Derisking charts the path to decoupling

In times of war, it has long been customary for belligerents to cease all direct commerce, and to enforce rules against indirect commerce facilitated by third parties. Belligerents assume, without close analysis, that trade will confer greater benefit on the opposing party. Decoupling became the watchword—long before the word was invented. The Napoleonic Wars (1800–1815) created the policy template, which was refined and extended during the First and Second World Wars.

The United States is not at war with China, but it is well along the decoupling path. The latest installment is a Department of Commerce proposed rule that creates a template for enlarging the scope of derisking. At a Brookings Institution conference in April 2023, National Security Advisor Jake Sullivan promised that US restrictions on direct commerce with China would be confined to limiting the flow of advanced technologies with "a small yard and a high fence." The small yard has since grown into a pasture with no discernable fence.

The first restrained blocks were US exports of dual-use goods and technology that could improve China's war machine. Advanced semiconductors were an early priority, along with AI and quantum technology. For these items, the risk calculation was straightforward: Since the US military uses them, it's reasonable to suppose that the Chinese military does likewise, and the Pentagon may have direct knowledge of such use.

But import restrictions are more problematic. The focus is on US imports of Chinese products that might enable future surveillance of American businesses and individuals by Chinese authorities, and even worse, future disruption of critical infrastructure. An early example was the Chinese telecom firm Huawei, which was banned from supplying networking equipment to US telecom firms in 2012. In 2019, Huawei was added to the US Department of Commerce's Bureau of Industry and Security Entity List, and simultaneously US allies were successfully persuaded not to purchase Huawei software or hardware. No evidence was disclosed by the US government showing the actual use of installed Huawei equipment by Beijing for surveillance or disruption. However, Lithuanian intelligence reported  that Huawei and Xiaomi smartphones not only block access to sites that offend Beijing but also enable surveillance of the user. US intelligence agencies may also have such evidence, but so far as the public was informed, the ban was justified by the possible future use of Huawei equipment for nefarious purposes. A smaller Chinese telecom firm, ZTE, is subject to the same ban.

Next up was the Chinese-owned social media platform TikTok. In October 2019, legislators began questioning TikTok's content moderation policies and surveillance capabilities. In December 2019, the Pentagon recommended that service personnel delete TikTok from their private phones and computers, and it soon banned the platform from military devices. Late in his tenure as president, Donald Trump proposed to ban TikTok entirely, but after the 2020 election President Joseph R. Biden Jr. shelved the issue. Yet skeptical questions persisted, and in February 2023, Biden banned the installation of TikTok on all government devices. In April 2024, Biden signed congressional legislation calling for TikTok to be sold to a US firm or banned. TikTok filed suit against the federal government claiming unconstitutional violation of its First Amendment rights. Again, as with Huawei, no evidence was disclosed by US authorities that TikTok accounts are subject to actual surveillance or that the platform is a channel for Chinese propaganda, but FBI Director Christopher Wray testified that TikTok accounts could be monitored by Beijing, and that the platform could be used to distribute divisive information on Taiwan or other issues.

In 2024, surveillance and disruption concerns were also raised over port cranes manufactured by ZPMC, the Chinese firm that has supplied 80 percent of cargo cranes in US ports. Many ZPMC cranes are equipped with a modem connected to a computer, enabling them to be controlled from a distance, such as an offshore ship or Beijing intelligence. The simple response would remove the electronic gear, a very minor part of the crane. A more draconian and protectionist response, offered in a congressional bill, is to ban the future purchase of ZPMC cranes and to halt the operation of existing cranes deemed a security risk. The American Association of Port Authorities (AAPA) points out that there is no evidence that ZPMC cranes have been used to harm or track port operations, that the software is scrutinized by US government agencies and that much of it comes from Japan and Sweden. It remains to be seen whether the AAPA effort to rebut sensational scenarios will prevail for port cranes.

The latest ban is the new Department of Commerce proposed rule that would bar Chinese (and of course Russian) hardware and software integrated into an automotive Vehicle Connectivity System (VCS, e.g., cameras or GPS) and software integrated into an Automated Driving System (ADS, e.g., Tesla). The DOC announcement paints a picture of Beijing surveillance and careening autos. However, it is not coincidental that both Biden and Trump, along with many congressional Democrats and Republicans, eagerly support protection for the US automotive industry. The latest bans complement 100 percent Biden tariffs on Chinese electric vehicles (EVs), and Trump's promise of 200 percent tariffs on autos imported from Mexico with Chinese components.

Import controls patterned after the DOC proposed rule allow little scope to challenge scenarios of surveillance or harm resulting from Chinese imports. Any toy, TV, iPhone, or industrial part that contains elementary electronics can be suspect. Foremost in the realm of suspicion are Apple iPhones. Imaginative scenarios about Apple iPhones or other electronics can be offered to skirt the need for evidence of actual surveillance or harm. China hawks who purvey such fears will draw support from Israel's exploding pagers and walkie-talkies. There is, however, no parallel between the Israel-Hezbollah conflict and US-China tensions. China would seriously harm itself by inserting malware in VCS or ADS systems: Once discovered, US bans on a wide range of Chinese exports would be certain. By contrast, Israel has no commercial interest in exports to Lebanon.

If the latest DOC proposed rule charts the future path of US import bans, then it is only a matter of time before derisking becomes decoupling.