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    Who is going to rule the world’s future – a failed deal maker or supercomputing?

    June 2018

    President Trump likes nothing more than presenting himself as the ultimate deal maker, the master negotiator who can translate his success in business into the worlds of politics, policy and diplomacy. “That’s what I do, is deals”, Mr. Trump repeatedly said.

    Except that so far he has not. As the House resoundingly rejected a far-reaching immigration overhaul by end of this month, despite a last minute plea from the president Mr. Trump once again fell short of his promise to make “beautiful” deals that no other president could make. His 17 months in office have in fact been an exercise in futility for the art-of-the-deal president. No deal on immigration. No deal on health care. No deal on gun control. No deal on spending cuts. No deal on NAFTA. No deal on China trade. No deal on steel and aluminum imports. No deal on Middle East peace. No deal on the Qatar blockade. No deal on Syria. No deal on Russia. No deal on Iran. No deal on climate change. No deal on Pacific trade.

    Even routine deals sometime elude Mr. Trump, or he just chooses to blow them up. After a Group of 7 summit meeting in Canada this month with the world’s leading economic powers, Mr. Trump, expressing pique at Canada’s prime minister, refused to sign the carefully negotiated communiqué that his own team had agreed to. It was the sort of boilerplate agreement that every previous president had made over four decades. Mr. Trump is now scheduled to attend a NATO summit meeting in Brussels on July 11 and 12 followed by a long-delayed visit to Britain. He also plans to meet President Vladimir V. Putin of Russia in July in a one-on-one summit meeting, a politically quiet sensitive encounter that should exacerbate strains with NATO allies.

    With these meetings ahead it does not take good negotiating skills for Mr. Trump to cause more chaos. Will this ever lead to concessions? Maybe but concessions to what? In my opinion not anything that resembles a deal. I just do not see him getting much done.

    As for foreign policy, Mr. Trump has taken great pride in his recent meeting with North Korea’s leader, Kim Jong-un, asserting that “I have solved that problem “after a decade – long nuclear stand-off and even musing that he deserves the Nobel Peace Prize. But again there is no deal, at least not yet. There is a vague 391- word statement essentially agreeing to agree, an expression of a goal with no details. In effect, the agreement with Mr. Kim is like a deal to sell parts of a Trump Tower without selling on a price, date, inspection or financing. It is not nearly as advanced as agreements that President Bill Clinton and Mr. Bush made with North Korea, both of which ultimately collapsed.

    Mr. Trump did secure the release of three Americans held prisoners by North Korea, much as Mr. Obama did with prisoners during his tenure. And he did with a promise by Mr. Kim to help repatriate the remains of American soldiers killed during the Korean War. To be sure, these issues can be enormously complex and forging consensus can take time. Negotiations over such matters have frustrated more seasoned presidents with more bipartisan or internationalist instincts. Any judgment before the end of his four-year term may be premature.

    But no modern president has sold himself on the promise of negotiating skills more than Mr. Trump has. He regularly boasts that deals will be “easy” and “quick” and the best ever. He often predicted that “we will probably very easily make a deal” with Mexico and Canada to overhaul the North American Free Trade Agreement, but later made blistering attacks on both countries. He has pulled out of Mr. Obama’s Iran nuclear deal, Paris climate accord and Trans-Pacific Partnership, but promises to negotiate better versions of those deals have gone nowhere. When he took office, Mr. Trump set his sights on what he called “the ultimate deal”, meaning peace between the Israelis and Palestinians. He said it was “frankly maybe not as difficult as people have thought”. A year later, his team is only now preparing to release a plan. But after Mr. Trump’s decision to move the American embassy to Jerusalem, the Palestinian Authority is no longer on speaking terms with the White House. In my opinion, what the president seemingly fails to understand is that in foreign policy as well as in trade policy – unlike in real estate transactions – the parties are all repeat players. The country for example you insult or seek undue advantage over today, you will have to work with again tomorrow.

    Mr. Trump’s approach so far has been to make expansive demands and at the same time apply as much pressure as he can. He argues that crushing sanctions he imposed on North Korea forced Mr. Kim to meet. He now hopes to extract concessions from China, Canada and Europe after slapping punishing tariffs on them.

    Trump in my opinion is a bilateral player, in part because that’s what he is used to from his building days, but also because he keeps himself the king, the decider, the strongman. In the case of North Korea, however, he wouldn’t have gotten this far – which isn’t all that far – without the South Koreans or the Chinese. And these two countries learned a big lesson from Trump’s behavior, as well as other compatriots of Mr. Trump. For example Mr. O’Donnell, the former casino president, said Mr. Trump has always oversold his deal-making skills. The casino he managed, Mr. O’Donnell noted, brought in 100 million US-Dollars a year yet still went bankrupt. The fact is, Trump casino should have been one of the greatest success stories in the history of casino gambling, but bad deal making caused him to loose all three properties. Now the consequences are much higher. “Deal making as president” is a multidimensional proposition where the stakes are war and peace, prosperity and depression. Can such a president really cope with Mr. Xi Jinping of China or Vladimir Putin of Russia? Especially with China I have tremendous doubts. They are in the meanwhile almost as advanced as the US. Once arriving in Beijing I knew I would not be able to connect to Google, Facebook or Uber. As strange as it is to go with-out these staples of online life in the West, it is even stranger to find out that local Chinese didn’t seem to feel deprived at all. Why should they? They search through Baidu instead of Google, get their social media fix on WeChat instead of Facebook, hail rides on Didi instead of Uber, curate news through sites like Toutiao. And while they know Beijing is watching, they accept this surveillance as normal.

