If you actually pay attention you might notice the right wing’s pearl-clutching over China is neither effective nor consistent.
The GOP, for years, made a giant stink about China’s Huawei network gear being a massive national security threat, and pushed through legislation to tear the inexpensive gear out of U.S. networks. Then just… forgot to fund the efforts, resulting in telecoms on the hook for billions in additional costs. Nobody really seems interested in following up on how that project is even going.
The Trump saber rattling over China is usually driven by a weird combination of xenophobia and greed that usually has nothing to do with national security or the public interest. Initiatives are incoherently proposed and retracted without reason or any logic, repeatedly. None of it is effective or well intentioned in any way, but you’d often be hard pressed to know this reading U.S. press coverage of it.
The latest case in point: after years of hyperventilating about the dangers of doing business with China and crowing about the protection of U.S. AI supremacy, the Trump administration has “allowed” Nvidia and AMD to sell their high-end chipsets to China, if the US government gets a fifteen percent cut of the proceeds:
“The Trump administration halted the sale of advanced computer chips to China in April over national security concerns, but Nvidia and AMD revealed in July that Washington would allow them to resume sales of the H20 and MI308 chips, which are used in artificial intelligence development.”
Transferring our top end chipsets and AI advantage to China is the worst thing in the world! Unless we get a cut. Then it’s magically all fine! A handful of Democrats, like Rep. Raja Krishnamoorthi, were quick to highlight how this makes no coherent sense:
“The administration cannot simultaneously treat semiconductor exports as both a national security threat and a revenue opportunity. By putting a price on our security concerns, we signal to China and our allies that American national security principles are negotiable for the right fee.”
But it makes perfect sense if you remember that authoritarian zealots don’t actually believe in much of anything beyond their own wealth and power. Trump despised TikTok until he realized he could get it to buckle to his whims (either by selling to one of his billionaire allies or imposing algorithms more aligned with right wing ideology). All of the national security stuff is theater. None of it is good faith.
Trump is a bigoted fascist operating at a third-grade reading level whose policies are completely incoherent. He believes in absolutely nothing but attention, wealth and power. The closest the NYT can get to coherently explaining this to readers is to proclaim “this isn’t your grandpa’s Republican party,” despite some obvious, fleeting concerns about any of this being, you know, legal.
Companies that signed up for Trumpism for mindless deregulation and tax cuts are, of course, unsettled by the unpredictable nature of the whole leopard-eating-faces experience they’re now enjoying. But that’s the nature of authoritarianism; you can’t strike any sort of coherent partnership in it, because the only thing an unpredictable authoritarian dullard zealot believes in is their own wealth and power.
Of course, the Trump administration isn’t saying where these new export taxes will actually go. And the costs will, as usual, be passed down to consumers of a chipset market where many major graphics cards are still going for double MSRP thanks to government-sanctioned price gouging.
The administration keeps signaling this incoherent bribery scheme is going to be expanded into other industries. With most of the costs being borne by the folks that can least afford them (small businesses, consumers, workers). Recall Trump has disemboweled all U.S. regulators, so protecting markets and consumers is no longer a thing, something the press also can’t coherently seem to explain to the public).
But again, this is authoritarianism. Companies, voters, and business leaders who signed up for this for some tax cuts and deregulation were warned repeatedly that this would be exponentially worse. And the orchestra is really only just getting warmed up. If you were hoodwinked or complicit with enabling authoritarians, it’s a moral imperative that you now play a major role in dismantling it.
Last week we noted how the Trump administration had cooked up a half-assed wireless phone company. Even calling it a phone company is generous: It’s basically a licensing agreement and a lazy coat of paint on another, half-assed MVNO effort (Patriot Mobile), which in turn just resells T-Mobile service.
A cornerstone of the supposed company was a new $500 Trump T1 phone. To pitch the phone, the press release had a badly photoshopped rendition of what the so-far-nonexistent phone would look like (curiously missing a camera flash), peppered with claims the phone would be “proudly designed and built in the United States.”
As we noted at the time, it would likely be just weeks before people realized the “made in America” claims weren’t true. And it sounds like we didn’t even have to wait that long. The Verge noticed that all of the “made in America” claims have been stripped from the Trump website, replaced with far-more vague language about how the phone is ambiguously infused with American sentiment:
“The T1’s new tagline is “Premium Performance. Proudly American.” Its website says the device is “designed with American values in mind” and there are “American hands behind every device.” Under Key Features, the first thing listed is “American-Proud Design.” None of this indicates, well, anything. It certainly doesn’t say the device is made in the USA, or even designed in the USA. There are just… some hands. In America.”
Trump Mobile folks are still trying to claim the phone will be made in America. At least until press reports in another month or two indicating that’s clearly not true. Again. The Verge notes that the screen size has gotten smaller in the website description, and they eliminated listing RAM specifications for some reason.
Trump operates at a fourth-grade reading level and genuinely believes his ignorant tariff plan will somehow magically force all manufacturing back to the United States. But as countless journalists and analysts have dissected, it would be literally impossible to manufacture an affordable phone in the United States without resorting to slave labor and ignoring all labor and environmental law.
