When I was growing up in Ronald Reagan’s America, the small proxy wars that the US fought with the Soviet Union were a regular feature of the copies of the Boston Globe I delivered every morning. There would be tragic news out of Afghanistan on the front page one day, El Salvador or Nicaragua the next.
The US won that contest when the Soviet Union dissolved in the early 1990s and it would be almost 30 years before the political class in Washington decided they had another geopolitical rival of Soviet proportions — President Xi Jinping’s China. But now proxy wars between the two reigning superpowers are fought over companies, not client states, and it is China that has the early lead.
The tussle over TikTok has highlighted the corporate chess matches that Mr Xi and his US counterpart, Donald Trump, have engaged in for more than two years now.
As it stands, Mr Trump cannot seem to make up his mind about whether he will approve a deal that allows ByteDance, the video app’s Beijing-based parent company, to keep majority control of TikTok’s US operations — albeit with certain safeguards to keep US user data onshore. Mr Xi’s administration, on the other hand, has maintained a steely silence over its bottom line.
In this regard, the saga is reminiscent of the first US-China corporate proxy war in the spring of 2018 over ZTE, the Chinese telecoms company, and Qualcomm, the US semiconductor giant. In that instance, Mr Trump also flip-flopped while Mr Xi kept his cool and ultimately prevailed.
ZTE had been caught flagrantly violating US export controls on shipments to Iran and then also the settlement agreement it signed with the Department of Commerce to resolve the matter. So Wilbur Ross, commerce secretary, issued an order banning US tech companies from selling components to ZTE — in effect a death sentence for the company. Mr Xi, for reasons ranging from national pride to saving thousands of jobs, needed that decision reversed.
Mr Trump, meanwhile, needed two things from Mr Xi: a blockbuster trade deal and Chinese regulatory approval for Qualcomm’s proposed $44bn acquisition of NXP, based in the Netherlands — required because both companies do significant business in China.
Mr Trump gave Mr Xi what he wanted on ZTE — a reprieve in the form of a new US commerce department settlement that allowed it to stay in business — and mistakenly assumed that this concession would smooth over the other matters. China quickly pocketed the ZTE present but continued to withhold approval of the Qualcomm-NXP deal.
When the trade talks later started to unravel, Mr Xi let Qualcomm-NXP languish in regulatory limbo, where it eventually died.
Mr Trump had released his hostage too early. He should have tied ZTE’s reprieve to simultaneous Qualcomm-NXP approval — an equal trade at least — and then shifted his focus back to the trade talks.
While Mr Xi clearly got the better of Mr Trump that time, it is not yet clear who will prevail in their second big corporate proxy war, the first shot of which was fired a year after the haggling over ZTE and Qualcomm.
Once again the bargaining chip was a Chinese telecommunications company — ZTE rival Huawei — and once again it was trade talks-related impatience that triggered Mr Trump.
Angry that Mr Xi had allegedly “reneged” on an almost complete trade deal in the spring of 2019, Mr Trump placed Huawei on an “entities list” that threatened its access to crucial US components.
A series of exemptions bought Huawei time as Mr Trump and Mr Xi finally closed in on their “phase 1” trade deal in January. But with that deal — and Mr Trump’s re-election prospects — both overshadowed by the coronavirus pandemic that erupted out of central China, the US president is tightening the noose around Huawei. Its survival is now in doubt.
Ironically, one thing that could save Huawei is a victory for Mr Trump against Democratic rival Joe Biden in November’s presidential election. If he loses, a vengeful Mr Trump would surely do what he could to increase the pressure on Huawei, a far more important company in Beijing’s eyes than TikTok, before leaving office. Mr Biden, meanwhile, would have little incentive to give Mr Xi another ZTE-sized gift at the start of his administration.
But if victorious, Mr Trump could afford to be magnanimous towards Huawei with an eye to keeping trade talks on track and helping to repair America’s pandemic-hit economy.