Peter Zeihan on US-China Tensions, Surveillance War and What's Next

Peter Zeihan, one of the world's foremost experts on geopolitical risk and author of The Accidental Superpower and The Absent Superpower, discusses the Five Eyes Alliance of global surveillance, China's attempt to gain a footing with Huawei, and why there was a collapse in trade talks between the U.S. and China last month.

Here's what he told Financial Sense Newshour listeners on FS Insider last week (see Podcast: Peter Zeihan Discusses Huawei, China Surveillance and Collapse in Trade Talks).

Surveillance and Espionage Concerns

After World War II and into the start of the Cold War, the U.S. built an intelligence apparatus designed to capture electronic communications. The system progressed during the post-Cold War economic boom, growing its scope and creating multiple access points. As this system matured, it expanded to U.S. allies, creating the ‘Five Eyes’ alliance consisting of the U.S., Australia, New Zealand, the United Kingdom and Canada.

As China ascended to become an economic and global superpower, they decided to create a similar system to compete with Five Eyes. To do this, Zeihan explained, they used Huawei, a Chinese company that eventually became the largest telecommunications company in the world.

“What [China’s] after is to create a poor man's version of what the NSA did, Zeihan said. “These massive data flows contain all of the information that any spy could ever want. That core system is what the Chinese are ultimately after. Huawei uses heavy subsidies and builds out [information systems] at a low price that no one can match.”

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Countering China

While some U.S. politicians and geopolitical analysts expressed concern regarding Chinese plans, it was Australia that first sounded the alarm on Huawei. New Zealand and the U.K. quickly followed suit, with Canada right behind them.

“If you take the Five Eyes’ system, which is still the most digitized part of the planet, and remove it completely from the Chinese reach, that has significance implications for the Chinese plan,” Zeihan said.

This is only part of the concern when it comes to China, and trade talks between the U.S. and the Chinese government highlight this tension. Current U.S. Trade Representative Robert Lighthizer is heavily involved in negotiations with the Chinese. According to Zeihan, Lighthizer (who’s been creating policy since the 1980s) would rather see the global order he helped build fall than be abused by the Chinese if they refuse to change their practices.

In talks at the start of 2019, Lighthizer made numerous non-negotiable demands of the Chinese, including that they stop their hyper subsidization program of Chinese firms, stop cyber theft and cease naval interdiction in the East China and South China Seas. Additionally, Zeihan noted, Lighthizer demanded that they end all restrictions on American firms’ access to Chinese markets. “These are all big asks for any country,” Lighthizer said.

Dispute to Escalate

The Chinese seem content in trying to offer a few concessions and waiting out Trump, though Zeihan doesn’t see that working out well. He explained that China is aware of its reliance on the global presence of the U.S. to maintain their system. Without the import of raw materials and the export of finished goods, and without global freedom of the seas guaranteed by the U.S., China reverts to being a third world country, Zeihan stated.

When the Chinese tried to step back from some of the commitments they made to Lighthizer, more tariffs were put in place. The next step is to end China's surveillance efforts through Huawei by denying technological access to the American market. Lighthizer also suggested doubling tariffs again by the end of June.

“If I had to guess, step four is going to involve something with Iran sanctions,” Zeihan said. “In addition, you tell these Chinese state-owned companies that they've lost access to the dollar market. All of a sudden they can't import crude anywhere. … The Chinese need America actively aiding and abetting the Chinese economy for it to survive in its current form, and that's just not even on the table anymore unless they do everything Lighthizer's way. And that's a very different China.”

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