Which is to say the weird Trump zealots might actually believe (or have been told) this is a real thing that they’re capable of, but it’s simply never happening. Still, the Trump boys have been pouring it on thick, with Eric Trump going on TV to claim that not only will the Trump phone be made in the USA, but all company support would be USA based as well:
“You’re not calling up call centers in Bangladesh − do it right out of St. Louis, Missouri, and you’re going to have phones that are made right here in the United States of America,” [Eric said]. He added Trump Mobile is “going to revolutionize cell phones, mobile calling” as it will fully operate in the U.S.
“I really believe we’re gonna have one of the great kind of tech platforms as part of the Trump Organization of any company in the world,” he added.
This is really all just lazy performance art for very dim people.
In many ways a lazily branded mobile phone MVNO hyping a so-far-nonexistent phone pretending to be American made is a perfect encapsulation of the “Trump experience.” Just complete pointless artifice from start to finish, with a singular function: hollow grift in the golden age of corruption.
There’s a fundamental problem with Donald Trump’s new trade policy: it fails a test that actual 5th graders can pass. I know this because I tried explaining his “Liberation Day” trade plan to one last night. Here’s how that conversation went:
“Imagine you want to buy a toy at a store which costs $50. You pay for the toy and walk away with it. The President looks at that transaction and says ‘wait, you paid the store $50 and the store paid you nothing, therefore the store is stealing from you. To “fix” this, I’m going to tax the store $25. From now on that same toy costs $75.”
The 5th grader looked at me like I was crazy. “Whaaaaaaat? None of that makes sense. If I pay for something, it’s not stealing. And taxing the store seems stupid, and then everything is more expensive. Why would anyone do that? That can’t be how it works.”
This is the core problem with Trump’s “Liberation Day” trade policy: it fundamentally misunderstands what trade deficits are. And if you think that’s bad, just wait until we get to the part where this policy declares economic war on penguins and our own military base.
The policy, unveiled yesterday afternoon, is called a “reciprocal tariff plan,” which is a bit like calling a hammer a “reciprocal pillow.” The premise is that since other countries have high tariffs on us (they don’t), we should have high tariffs on them (we shouldn’t). But that’s not even the weird part.
At the heart of this policy is a chart. Not just any chart, but what might be the most creative work of economic fiction since, well, Donald Trump launched his memecoin. Trump proudly displayed these numbers at a White House event, explaining that they showed the tariffs other countries impose on the US. He emphasized repeatedly that the US was being more than “fair” because our reciprocal tariffs would be less than what other countries were charging us.
There was just one small problem: none of the numbers were real tariff rates. Not even close. Vietnam, according to the chart, imposes a 90% tariff on US goods. This would be shocking news to Vietnam, which does no such thing.
At first, observers assumed the administration was simply inventing numbers, which would have been bad enough. But the reality turned out to be far more stupid. James Surowiecki stumbled into what was actually happening:
Let’s pause for a moment to appreciate what Surowiecki discovered. The administration didn’t just make up random numbers — that would have been too simple. Instead, they invented a formula that manages to be both more complicated and more wrong: they took our trade deficit with each country and divided it by that country’s exports to us.
So for Indonesia, the math went like this:
US trade deficit with Indonesia: $17.9 billion
Indonesia’s exports to the US: $28 billion
$17.9B ÷ $28B = 64%
Therefore (according to this logic), Indonesia must be charging us the equivalent of a 64% tariff
This is roughly equivalent to calculating your coffee shop’s markup by dividing how much coffee you buy from them by how much coffee they buy from you. Which would make sense if you were in the coffee business, but you’re not.
When confronted about this methodology, the administration didn’t backtrack. They just admitted it:
“The numbers [for tariffs by country] have been calculated by the Council of Economic Advisers … based on the concept that the trade deficit that we have with any given country is the sum of all trade practices, the sum of all cheating,” a White House official said, calling it “the most fair thing in the world.”
Whoever on the Council of Economic Advisers used this formula should turn in their econ degree, because this is not how anything works. Even if they then go on to publish another version of the formula that looks all sophisticated and shit:
This is what happens when you ask ChatGPT to “make my wrong econ math look more scientific.” The document even admits that they couldn’t figure out the actual tariff rates, so they “proxied” them with this formula instead. That’s a bit like saying you couldn’t find your house keys, so you proxied them with a banana.
The fundamental problem here isn’t just that the tariff numbers are wrong — though they absolutely are. It’s that the entire premise rests on treating trade deficits as if they were tariffs. They’re not the same thing. At all.
Let’s back up for a moment and talk about trade deficits, because Trump has been getting this wrong for longer than some of his supporters have been alive. His logic appears to be:
“Deficit” sounds bad
Therefore, trade deficits must be bad
Therefore, countries with whom we have trade deficits must be cheating us
Therefore, we should punish them with tariffs to “level the playing field”
Remember that 5th grader from earlier? They already understood what Trump doesn’t: when you buy a toy for $50 at a store, you have a “trade deficit” with that store. You gave them $50, they gave you $0. But you also got a toy. That’s not the store cheating you — that’s just how buying things works.
