The Wall Street Journal - USA (2020-11-16)

THE WALL STREET JOURNAL. Monday, November 16, 2020 |A

Beijing Never

Got the Memo

The China Nightmare

By Dan Blumenthal

(American Enterprise Institute, 167 pages, $30)

BOOKSHELF| By John Bolton

W

ith Joe Biden’s election now declared by the press,

albeit still unacknowledged by Donald Trump, it is

appropriate to consider what policies his administration

will pursue starting Jan. 20. Any new president’s national-

security policy would be more coherent, consistent and

sustained than Mr. Trump’s. The risk with Mr. Biden is not that

his policy will be chaotic, but that it will be badly misguided.

One thing is certain: China is the most significant inter-

national threat that America—and the global West generally—

now faces. And that will be true for the rest of this century.

Mr. Biden’s real views on dealing with China are obscure,

more collateral damage from an election campaign that rarely

debated foreign and defense policy in any substantive way.

Much remains to be seen, especially in light of China’s

responsibility for worsening the coronavirus pandemic by its

concealment and disinformation. Beijing’s disingenuousness

has worsened U.S. public opinion about China, a shift echoed

world-wide, potentially far more negatively than the adverse

reactions to the 1989 Tianan-

men Square repression.

Dan Blumenthal of the

American Enterprise Institute

has stepped into this void with

“The China Nightmare: The

Grand Ambitions of a Decaying

State.” Serious practitioners

and students of U.S.-China

relations will need to reckon

with his analysis.

Mr. Blumenthal’s approach

will catch many by surprise.

He says plainly that “China has

taken advantage of American

complacency.” He rejects the

conventional thinking that China’s

domestic economy is still moving from strength to strength,

thereby providing Chinese president Xi Jinping and the

Communist Party with the wherewithal to insist on China’s

centrality in Asia and to challenge the U.S. globally. Indeed,

it is key to Mr. Blumenthal’s “China nightmare” thesis that

Mr. Xi’s domestic policies (and those of his immediate prede-

cessor, Hu Jintao) have rolled back many of the dramatic,

market-oriented reforms of the Deng Xiaoping era in favor of

increased state control. The Xi regime is impairing China’s

economic growth (and any prospect for an innovation-based

economy) and laying the basis for failure internationally.

Mr. Blumenthal writes that the main thesis of his book “is

that despite (or perhaps because of) China’s growing internal

weaknesses, it is pushing forward grand strategic ambitions.”

China is not the juggernaut of Wall Street financiers’ imagi-

nations, but that doesn’t make its expansionism less a threat.

Mr. Blumenthal challenges received wisdom in other ways.

Contrary to the prevailing mantra of China’s “peaceful rise,”

his analysis stresses that Mao Zedong and his successors

repeatedly used military force against their geographical

neighbors. They are doing it today, from the East and South

China Seas to the “line of actual control” on the disputed

frontier with India.

Domestically, the Xi regime is, among other things,

engaging in armed repression against ethnic minorities like

Tibetans and Uighurs; crushing dissent in Hong Kong (and

thereby violating the “handover” agreement with the U.K.);

and initiating a “social credit” system so the state can rank

all Chinese citizens in every aspect of their lives, from

jaywalking to dissent. China faces “insurmountable social

problems,” Mr. Blumenthal writes. But “a weaker China...

does not necessarily mean a risk-averse China.”

While China’s theft of intellectual property is a huge

problem for the U.S., Mr. Blumenthal argues further, we

cannot ignore the reality that America and Japan purposely

transferred considerable scientific and technological

knowhow to China. When we assign responsibility for the

consequences of this catastrophic error, we need not look far.

