critical infrastructure assets across Canada. The document reportedly distinguishes from run-of-the-mill economic espionage and alleges that Russia and China were undertaking a much more pernicious activity. Indeed, Canadian authorities have of late been flexing their muscles under the Investment Canada Act, including by delaying a Chinese state-owned company’s bid to take over the third-largest Canadian construction company (Aecon). Separately, Aecon withdrew from bidding on the Gordie Howe bridge, which connects Windsor, Canada to Detroit specifically because of its potential takeover by the Chinese government. This is especially noteworthy because one of the goals of policymakers in the U.S. in the CFIUS reform movement is to better align U.S. foreign investment security reviews with those of NATO and other allies and to enhance cooperation among us.
At the same time the Canadian analysis was reported, a new analysis concluded that the Chinese government was behind more than a decade of cyberattacks that had previously been considered unrelated and not sponsored by a foreign government. The 401TRG (Threat Research Group) published its report on May 3.
Random Access Memory Lane: This piece by legendary/notorious journalist Seymour Hersch was published in The New Yorker in November of 2010. Despite being outdated—and flat wrong in one part, where he categorizes Russia as an ally—it’s an interesting read that provides a thorough foundation of the “cyber” conversation from a non-technical standpoint. He also quotes the esteemed Ben Powell, former General Counsel of the Director of National Intelligence, as well as a friend and stalwart of the CFIUS bar. To me it was interesting to re-read the article and look at the assumptions analysts were making at the time—and, oddly, how each side was generally correct about what it was saying. The security hawks were deathly afraid of the rapid advances China was making and the general vulnerability of our nation’s critical infrastructure. The privacy advocates were apoplectic at the thought of military access to civilian networks—long before their friend Edward Snowden revealed the full extent of NSA capabilities. While it makes for clearer reporting, the fundamental flaw of the piece is the notion that we can “wish” the internet and cyber conversation into one category or another. Are China and Russia (and many, many others) using cyber tools for espionage purposes, or in war planning purposes? Yes to both. And in some cases, it is foreign governments’ militaries that are hacking our civilian networks, while in others, the government is essentially paying private cybercriminals to hack our government networks.
These are not issues that lend themselves to black and white thinking, and, indeed, just this week a House panel approved legislation that would facilitate military intervention and coordination with DHS if U.S. critical infrastructure assets come under cyber attack, and, separately, The New Yorker came out with a great piece on digital vigilantes who “hack back.”
And then there’s this other story that the new National Security Advisor, John Bolton, is eliminating the top cybersecurity post in the White House. They’re not entirely sure who will take over the duties, but it sounds like they will be assumed by a nontechnical person. Even acknowledging that bureaucratic streamlining is a valid goal, this is a bad idea.
Reformwatch 2018: FIRRMA: Defense Secretary Jim Mattis penned a letter to the Republican chairmen and ranking Democrats on the Armed Services committees in the House and the Senate urging them to include the CFIUS reform provisions (the Foreign Investment Risk Review Modernization Act, or FIRRMA) in the National Defense Authorization Act (one of the few bills that is passed every year in Congress). There was some chatter that the CFIUS reform language is delayed as Treasury and DOD work out a compromise on a few final points, but most reporting suggests that the bill is picking up steam, and August may well be a realistic timeframe to pass the legislation.