A trade deficit between countries works the same way. When we have a trade deficit with a country, it just means we bought more stuff from them than they bought from us. We got the stuff. They got the money. That’s it.
Trump’s solution to trade deficits (which aren’t a problem) is to impose tariffs (which don’t help). In fact, they can often make things worse. According to actual economists who study this stuff, higher tariffs can actually lead to higher trade deficits, not lower ones.
Joseph Gagnon, one of the world’s foremost experts on trade deficits, explains exactly why this is such a bad idea:
Although tariffs do not reduce trade deficits, they do reduce imports and exports, as well as total income. That’s because they force a country to shift resources from more profitable exports to less profitable imports, as well as to services. But the long-run economic effects are also negative. By shielding producers from foreign competition, a tariff ultimately leads to less business innovation, slower productivity growth, and lower household living standards.
You might notice something about that paragraph. It starts by describing how tariffs hurt the economy in the short term. Then there’s a “but” — which usually signals some kind of silver lining. Instead, it just pivots to explaining how tariffs hurt the economy even more in the long term.
Cool.
So we have a policy that:
Is based on a fundamental misunderstanding of trade deficits
Uses made-up numbers derived from a nonsense formula
Would actually make the “problem” it’s trying to solve even worse
Will definitely make Americans poorer
But wait, it gets better.
All of this glosses over the fact that “reciprocal tariffs” are not reciprocal at all. Trump’s team is making up fake tariff numbers for foreign countries based not on anything having to do with tariffs, but on trade deficits, which is just an accounting of inflows vs. outflows between two countries. It’s only reciprocal because the Trump team faked the numbers.
On top of that, Trump can only impose tariffs (normally a power of Congress) based on the International Emergency Economic Powers Act and the National Emergencies Act. Both laws require there to be an actual “emergency.” The only emergency here is that nobody in the administration understands what trade deficits are.
But at least we may know where they got their brilliant formula from. There has been some suggestion that the administration got the idea from AI — specifically from asking a large language model how to calculate “fair” tariffs based on trade deficits. And yes, when asked “What would be an easy way to calculate the tariffs that should be imposed on other countries so that the US is on even-playing fields when it comes to trade deficit? Set minimum at 10%,” several AI models did suggest something similar to the administration’s approach.
guess where they got their weird trade deficit math from?i went to the pit for y'all and brought back the screenshots with alt text
But here’s the thing: every single AI model also included very clear warnings about why using this formula would be catastrophically stupid. I tested this myself with multiple LLMs (Claude, Gemini, DeepSeek, Llama, and Copilot), and they all basically said “Well, if you insist on doing something this economically illiterate, here’s how you could do it, BUT PLEASE DON’T.”
My favorite was DeepSeek, in which I had its reasoning turned on, and it seemed particularly perplexed as to why I would try to balance trade deficits with tariffs, but felt resigned to do so:
That’s a little small to read, but it says:
Wait, but is this the right approach? I mean, tariffs can have various effects. If you impose a tariff, it might lead to retaliation from other countries, which could hurt US exports. Also, higher tariffs could increase prices for consumers in the US, which isn’t great for the economy. But the user is specifically asking about balancing the trade deficit, so maybe those considerations are secondary here.
Yeah, that’s literally DeepSeek grappling with the fact that the user here (the US government) is asking for a fundamentally stupid thing without understanding the consequences.
The administration appears to have taken only the formula and ignored all the warnings. Which would be merely sad if they were just playing with theoretical numbers. But they’re not. They’re actually implementing this policy, using emergency powers that are supposed to be reserved for actual emergencies — not “we don’t understand how trade works” emergencies.
Which then brings us around, finally, to the penguins.
Because MAGA’s best economists are implementing it so mechanically, applying their formula to every country in what appears to be the CIA World Factbook, we end up with some truly spectacular results.
Let’s take a closer look at the very last page of the administration’s tariff list:
Now, you might notice a bunch of these entries show a flat 10% tariff rate. That’s what happens when a “country” has no trade with the US at all — the formula defaults to the minimum. A mildly competent team might have wondered why these places have zero trade with us and done a quick check before declaring economic war on them.
But this team isn’t mildly competent. This team is extremely, profoundly, impressively incompetent.
So let’s look at who exactly we’re launching a trade war against, starting with the Heard and McDonald Islands. Total population: zero human beings. The only residents are some absolutely stunning penguins. You can actually adopt one if you want — though I suppose that may now cost 10% more, thanks to Trump’s tariff.
But that’s not even the best part. Just a few lines up, you’ll find the “British Indian Ocean Territory,” also known as the Chagos Islands. Nearly all of the humans currently on these islands are US military personnel at the Diego Garcia base. And they’re only there because, as detailed in a recent Behind the Bastards podcast, the British government forcibly expelled all the native inhabitants to lease the territory to the US military.