Beijing apparently never received the memo that the age

of empire is over. The Chinese Communists have focused on

fully restoring the Qing empire’s boundaries, and no lacuna

in achieving that goal is more painful than Taiwan’s de facto

independence. In resolutely Orwellian fashion, China has

insisted so fiercely on its distorted interpretation of the 1972

Shanghai Communiqué’s “one China” language that even

Americans now unwittingly accept China’s version. That suits

Beijing; it doubtless hopes Mr. Biden’s team will find those

pesky Taiwanese as much a nuisance as did Jimmy Carter,

for thwarting what Mr. Blumenthal calls China’s “main

strategic-military priority since the end of the Cold War.”

Taiwan’s example of freedom and openness, Mr. Blumenthal

contends, is enormously disruptive on the mainland. The

U.S. could put the Communist Party in a vise by using

information statecraft and other forms of political warfare.

China has for years been waging political warfare against us,

so it is well past time to implement a counterstrategy. In

cyberspace, America is doing precisely that, forestalling or

retaliating against efforts to influence our domestic political

discourse, thus building deterrence to prevent such attacks

in the future.

While a true grand strategy toward China is urgently

needed, Beijing’s obsession with Taipei provides Washington

an asymmetric response to objectionable Chinese behavior.

We can answer its belligerence and intransigence through

diplomatic or political means, wounding the Chinese

Communists deeply, and simultaneously bolstering Taiwan.

The most consequential step, one I have urged for over

20 years, is for America to grant Taiwan full diplomatic

recognition. By all customary international law criteria (a

defined territory and population, a capital city, and a

government carrying out normal governmental functions),

Taiwan is a sovereign state, and democratic to boot. Rela-

tions between the U.S. and China would chill dramatically,

but that is what China should fear, not America. There are

smaller steps Washington could take. We could, for example,

regularly receive Taiwanese officials in U.S. government

buildings, which would seriously undermine the legitimacy

of China’s campaign to force Taiwan into a morganatic union.

Our relations with Beijing will not get easier over the

next four years. Mr. Blumenthal has done the Biden adminis-

tration a favor with “The China Nightmare.” Let’s hope the

president-elect takes advantage of it.

Mr. Bolton, a former U.S. ambassador to the U.N., served as

national security adviser from April 2018 to September 2019.

China is not the juggernaut of Wall Street

financiers’ imaginations, but that doesn’t

make its expansionism any less of a threat.

When Nixon Taped Joe Biden

J

oe Biden can be heard on
the Nixon tapes. President
Nixon called Mr. Biden on
Tuesday, Dec. 19, 1972. The
president had returned from
Camp David, where he had
been planning an ambitious
second-term government reor-
ganization. Delaware’s Sen.-
elect Biden had narrowly de-
feated a popular incumbent
and Nixon ally, Caleb Boggs, 13
days before his 30th birthday.
He became the second-youn-
gest person ever elected to the
Senate.
Nixon—who won Delaware
by more than 20 points in his
49-state landslide—took note of
this rising star, who had flipped
a GOP Senate seat. “If I had
gone to Delaware, it wouldn’t
have changed one iota,” Nixon
said to Chuck Colson about
Boggs’s defeat. “He just had a
damn good young candidate
running against him.”
On Dec. 19, Nixon saw in his
morning news summary that

Mr. Biden’s wife, Neilia, and 1-

year-old daughter, Naomi, had

been killed in a car accident the

day before in Delaware. Their

sons, 3-year-old Beau and 2-

year-old Hunter, survived the

crash with severe injuries.

Nixon, who as a child lost two

siblings to tuberculosis, wanted

to call. “Could you get the new

senator from Delaware, Mr. Bi-

den, on the phone please?” he

asked the White House switch-

board operator.

Nixon and Mr. Biden were

both from hardscrabble fami-

lies. They had irascible fathers

who taught them how to pick

themselves up after a defeat.

Both were self-conscious that

they didn’t attend the best

schools. They had an interest in

foreign affairs. Like Nixon, Mr.

Biden later served as vice pres-

ident under a more charismatic

president. They were never

part of the in-crowd; that drove

them to work harder.

News of the crash momen-

tarily stopped political talk in

the Oval Office. “He wasn’t in

the car?” Nixon asked. “No,

sir,” one aide, Ken Cole, said,

“He was up on the Hill.”

