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--FILE--View of the headquarters of Microsoft China Research and Development Group in Beijing, China, 30 September 2016.
Is it time for US AI companies to leave China?
Microsoft has asked 700-800 of its China-based employees working on cloud computing and artificial intelligence to leave the country, extending them offers of employment in different countries including the US. While these employees will have the option to stay put, the move signals Microsoft’s awareness that it may not be tenable to be a US company working on AI within China for much longer.
Last week, American and Chinese officials met to discuss artificial intelligence policy in Geneva, Switzerland. White House National Security Council spokesperson Adrienne Watson said US officials “raised concerns over the misuse of AI” by China (without giving specifics), which pushed back against American “restrictions and pressure” on their use of the technology. In the past two years, the Biden administration has imposed strict export controls limiting the flow of semiconductors to China and its allies, hampering its ability to train and run AI models and applications.
Increasingly, companies are caught in the middle of these tensions — especially those like Microsoft and Amazon interested in serving both economies and tapping into China’s talent pool. The White House is also considering a new rule that would require licenses to sell cloud services to Chinese customers, a move that could further hinder Microsoft’s revenue in the country — and lodge the US government between China and the American firms they need to scale up AI capabilities.
China escalates on Taiwan; US-China relations get worse
Ian Bremmer's Quick Take: Hi, everybody. Ian Bremmer here, and a happy summer Monday to you. I'm certainly feeling all warm and relaxed, and I hope you are too someplace fun. Lots to talk about that's been good for the Biden administration in the last week, probably the best week they've had since he's been elected. The passage of the Inflation Reduction Act, the CHIPS Act, unexpectedly strong job numbers which undermines all of the talk of recession. Kansas voting down the amendment on the abortion restriction. The assassination of the most wanted had the self-proclaimed emir of al-Qaida al-Zawahiri in Afghanistan, with no collateral damage, always good news and surprising when you see a bombing and there's actually no civilians that get killed. But of course, as someone who's focusing on foreign policy, the biggest story of the week, not one that is good news and that is the US-China relationship, the most important, most powerful two countries in the world, right now, with their worst bilateral relationship, frankly, since Tiananmen Square.
And I want to talk a little bit about what the implications for that are. It's a crisis on the back of the Pelosi visit with very significant escalation by the Chinese across the board, but it's also very carefully calculated escalation and that's pretty important. It means that we're very unlikely to see military confrontation or some form of potential war between the two countries, but it is also something that's likely to persist and become more problematic over time. The US position on Taiwan has been, maintain the existing status quo, political independence and economic sovereignty for Taiwan and provide whatever support is necessary to ensure that continues to be the case. As China becomes more powerful in the region, for China and Xi Jinping, it's been about peaceful reunification. What they always talk about is their preference, but willing to open the possibility of it being directly coercive otherwise and of course, in Hong Kong, you have had coercive integration and the stripping away of a separate political system, China breaking its own agreement with the United Kingdom in terms of that handover as they felt like they had the power to do so.
For the last several months, the China-Taiwan relationship has trended slightly in favor of the US position, and the reason for that is because China's big strategic partner, Russia, over stretched with their invasion in Ukraine. That put the Chinese on the back foot. Specifically, it made America's Asian allies feel like they needed to integrate more strongly with NATO, with a global US set of military and cyber norms. That what happened in the trans-Atlantic also mattered for the trans-Pacific, and if the Japanese and the Australians and the South Koreans and the New Zealanders all feel like they need to pay more attention to global security and common Western norms and values and guidelines, that also means a stronger and more unified position vis-a-vis China.
China's military capabilities as they grow, and China's positions on the South China Sea to East China Sea, and of course, specifically Taiwan. China's seeing that more clear that they would be running serious risks by suddenly escalating towards an integrationist position in Taiwan, that they could potentially get a whole bunch of American allies to oppose the Chinese position in similar ways to how the G7+ has a very unified position, and will maintain one in my view on Russia. So that's made the Chinese government in the past five months, more cautious and itself more oriented towards the status quo, in other words, closer to the American position. Until the Speaker of the House, Nancy Pelosi decided to make her trip to Taiwan, and this has shifted the ground on Taiwan towards the Chinese position. Biden did not want her to go, and Pelosi ultimately told the president that she'd be prepared to not make the trip, but only if Biden told her directly that was his strong view, and then she would make that public.
And Biden didn't want to do that. He thought that would make him look particularly soft, vulnerable, weak vis-a-vis he's not just the Republicans, but even a bunch of centrist Democrats. But the point is that Pelosi should have backed off once she knew that Biden didn't want her to and she chose not to, and the fact that the United States does not have an integrated strategic position on something as important as China policy, the fact that the 82-year-old, soon to be retiring speaker of the house for her own personal and symbolic reasons decided she was going to make that trip. Well, it doesn't help the Americans in terms of facts on the ground with China, but it does weaken the Americans, and this was what's important. The Pelosi trip didn't accomplish anything for the Americans strategically, and the Chinese saw an opportunity by having warned the Americans, "Don't you dare do this." They then do it.
They are indignant, and they can use that to specifically improve their ally on Taiwan, improve the balance of forces in their direction in a way that was specifically intended not to elicit an escalatory response from the Americans. They knew that Biden didn't want trouble. There was a Minuteman ICBM test that was canceled in the last week so the Americans wouldn't be more provocative because they were feeling sheepish about not being able to stop the Pelosi visit, and Blinken's responses and others saying, "We don't go too hard on this and we don't want any escalation from the Chinese on the back of the Pelosi trip."