Let that sink in for a moment: Donald Trump just imposed tariffs on our own military base. On territory we lease. Where the only residents are US military personnel.
So to sum up where we are:
The administration invented an economic emergency
To justify a policy based on made-up numbers
Generated by an AI formula that came with explicit warnings not to use it
Which they’re now using to launch trade wars against:
Penguins
Our own military
And presumably Santa’s Workshop (someone check for a North Pole entry)
And while the penguins and military base make for amusing examples of this policy’s incompetence, the real damage will come from applying this same backwards logic to basically all of our actual trading partners — countries whose goods and services make American lives better and whose economic relationships we’ve spent decades building. And who, historically, welcomed back American goods and services as well. All of that is now at risk because someone couldn’t be bothered to learn what a trade deficit actually is. And the American electorate deciding that’s who we wanted to govern the country.
When your trade policy is so fundamentally misguided that you’re declaring economic war on flightless birds and your own armed forces, perhaps it’s time to admit that the 5th grader from the beginning of this story wasn’t just smarter than the administration — they were dramatically overqualified for Trump’s Council of Economic Advisers.
There’s a certain poetry to Tesla executives discovering that trade wars are, in fact, not good and easy to win. Last week, someone at Tesla sent a detailed letter to the US Trade Representative essentially begging for relief from the very policies their CEO has been championing as he destroys the traditional institutions of government. The internet has many ways to describe this kind of karmic moment — from the “Leopards Eating People’s Faces Party” to “Me Sowing/Me Reaping” to the elegantly concise “FAFO.” But perhaps the most interesting part isn’t that Tesla’s executives are learning about consequences — it’s that they’re apparently too afraid of their own boss to put their names on that learning experience.
The letter reads like a crash course in “Economics 101 for Tech Bros.” After the obligatory corporate chest-thumping about Tesla’s US manufacturing prowess, it gets to the awkward reality that seems to have escaped their CEO’s notice: Tesla very much relies on global open access to markets, both for parts that are made in other countries, and to be able to sell Teslas outside of the United States:
As a U.S. manufacturer and exporter, Tesla encourages USTR to consider the downstream impacts of certain proposed actions taken to address unfair trade practices.
Translation: “Hey, remember how global supply chains and open markets work? You know, the thing every first-year economics student learns about comparative advantage?” It’s the kind of explanation you might expect from executives desperately trying to point out that their company — which relies on international suppliers for parts and foreign markets for sales — probably shouldn’t be cheerleading for policies explicitly designed to disrupt global trade.
The crazy part isn’t just that they’re right — it’s that they had to write this letter at all. But given Musk’s documented history of firing anyone who delivers unwelcome news (just ask Tesla’s former Supercharger team), perhaps it’s not surprising they waited until the leopards were literally at the factory door before speaking up.
The letter goes on to explain, in painfully careful detail, how trade wars actually work:
While Tesla recognizes and supports the importance of fair trade, the assessment undertaken by USTR of potential actions to rectify unfair trade should also take into account exports from the United States. U.S. exporters are inherently exposed to disproportionate impacts when other countries respond to U.S. trade actions. For example, past trade actions by the United States have resulted in immediate reactions by the targeted countries, including increased tariffs on EVs imported into those countries. Past U.S. special tariff actions have thus (1) increased costs to Tesla for vehicles manufactured in the United States, and (2) increased costs for those same vehicles when exported from the United States, resulting in less competitive international marketplace for U.S. manufacturers. USTR should investigate ways to avoid these pitfalls in future actions.
I mean, it’s kinda shocking that this lesson needs to be taught, and that Tesla is delivering the lesson: You put tariffs on their stuff, they put tariffs on your stuff, everybody’s costs go up, nobody wins. It’s the kind of obvious cause-and-effect that you’d think wouldn’t need explaining to the people running the government.
Unfortunately, the most likely outcome here is that Musk will leverage his relationship with the administration to get Tesla some sort of carve-out. But other countries aren’t playing that game. Canada, for instance, is already targeting Tesla in response to US threats. And Musk, showing his characteristic inability to think more than one move ahead, responded by threatening to cut off Canadian access to Starlink. Because nothing fixes a trade dispute like escalating it into a tech infrastructure fight.
This pattern of short-term thinking followed by predictable blowback has become a hallmark of Musk’s leadership basically everywhere he’s been in charge. Whether it’s antagonizing the very regulators SpaceX needs to work with, alienating core customer bases at both Twitter and Tesla through erratic political posturing, or now running point for a president escalating trade disputes that directly threaten Tesla’s business model, there’s a consistent inability to think more than one move ahead. And his response to the Canada situation — threatening to cut off Starlink access in retaliation for policies affecting Tesla — perfectly exemplifies this consistently self-defeating approach to international relations.
Which brings us back to that unsigned letter. The Financial Times got the scoop on why nobody wanted to put their name on it, and the explanation is exactly what you’d expect from executives who’ve learned the hard way about delivering unwelcome news to Elon:
One person familiar with the process of sending the letter said: “It’s a polite way to say that the bipolar tariff regime is screwing over Tesla.”