It was a moment that

brought two men together who

might otherwise never have

connected in a personal way.

“Hello, Mr. President, how are

you?” Mr. Biden answered.

Even senators don’t forget

their first phone call from a

president. “Senator, I know

this is a very tragic day for

you,” Nixon said, seemingly

searching for words, “but I

wanted you to know that all of

us here at the White House

were thinking about you, and

praying for you and also for

your two children.”

“I appreciate that very

much,” Mr. Biden responded.

Nixon, about the same age as

the senator-elect’s father,

urged him to pick himself up

after the greatest setback of

his life. “You have the great

fortune of being young,” Nixon

said. “I remember I was two

years older than you when I

went to the House. But the

main point is you can remem-

ber that she was there when

you won a great victory, and

you enjoyed it together. And

now I’m sure that she’ll be

watching you from now on.

Good luck to you.”

Nixon, who recognized Don-

ald Trump’s potential in 1987,

saw Mr. Biden’s 15 years ear-

lier. “I appreciate it very much,

Mr. President,” Mr. Biden re-

sponded. “I appreciate your

call. I appreciate it.”

Mr. Nichter is a professor of

history at Texas A&M Univer-

sity—Central Texas and author

of “The Last Brahmin: Henry

Cabot Lodge Jr. and the Mak-

ing of the Cold War.”

By Luke A. Nichter

In 1972, the president

called the senator-

elect ‘a damn good

young candidate.’

OPINION

Apple is mak-
ing its first
Mac comput-
ers since 2005
without an In-
tel micropro-
cessor. In-
stead, the
company an-
nounced last
week, Macs
will use Ap-
ple’s own M1 processor, fabri-
cated by TSMC, the Taiwan
Semiconductor Manufacturing
Co. Hey, nothing personal, In-
tel—by now the whole indus-
try knows you botched your
transition to sub-10-nanometer
chips and are still behind. But
this has implications way be-
yond computing.
If Intel is a few years be-
hind, China’s lag may be closer
to a decade. In conjunction
with formulating its 14th Five
Year Plan, Beijing put out an
official communiqué (I love
that word!) previewing its
“protracted battle” with the
U.S. and stated, “Technology
self-reliance is the strategic
support for national develop-
ment.” What’s scary is that
China may have to draw this
battle line right through Tai-
wan, where Apple gets its pro-
cessors. We now see headlines
like this in the Asia Times: “US
tech giants exposed if China
takes Taiwan.” Ya think? Let’s
break this down.
To begin, note that last year
China produced only 16% of
the semiconductors it con-
sumed domestically. In 2014,
China announced a National
Integrated Circuit Plan promis-
ing to spend $150 billion to ex-
pand local semiconductor

China Is Losing Its Bet on Chips

manufacturing. It didn’t work

because you can’t throw

money at the problem. The

world is littered with compa-

nies (AT&T, General Motors)

and countries (France, Italy,

Russia) that failed at semicon-

ductor production. It takes

state-of-the-art equipment and

homegrown expertise.

Second, to produce wicked-

fast chips for smartphones, 5G

and certainly the latest preci-

sion weapons, you need fabri-

cation facilities, or fabs, that

can turn out 7- or even 5-nano-

meter chips, which isn’t easy

to do. According to Mike

Brown, director of the Penta-

gon’s Defense Innovation Unit,

“50% of advance semiconduc-

tor production is in Taiwan.”

The rest is in the U.S., South

Korea and Israel.

Third, the Trump adminis-

tration cut off China’s Huawei

from buying advanced chips

made by TSMC. Except for In-

tel and Samsung, most every-

one uses TSMC, including U.S.

companies Nvidia and Ad-

vanced Micro Devices.

Fourth, for about five years,

Intel has been stuck at 14-

nanometer chips. This gets

confusing: I spent most of my

early career tracking the chip

business, and I still get head-

aches digging into their guts.