    The Chinese government has carved out an alternative internet universe with its own brands, rules and culture, in which privacy does not exist. But its real ambition is to break out of this parallel universe and dominate not just the internet but the technology industry worldwide. To contain Beijing, the United States and its allies are fighting back with a campaign of techno protectionism, opening a perilous new front in the global trade battles.

    President Trump in my opinion is the unlikely leader of the fight against Chinese tech dominance. Widely seen as a champion of rust belt industries, he recently slapped heavy tariffs on all the leading aluminium and steel exporters, drawing fierce protests not only from China but also from American allies like Germany and Canada. But steel in my opinion is a small side show compared with the emerging tech battle with China.

    Technology will decide which country emerges as the world’s dominant economic power in the long run. While about 20% of per-capita gross domestic product growth is driven by labor and capital, the remaining 80% is determined by how rapidly an economy is developing and applying new technology to increase production and productivity. China’s ambition to catch up to Western living standards thus depends largely on how rapidly it can match or even surpass Western technology.

    Even allies miffed by Mr. Trump’s steel tariffs remained largely supportive when he imposed 50 billion US-Dollars in tariffs on China – and only China – in response to its predatory tech trade practices, then threatened another 200 billion US-Dollars if Beijing followed through on a promise to retaliate. Just recently, Mr. Trump endorsed intensified review of Chinese investment in American technology and of American tech exports to China.

    Mr. Trump is both accelerating and expanding trade battles that began before he took office. Following the global financial crisis of 2008, countries around the world began to restrict cross-border flows of trade, capital and migrants. Globalization’s champions predicted that borders would continue to fall in at least one area – digital tech and the internet – but China has shown that a determined government can build walls in the virtual sphere, too.

    The president’s tough stand on trade with China may be more popular than he is. The overwhelming consensus in the West is that Beijing is catching up illegitimately, by forcing companies that invest in China to share their best technology, or dispatching hackers to steal it. Though borrowing from the leading tech power is a standard development strategy – think of 19th century America copying British industrial technology and Japan’s great success replicating American technology – the scale and organization of China’s campaign makes the threat feel new.

    Beijing has banned some foreign competitors like Google and Facebook outright, and regulated others so heavily that they have been compelled to sell themselves to Chinese rivals (Uber) or forced to consider palling out of China (Amazon). In essence, China has created domestic internet monopolies that are generating enough cash in their vast local market to finance aggressive expansion abroad. I have been told, for example, that Toutiao already sells its novel content curating service to one in 10 Japanese.

    Last year Beijing rebranded the manufacturing centers of the Pearl River delta as the “Greater Bay Area” and began urging the main cities there-Shenzhen, Guangzhou and Hong Kong – to cooperate to become China’s rival to America’s Silicon Valley, which the Chinese would like to make the lesser Bay Area.

    In Beijing, the buzz was about how “created in China” is replacing “Made in China”, with some claiming that Shenzhen is now more innovative than Silicon Valley in key industries. Instead of just assembling simple goods from parts built elsewhere, China is now increasingly seen as a cutting-edge designer and developer of artificial intelligence, drones and other advanced technologies.

    America for example is now home to the world’s speediest supercomputer. But the new list of the 500 swiftest machines underlines how much faster China is building them. The list shows that Chinese companies and the government pulling away as the most prolific producers of supercomputers, with 206 of the top 500. American corporations and the government designed and made 124 of the supercomputers on the list. For years, the United States dominated the supercomputer market. But two years ago, China pulled even on the Top 500 list. China moved decisively ahead last fall and extended the gap in the latest tally.

    Making the most powerful supercomputers is regarded as one measure of a nation’s technical prowess, even if they are a rarefied niche of technology. Countries and companies have increasingly deployed the machines in a wider range of tasks in fields including medicine, new materials and energy technology.

    Supercomputing is one step in China’s rapid rise in technology, stirring concerns in America about the country’s grand plan and tactics and the potential economic and geopolitical implications of those advancements. In an assessment last fall, the United States-China Economic and Security Review Commission, a bipartisan congressional advisory group, pointed to supercomputing as part of China’s “ambitious whole-of-government plan to achieve dominance in advanced technology.” China began its supercomputing push in earnest a decade ago. Initially, it absorbed foreign technology, and then steadily developed its own. China at the beginning was slow to make that work, but it’s for sure working now. The high-performance computing program, policy experts say, offers a blueprint for the multibillion-dollar efforts China has recently begun in fields like artificial intelligence and quantum computing – the next frontiers of technology, where economic advantages will be won or lost. Supercomputer technology has occasionally been a trade issue between the United States and China. In 2015, for example, Washington denied Intel a license to sell its microprocessor chips to four supercomputer labs in China, saying the centers worked on technology for the Chinese military. The export ban, supercomputer experts say, served to prod the Chinese to accelerate their developments efforts. The lesson the Chinese took away at that point of time was that they can’t rely on the United States. The lesson the Chinese took away at that point of time was that they can’t rely on the United States. Therefore China is trying to replace all Western technology with all Chinese-made.