The person added: “It is unsigned because nobody at the company wants to be fired for sending it.”
I mean, good luck with that. Musk has a history of erratically firing entire teams of people because of randomly getting upset at them. He did that just last year with Tesla’s Supercharger team. So I’m not sure not signing the letter will protect whoever did this at Tesla.
It turns out that when you spend years cheering on the “Leopards Eating People’s Faces Party,” you shouldn’t be surprised when the leopards show up at your factory door. Tesla executives are now discovering what “FAFO” means in practice — though they’re apparently too afraid of their own CEO to put their name on it.
Update: Sooo… we already have a bunch of updates on this story. Trump has said he’s banning TikTok entirely and is “against” allowing a US company to buy TikTok. Below is the original post, with only a slight clarification regarding Ben Thompson’s thoughts on TikTok, which I didn’t present very clearly in the original. Then, beneath the post I’ll have more thoughts on Trump’s comments.
There’s been a panic over the last few weeks about TikTok, the rapidly growing social network that is owned by the Chinese internet giant ByteDance (by way of history: ByteDance purchased a startup called Musical.ly in 2017, and rebranded it TikTok in 2018, and then it started growing like crazy). A few weeks ago, the Trump administration started suggesting it would ban TikTok, and a story was built up around the idea that TikTok was some sort of national security threat, despite very little evidence to support this. A separate narrative was simply that Trump was annoyed that TikTok kids made Trump look bad in Tulsa by reserving a bunch of tickets to his rally that they never intended to use.
The whole thing is kind of silly. The most compelling argument I’ve seen for why the US should ban TikTok came from Ben Thompson at Stratechery, who more or less says (this is a very simplified version of his argument, so read the whole thing) that since China is engaged in a war to impose its ideology on the world, and that it will make use of TikTok and other services to effectively attack Western liberalism, it is effectively dangerous to allow it to operate in the west under Chinese ownership. He supports selling TikTok off to a American company, or barring that, banning the app in the West. I tend to lean the other way: to me, banning TikTok strikes me as effectively proving China’s views on liberalism, and allowing them to claim hypocrisy on the west, and use these actions to justify its own actions.
On top of that, if the concern is about China, then the fact that most of our network and computer equipment is built in China would seem like maybe a larger concern? But beyond a weird, similar freakout about Huawei, no one seems to be taking any serious interest in that. And that doesn’t get into the fact that US intelligence has leaned heavily on US internet companies to try to get access to global data — meaning that there does seem to be a bit of US exceptionalism built into all of this: it’s okay when we do it, but an affront if any other government might do the same thing…
Separately, this whole situation with TikTok and Microsoft demonstrates the pure silliness of the antitrust hearing in the House earlier this week. Note that there were claims that the four companies there represented “monopoly power.” And yet, just days later, we’re talking about how a recent entrant in the market, which has grown up quickly, and which Facebook certainly sees as a threat, is so powerful on the internet that it needs to be sold from its Chinese owners — and the leading candidate to purchase it, Microsoft, is not even one of the “too powerful” companies who were on the panel.
If a new entrant can rise up so quickly to be a “threat” and then needs to be purchased by another giant… it certainly suggests that the internet market still remains pretty vibrant, and not at all locked down by a few monopolies.
Updated thoughts: So that’s the original above. Now that Trump is saying he really is going to ban TikTok and is against its sale, there are multiple issues raised. Trump seems to think he can do this under his emergency economic powers (effectively declaring TikTok to be a national security issue — the same “tool” he used to impose tariffs on China without Congressional approval). If he goes that route, there will be lawsuits — and there will be significant Constitutional issues raised. The Supreme Court has in the past declared software speech, in Brown v. Entertainment Merchants Association (the case about whether or not the government could regulate video games and require age warnings). And, in the 2nd Circuit, a somewhat frustrating decision regarding the publishing of some code that would break DRM, Universal v. Corley, it is at least notable that the Court made a clear statement that software is protected under the 1st Amendment:
Communication does not lose constitutional protection as “speech” simply because it is expressed in the language of computer code. Mathematical formulae and musical scores are written in
“code,” i.e., symbolic notations not comprehensible to the uninitiated, and yet both are covered by
the First Amendment. If someone [*446] chose to write a novel entirely in computer object code by
using strings of 1’s and 0’s for each letter of each word, the resulting work would be no different for
constitutional purposes than if it had been written in English. The “object code” version would be
incomprehensible to readers outside the programming community (and tedious to read even for
most within the community), but it would be no more incomprehensible than a work written in Sanskrit for those unversed in that language. The undisputed evidence reveals that even pure object
code can be, and often is, read and understood by experienced programmers. And source code (in
any of its various levels of complexity) can be read by many more. Ultimately, however, the ease
with which a work is comprehended is irrelevant to the constitutional inquiry. If computer code is
distinguishable from conventional speech for First Amendment purposes, it is not because it is written in an obscure language.