What Intel calls 14 nanome-

ters, TSMC calls 10 nanome-

ters. To get to sub-10, you need

to use photolithography with

extreme ultraviolet light, or

EUV, to etch tiny lines onto

chips. Intel has said it won’t

start producing 10-nanometer

chips (the equivalent of

TMSC’s 7 nanometers) until

late 2021. Intel may even buy

chips from TSMC!

Fifth, China has many

partly state-owned semicon-

ductor companies, like the

Semiconductor Manufacturing

International Corp., or SMIC,

but none have caught up to

TSMC because of another four

letters, ASML. This is the

Dutch equipment company

that makes the only EUV pho-

tolithography machines. This

from ASML: “EUV lithography

uses light with a wavelength of

just 13.5 nanometers (nearly x-

ray level), a reduction of al-

most 14 times that of the other

enabling lithography solution

in advanced chipmaking, DUV

(deep ultraviolet) lithography,

which uses 193-nanometer

light.” Oh, and ASML is not al-

lowed to sell to China for de-

fense reasons. So for now,

China is locked out of sub-10-

nanometer technology. Sure, it

could invent its own EUV, but

that might take a decade.

Finally, geopolitics steps in

with a lot of what-ifs. If

China’s self-reliance initiative

fails, and a Biden administra-

tion continues an advanced

chip embargo—which it

should—China would be in a

bind, much as the 1941 oil em-

bargo of Japan may have

forced its hand. China’s mili-

tary, in an arms race with the

U.S., has to be nervous about

being locked out of sub-10-

nanometer chips. Beijing is

likely gaming out the costs and

benefits of bringing Taiwan’s

capacity under its control,

even as the U.S. weighs de-

fending it: TSMC has five fabs

on a single campus, Hsinchu

Science Park.

But even that bold step

would likely fail almost right

away. Unlike an assembly line

or an oil refinery, making chips

is fickle. The formula might be

written down but is really in

the head of TSMC’s engineers

and is tweaked almost daily. A

Silicon Valley engineer once

accidentally spilled ink into a

fab’s water supply—and output

yields went up! A forced Tai-

wan takeover would crater

output even if China brought

in mainland engineers. It’s

more art than science.

After a forced takeover, the

next plausible fear is a few

well-placed Chinese missiles

taking out half of the world’s

advanced chip production, and

of course a big chunk of the

global economy. But the shock

waves from that move would

damage China’s economy even

more than the pandemic did.

Still, I hope TSMC factories

are guarded by banks of Pa-

triot missiles. I’d put some of

those around ASML’s Dutch fa-

cilities too.

It may take a few years, but

Intel will catch up. China may

too. Meanwhile, it’s smart to

diversify where advanced

chips are made. The Trump

administration got TSMC to

agree to build a fab in Arizona,

spending $12 billion by 2029.

That’s a start.

Write to [email protected].

An attack on Taiwan,

the top manufacturer,

would roil industry

and the world.

INSIDE
VIEW
By Andy
Kessler

When U.S. rat-
ification of
President
Trump’s re-
formulated
North Ameri-
can Free
Trade Agree-
ment was still
in doubt, Mex-
ican President
Andrés Ma-
nuel López Obrador put in a
good word for it.
In November 2019 he
boasted that he had sent a let-
ter to House Speaker Nancy
Pelosi explaining that approval
of the United-States-Mexico-
Canada Agreement was “in the
interest of the three peoples,
the three nations.”
The U.S. Congress ratified
the agreement in December
and it went into effect in July.
But now AMLO—as the Mexi-
can president is known—wants
to treat the USMCA like a buf-
fet, taking for Mexico what he
likes but having none of what
he doesn’t.
What he likes, he said last
week, is that investors now
flock to Mexico because “the
North American market is as-
sured” and “this means jobs
and well-being.” This was a
reference to the hundreds of
billions of dollars in manufac-
turing exports and agriculture
that now flow north from Mex-
ico, duty-free, every year.
But in the same remarks
AMLO repeated his belief that
the agreement doesn’t require
an open Mexican energy mar-
ket because Mexico retains its
“exclusive domain” over its re-
sources.