    The global supercomputer market is expected to double from 2017 to 2022, to more than 9.5 billion US-Dollars, according to an estimate from Hyperion Research. The research firm defines supercomputers as machines that cost more than 500,000 US-Dollars each, Three Chinese companies are among the top 5 makers of the 500 fastest supercomputers already. Lenovo is first, Inspur is third, and Sugon is fifth. Two American companies are second and fourth, Hewlett-Packard Enterprise and Cray. The new list confirmed that the current fastest machine is in the United States. This month, the Department of Energy announced that its new supercomputer, called Summit, had achieved speeds well ahead of the previous leader, the Sunway TaihuLight at a Chinese supercomputing center in Wuxi. Summit, built by IBM in a partnership with Nvidia, is at the Oak Ridge National Laboratory in Tennessee.

    Apart from supercomputers we have to realize, that among the world’s 20 largest internet companies by market capitalization, 11 are American and 9 are already Chinese, and the Chinese giants are proliferating fast, up from two just five years ago. Currently, they are limited largely to Chinese turf. Tencent and Alibaba get more than 90% of their traffic from within their home country, compared with roughly 10% for Google and Facebook, but they all have plans to expand.

    The Trump administration has moved to restrict Chinese tech expansion in several ways. An executive branch committee that review investments for security threats recently blocked attempts by a Chinese company to buy MoneyGram, a money transfer company. In another case, that same committee’s concerns about potential Chinese influence over global mobile networks helped scuttle Broadcom’s proposed takeover of the chip maker Qualcomm. When the Trump administration banned exports to a major Chinese Smartphone manufacturer, ZTE, it forced the company to largely shut down for lack of access to key American technology.

    Mr. Trump was willing to lift the ban on ZTE after the company paid a 1billion US-Dollar fine and fired its top executives, but Congress was not. The Senate voted to reinstate the ban, which is likely to fuel trade battles to come. Many Chinese were talking about how the humiliation of ZTE was inspiring an official push to reduce China’s dependence on the United States for semiconductors, software and other critical tech imports.

    The next salvo from the Trump administration is expected to focus on sensitive sectors like financial technology and artificial intelligence and to impose new controls not only on American tech exports to China, but also on American investments in China. Many Western allies have already taken similar steps. Germany is tightening investment rules for Chinese companies and protesting the restrictions Germany companies face in China. Australia is reportedly considering banning Chinese firms from working on its 5G rollout because of national security concerns.

    The European Union recently imposed new data protection rules written largely to give consumers more control of information now in the hands of corporate giants like Facebook, but also to guard against the spread of a China – like surveillance state.

    The European Union is also pondering a new digital single market, in part to give European companies a market in which they have a chance to grow as large as Chinese rivals. Meanwhile, many countries are going the opposite way copying elements of China’s external barriers and internal surveillance tools: Russia, Brazil and other countries are requiring foreign internet companies to put servers on those countries, where they are easier for the government to monitor and control. Qatar, Iran and the United Arab Emirates, among others, have banned foreign services like WhatsApp and Viber. These moves may be motivated by a desire to control political discussion more than trade, but nonetheless they invite retaliation.

    This is how a digitally interconnected world could die by a thousand cuts, and techno protectionism may get a further push during the next global downturn. From the United States to Europe and Japan, public debts are high and deficits are rising, which means these governments are poorly positioned to spend their way out of any slowdown. Central bank can’t help much either, since interest rates are still very low, with just little room or reason to drop further right now. In this environment, governments may see protectionism as the only lever they have left to pull.

    For the most of the postwar era, the consensus in support of free trade was so strong that governments rarely resorted to raising tariffs even when times were tough. The trade wars that broke out after 2008 have involved mainly nontariff or “stealth” trade barriers, including cheap state loans and subsidies for favored industries. But in the last two years, the rise of Mr. Trump and other antiglobal populists has given new currency to protectionism in all its forms, including technoprotectionism.

    The global financial markets had largely ignored the brewing trade battles, until recently. As the tariff threats grow in scale, and the battleground shifts from rust belt industries to new technologies, the markets are growing more skittish. So far stocks have been hit harder in China than in the United States, but there will be no winners. The latest surveys of American investors and manufactures show that their biggest concern is the threat of a trade war.

    The risks from deglobalization are growing. If the current skirmishes turn into a full-blown trade war, blame will fall heavily on the thousandth cut. But the real fault will lie with the 999 that came before.