And, later:
Computer programs are not exempted from the category of First Amendment speech simply because their instructions require use of a computer. A recipe is no less “speech” because it calls for
the use of an oven, and a musical score is no less “speech” because it specifies performance on an
electric guitar. Arguably distinguishing computer programs from conventional language instructions
is the fact that programs are executable on a computer. But the fact that a program has the capacity
to direct the functioning of a computer does not mean that it lacks the additional capacity to convey
information, and it is the conveying of information that renders instructions “speech” for purposes
of the First Amendment.
There were other issues with that case, but it remains law in the 2nd Circuit. TikTok suing over being banned would present an interesting 1st Amendment issue at the very least.
As to whether or not Trump could block the sale to a US company — ordinarily the answer to that should also be no, with a few caveats. However, as was recently revealed in Congress, the Bill Barr-lead DOJ appears to have no problem at all weaponizing its powers against companies the President is annoyed with — meaning that the DOJ could trump up some ridiculous excuse for why TikTok cannot be sold to an American company, and it’s possible a court would buy it.
On a related noted, it’s also entirely possible that the President would try to lean on both Apple and Google to remove TikTok from their app stores. And while I’d like to believe both companies would push back — the fact that there are realistically just those two bottlenecks to blocking TikTok entirely from the country, it could also get… interesting.
I get the feeling we’ll be writing about all of this for quite some time.
If you hadn’t noticed by now, Trump’s efforts to use tariffs to somehow magically improve the country’s standing in the world aren’t based on much in the way of sound logic or economic theory. And companies who’ve been forced to reconfigure and relocate their entire supply chains (to countries like Taiwan) to avoid massive penalties are likely to just pass those costs on to American consumers, something said consumers haven’t really fully grokked yet. Countless CEOs think the entire gambit is immeasurably stupid, but have been hesitant to be too pointed in their criticism for fear of upsetting administration regulators.
As the actual bill comes due however, consumers are likely to wake up from their slumber. Maybe.
Case in point: Microsoft, Sony, and Nintendo this week fired off a letter to the Office of the United States Trade Representative, warning the Trump administration’s plan to bump Chinese tariffs from 10 to 25 percent will have a profoundly-negative impact on the game industry. With 96 percent of game consoles made in China last year, the act of reconfiguring their entire supply chains will have a massive impact on the sector’s bottom line and the numerous connecting companies that tendril out from the big three gaming giants.
The letter itself is abundantly clear that it’s not these companies that are going to eat these costs, but the American consumer. In fact, the full letter (pdf) leans heavily on data suggesting that the 25 percent hike on game consoles will result in US consumers paying $840 million more on the game hardware than they might have anyway:
“A price increase of 25% will likely put a new video game console out of reach for many American families who we expect to be in the market for a console this holiday season. For those purchases that do go forward despite tariffs, consumers would pay $840 million more than they otherwise would have, according to a recent study prepared for the Consumer Technology Association by the independent economic group, Trade Partnership. That study also noted that ?[e]ven after accounting for new tariff revenue, the result is a net $350 million loss for the U.S. economy for each year the tariffs remain in effect, with the burden carried by U.S. consumers.”
Hey, neat.
Presumably, Trump believes that these threats will ingeniously force China’s hands in trade negotiations, though it’s not really clear that’s actually happening. What’s happening instead is a slow accumulation of collateral damage, as countless US companies (like Apple) face new penalties that will slowly chip away at the US economy before it forces China’s hand. It will be curious to see what happens when American consumers realize they’re the ones footing the bill as we wait for the final outcome of a unilateral US trade gambit that was never likely to actually work.
This one combines a few stories that we’ve covered a lot over the years, showing how they’re intersecting. For some time now we’ve been covering the US’s evidence-free attacks on Huawei, the Chinese telco equipment giant. Basically, for years, there have been stories insisting that Huawei is too closely linked to the Chinese government, leading to fear mongering stories saying that the company should be effectively barred from the US. However, multiple attempts to find security flaws in Huawei’s products have failed to show any kind of backdoors, and the fact that US-based Huawei competitors often seem to be making the loudest noises about the Chinese giant should raise some eyebrows.
The other story we’ve covered a lot is around China and patents. For years and years, US companies (and policymakers) would go on and on about how Chinese companies didn’t respect US patents, and demanding that China “must respect our IP.” As we’ve highlighted for years, the Chinese government realized a decade or so ago that since the US kept trying to apply diplomatic pressure to “respect patents,” China realized it could just start using patents as an economic weapon. The number of patents granted in China started to shoot up, and (surprise surprise) suddenly in legal disputes, Chinese companies were using patents to block American competitors. And the US couldn’t really complain since it was the US that demanded China “respect patents” so much.
Just a few weeks ago, we noted that China was gearing up to respond to Donald Trump’s ignorant trade war by using patents against US companies.