Mexico’s Assault on Energy Investors

That’s not how energy in-

vestors read the USMCA, and

they’ve begun to push back

against AMLO’s economic na-

tionalism. In an Oct. 22 letter

to Mr. Trump, more than 40

members of the Congress from

both sides of the aisle com-

plained that actions taken by

AMLO’s government “threaten

U.S. energy companies’ invest-

ment and market access and

undermine the spirit” of the

USMCA. A storm is brewing.

Mexico’s 2014 constitutional

reform opened the country’s

electricity and oil-and-gas

markets to nonstate inves-

tors—foreign and domestic.

Since then private capital has

flowed into oil exploration,

gasoline and electricity.

But open markets conflict

with AMLO’s goal of reviving

state-owned oil company

Petróleos Mexicanos (Pemex)

and the national electricity

company, CFE. Neither enter-

prise is up to the challenge of

competition and both are short

on capital.

So to help his national

champions, the Mexican presi-

dent has spent the past two

years putting his thumb on the

scales in favor of the behe-

moth state energy companies.

This includes everything from

slow-walking permits for gaso-

line stations and refusing non-

discriminatory access to infra-

structure to blocking the

startup of new power stations

and suspending auctions and

development on oil and gas

fields.

Pemex and CFE continue to

flounder. Bloomberg has re-

ported that in the first 21

months of AMLO’s presidency,

Pemex gave up some 13% of

Mexico’s gasoline market to

private concerns, adding that

“at the end of August, private

companies were supplying

about 17.5% of total gasoline

volumes” and “approximately

27% of diesel.” In response, the

government has begun to

move more aggressively in

support of its darlings.

In June Mexico’s competi-

tion commission—an indepen-

dent regulatory body—went to

the Supreme Court, alleging

that a new federal electricity

policy announced in May is an-

ticompetitive because it doesn’t

treat CFE’s rivals equally, and

that it oversteps executive au-

thority. A high-court stay has

been upheld on appeal, pending

a ruling on the policy.

This is a rare, and likely

temporary, setback for Mr. Ló-

pez Obrador, who has success-

fully purged most independent

institutions and packed them

with loyalists. He now controls

the energy regulator and the

hydrocarbon commission. He

successfully got rid of one

member of the Supreme Court,

which no longer enjoys the

prestige of independence. The

competition commission re-

mains independent, but it’s an

outlier.

On June 22 Mr. López Obra-

dor reportedly met with some

two dozen regulators and offi-

cials to present a 17-point plan

for saving Pemex and CFE, in-

cluding a proposal to end new

permitting for competitors.

The document has since been

leaked. AMLO has also said

publicly that he is ready to

change the constitution to pro-

tect state control of energy.

This implies a rollback of

Mexico’s 2014 energy reform.

By demagoguing economic lib-

erals, he may win popular sup-

port for it. But an effort to

protect state companies at the

expense of private investors

would likely contravene Mex-

ico’s USMCA commitments.

The agreement recognizes

Mexico as the sole owner of its

natural resources. But in mat-

ters related to state-owned en-

terprises, it says Mexico’s laws

must remain consistent with

obligations it has under al-

ready-ratified free-trade

agreements. This is a reference

to Mexico’s membership in the

Trans-Pacific Partnership,

which commits signatories to

an open market in energy, non-

discrimination in trade and in-

vestment, and the prohibition

of indirect expropriations. The

investor-state dispute-settle-

ment provisions in energy,

telecom and infrastructure in

Mexico that were in Nafta are

retained in the USMCA.

The upshot is that if AMLO

wants Mexico’s duty-free ac-

cess to the U.S. and Canada to

remain intact, energy competi-

tion will have to become part

of his vocabulary.

Write to O’[email protected].

AMLO tries to treat

the North American

trade pact like a

smorgasbord.

AMERICAS
By Mary
Anastasia
O’Grady