Verizon is reportedly using equipment through other companies that relies on Huawei patents covering core networking gear, internet of things technology and wireline infrastructure. Verizon and Huawei representatives met last week in New York to talk about whether the gear could infringe on Huawei patents, Reuters said.
“These issues are larger than just Verizon,” a Verizon spokesman told Reuters. “Given the broader geopolitical context, any issue involving Huawei has implications for our entire industry and also raises national and international concerns.”
The US government walked right into this. For years it’s been demonizing Huawei without evidence, while at the same time demanding that China respect patents. So, of course, it opened itself right up to Huawei now claiming patent infringement against US companies. Even better, it’s over third party gear. US policymakers can’t seem to think more than a single move ahead, because it was fairly obvious how all of this would play out years ago, and yet they walked right into it.
You’ve heard the narrative of course: China is supposedly terrible on intellectual property, always copying the US and swiping our secrets. This has been the popular narrative over the last few decades, with politicians and other folks continuously insisting in strong terms about how we need to get China to “respect our intellectual property.” Early on we warned folks that this wouldn’t end well, and so far we’ve been exactly right. Unlike many supporters of our patent and copyright systems, China actually recognizes that those systems are mercantilist forms of monopoly protectionism, and if there’s a country out there that knows how to leverage such protectionism, it’s China. And here’s the ridiculous gift that the US has handed China: in demanding that it better “respect” patents and copyright, it gifted China the key to being protectionist in a manner that the US can’t really complain about. It’s a tremendous self-own by US policymakers, but it keeps happening.
We warned about this a decade ago when we pointed out that China was rapidly patenting stuff, and using all those patents to make a giant public display about how it was now “respecting patents.” But, in practice, it was using those patents to block American competitors and to even block US companies in other countries. To China, its patent strategy is not about greater innovation, it’s about using the monopoly-powers that (inexplicably) Americans are demanding China “respect” as an economic weapon against non-Chinese companies.
That’s why it’s astoundingly short-sighted that the USTR continues to target China in its silly Special 301 report. We’ve talked about this report for years. It’s the report that the USTR comes out with every year, based solely on anecdotes and industry associations whining about this or that country — and putting them on a “list” that has no practical impact other than that US diplomats are supposed to whine to the governments of those countries. While the list is sometimes used to browbeat smaller countries into changing their local copyright or patent laws, larger companies literally laugh it off. Canada, for years, has publicly explained that it completely rejects the USTR’s methodology in the Special 301 report, and thus doesn’t consider its findings to be legitimate. And Canada is less of an economic powerhouse than China.
All that is prelude to China now going on the attack against the US (one of many attacks, thanks to our President kicking off what he promised would be an “easy” trade war), claiming that the USTR’s naming of China on the Special 301 Report is a political attack on China:
Chinese state media on Monday criticized the United States for its complaints about intellectual property theft, calling them a ?political tool? intended to suppress China?s economic development.
Yeah, because in China, intellectual property totally is a “political tool,” so why wouldn’t they expect the same to be true in the US?
An op-ed article in the People?s Daily targeted the Section 301 report Washington issued in March 2018, saying the authors fabricated the claim that China stole hundreds of billions of dollars worth of intellectual property from the U.S.
?If the report is based on imagined or selective data, it?s a kind of science fiction novel,? it said.
?Intellectual property rights should be a bridge for innovation and cooperation among countries. In the hands of the U.S. it has become a political tool, a weapon to contain other countries, and a veil for bullying the world.?
First off, the “science fiction novel” line is pretty good (and possibly a nod towards the growing success of science fiction in China with Liu Cixin’s books and movies based on his books becoming a cultural phenomenon there).
But, more importantly, all that the US has done over the past few decades is to teach China how to use patent and copyright law for political purposes, and now that Trump is so focused on this ridiculous trade war, watch out for China to leverage our own demands about intellectual property against the US.
For years we’ve been writing about the weird US government infatuation with the Chinese telco equipment firm, Huawei. The company has built a widely successful business, but going back many years there’s been a loud whisper campaign that the company’s equipment would send information back to the Chinese government. Of course, when our own government investigated this, it could find no evidence at all that this was true. It also seems notable that Huawei itself asked for this investigation, claiming that it would clear the company’s name, since it wasn’t doing anything that people were accusing it of doing. This doesn’t mean that the company isn’t doing something nefarious, but such claims should have some sort of evidence to back them up, and so far they’ve been lacking.
Of course, this may have been one of those situations where people assumed that whatever we would do to others, others must be doing to us, because what we do know, is that the NSAbroke into Huawei’s computers and grabbed a bunch of emails and source code. That bit seems to get left out of all the fear mongering reporting about Huawei. Oh, and it later came out that much of the whisper campaign about Huawei spying for the Chinese government… originated from the US firm Cisco, which was seeing its market share eroded by Huawei.
So we’ve long taken the claims about Huawei with a large grain of salt, even as most in the media have been willing to repeat the allegations about Huawei without mentioning the lack of evidence, Cisco’s involvement, or the fact that the US government swiped a bunch of stuff from Huawei, even though all of those things seem kinda relevant.
By now, of course, you’ve probably heard that Canadian officials arrested Huawei’s CFO, Meng Wanzhou, who also happens to be the daughter of the founder, and there are plans to try to extradite her to the US. While no charges have been revealed, most people claim it has to do with violating US sanctions on Iran by shipping US made equipment to Iran. The details here will matter, but it’s still incredibly unusual to have a friendly country arrest a top exec and then try to extradite them.
Even if the official charges have nothing to do with the ongoing trade war with China, as nearly everyone is pointing out, there’s no way this doesn’t create massive blowback on any new trade agreement. Remember it was just a few days ago (was it really just a few days?) that President Trump announced that he’d agreed to end the senseless trade war he’d started (which has created a massive import tax on American businesses and consumers). Of course, when the Chinese gave their version of the story, it sounded remarkably different than Trump’s version.
But, at least it sounded like progress was being made, and maybe we could end the insanity. But, of course, by having an ally arrest a top exec, it’s thrown everything up in the air. Imagine, for example, if Sheryl Sandberg was on a trip to Pakistan, and was arrested by authorities there and extradited to China to face criminal charges. That’s kind of the equivalent of what the US has just done via Canada.
Then, take it a step further. White House officials have told the press that they believe Meng “could be used as leverage with China in trade talks,” and you realize this has fuck all to do with Iranian sanctions. No, that’s the White House more or less admitting that they’ve taken a hostage in a trade war. That’s hellishly dangerous. Because China will not hesitate to retaliate. If I were an American business exec, I’d stay far away from China or any of its allies right about now.
Arresting an executive over such a thing, and then admitting you want to use her as “leverage,” just as you’re negotiating a complex trade deal is… the kind of thing that turns a trade war into an actual war. It’s an incredibly dangerous move that should concern everyone.
Hidden towards the bottom of the report is (yet another) terrible proposal, guided by the heavy hand of self-interest. It plainly spells out the commission’s priorities: American IP above all else, even the health and well-being of other nations.
Recommend to Congress and the administration that U.S. funding to the World Health Organization (WHO) program budget in whole or in part be withheld until (1) the WHO’s process of certifying national regulatory agencies includes attestation that IP protection is an essential part of the regulatory evaluation process, and (2) the WHO refrains from prequalifying any product until the regulating agency of jurisdiction demonstrates and certifies that it does not violate IP rights…
The U.S. government has leverage at the WHO chiefly because of its financial support, which consists of annual “means tested” contributions to the WHO’s program budget and “voluntary” contributions whose total value is about $350 million. This support from the United States can be a carrot or a stick to influence the WHO’s actions.
So, if the WHO puts health ahead of American IP holders, the US should just cut off its contributions to the organization, and indirectly, the countries it assists. One would think that the “regulatory evaluation process” would be primarily concerned with ensuring new drugs and medical technology do more good than harm, healthwise. The possibility of IP infringement probably doesn’t even cross the radar of the WHO. That job belongs to other agencies.
But the commission ties IP enforcement and worldwide health together, forcing one to rely on the other by linking US monetary contributions to protection of American IP. The WHO would now be required to make sure rights holders aren’t being cut out of a market before attempting to solve larger problems — like halting an outbreak before it becomes an epidemic.
The commission also suggests the US solicit a little help with its low-level IP extortion by asking for other affected countries (affected by IP theft — not widespread health issues) to follow its lead in chaining contributions to IP enforcement.
Multilateral coordination may also be possible. For example, the IP of Japanese-developed medicine is frequently stolen, and Japan’s current annual and voluntary contributions to the WHO total over $70 million.
With enough support, maybe the commission can force the WHO to properly reflect its new priorities by dropping the “H” (which is of secondary concern) and replace it with “IP” (job #1). WIPO!
The commission “recommends” this course of action but can’t “endorse” it quite yet, possibly because it will make everyone involved look like a bunch of greedy meatbags who value their profits over the health of the developing world. (Heavily paraphrased — here’s the original.)
The Commission believes this recommendation has strong promise but is not ready to endorse it. To be acted upon, this recommendation requires careful assessment of the likely impacts and the potential for unintended consequences. It will be essential to ensure that the poorest and most vulnerable across the world continue to have access to life-saving, high-quality health interventions, now and in the future. In fact, IP protections are vital to that outcome, because they preserve incentives for innovation and foster predictable markets for manufacturers.
In other words, we like it but we can’t endorse until we can mitigate the unintended consequences (one of which was listed earlier). The poorest and most vulnerable across the world should still have access to lifesaving medicine and technology, pending licensing approval and WHO due diligence. (The last sentence in the Commission’s bet-hedging paragraph is simply wishful thinking — the kind that gets copyright extended and bad legislation crafted.)
Threatening to yank WHO funding screws up the organization’s priorities. The funding should be contingent on the WHO providing the best possible health assistance it can worldwide. Being an IP cop for US interests (and other countries, should they choose to go this regrettable route) shouldn’t even be part of the equation.