I mean, everything about it said the Americans see that this is a problem and are trying to keep it relatively calm, and that's a unique opportunity certainly since February 24th, when the Ukraine war started, for the Chinese to escalate and calculatedly escalate in ways that will advantage them, but without leading to war, and we saw that. We saw a whole bunch of unprecedented military exercises, fully surrounding Taiwan for the first time into their direct airspace across the median line, sending a bunch of missiles over Taiwan territory itself intending to continue with many of these sorts of exercises going forth for at least the next month. All of which makes China's position, its setting precedents on Taiwan that show more of an incursion and imposition on Taiwanese sovereignty, and yet with the Americans responding with virtually nothing. Just diplomatic irritation, some sanctions, but nothing too much.
Keep in mind that China is Taiwan's leading trade partner and that's not going to change anytime soon, so you saw some food stuffs that were being suspended to be exported into the mainland. You saw Chinese not exporting sand. These are suspensions. These are not boycotts. The Chinese are expressing their irritation. They're punishing Taiwanese companies and the Taiwanese economy, but I'm sure that will be over within a matter of weeks. I'd be surprised if it was months. And then the Chinese also telling a bunch of American multinationals and others from the West, "You can't put Taiwanese labeling, no 'Made in Taiwan' unless it says Taipei China on the goods that are manufactured there." Another precedent that if you are a Western multinational and you want to do business with the mainland, you've got to suck it up and say, yes.
One reason why Eurasia Group, my view is don't do business with the mainland so that we can do objective analysis and say whatever we want. But of course, if you are Mars corporation, for example, you're the NBA, you do not have that luxury. You don't have that advantage. And then of course, suspending a whole bunch of diplomatic engagement with the United States on issues like climate and on drugs, fentanyl, all the rest, but not suspending with any other Western countries, precisely because the Chinese are saying, "Oh, no. We are not the ones that provoked here. The Americans are the one that provoked. We want to continue to work very constructively with the Europeans, with the Japanese, with every other government out there. We're putting the Americans and the Taiwanese right now in the freezer, and Taiwan by the way, belongs to us." That's not war. In fact, that's the opposite.
That is China over the last five months, doing nothing on Taiwan, and then when they see that the Americans provide them an opportunity to take a number of steps towards Taiwan with minimal risk, with less risk than we've seen at any point in the recent past, that's when they move. And that's precisely the Chinese strategy here. It's, "let's watch in the future for the Americans to make mistakes and will increasingly impose on our views on Taiwan and on the broader international balance to take advantage of those mistakes," so for example, assuming the Republicans win the House in upcoming midterm elections, and I believe they will. I would fully expect that the new Republican speaker of the house would lead a larger trip to Taiwan with much more rhetorical strength in the US position on Taiwan or even changing the status quo than we saw from Pelosi.
And when that happens, especially when that happens and it's not the position of the person that actually makes foreign policy in the US, President Biden, his administration, the Chinese will have yet another opportunity to impose their will on Taiwan. The same thing would be true if Trump or someone like Tom Cotton or Pompeo, the hawks on China in the Republican Party were to get the nomination and start making very strong statements. That again, they wouldn't be president but would be more opportunities for the Chinese to take advantage to exploit that gap inside the United States. Or if there's a constitutional crisis in the 2024 presidential election and there's a lot of violence in the US, and we don't know who the president is for a period of time, perfect time if you're Chinese, the Chinese government to impose more your outcomes on Taiwan at times that otherwise would potentially elicit a much greater American response.
So I think that's what they're all about here. It is unfortunate for the United States. It's fundamentally this time around, it was because of Pelosi though again, if I had been advising Biden directly on this, I would've told him, "Just suck it up and tell her don't go because ultimately nobody's going to vote in the United States on the basis of that, so it's not really a significant political issue", but Chief of Staff, Ron Klain runs a tight ship. He's the prime minister of the Biden administration, and I don't see the foreign policy folks really wanting to cross him ultimately. I would also say that American allies very strongly opposed this trip, and this is a problem for the US. In fact, you remember with Afghanistan which was Biden's first big screw up on the foreign policy side as president, and part of the screw up was because he was acting by himself.
The Americans were acting unilaterally and they didn't engage enough with the allies. The reason why Biden has been so successful on Russia-Ukraine is because they've over communicated. They've over coordinated on every single point. The allies, the Europeans, the Canadians and the Asian allies have been integrated, brought into US intelligence, brought into US policy, and that policy has been hammered out in a very consistent way. On Taiwan, American allies don't really know what the Americans are prepared to do. I mean, at what point might the Americans be willing to use military force in order to support the Taiwanese if they're attacked? Well, the Americans don't have an agreement on that issue themselves, and so if you are Japan or Germany or France or the UK, and you're asking the Americans, "Okay. Well, so how do we think about what this policy really is?"
The answer is, we don't know. And that's deeply unsatisfying for countries that aren't so certain about how much the Americans are committed to them long term, and also who the next president of the US is going to be, and whether or not that's going to continue to be in any way consistent with American treaty obligations and strategic orientation around the world.
So that's a little bit from me. That's the latest of where we are in Taiwan and the one big foreign policy negative in what's otherwise been a very good week for President Biden and his administration. I'll talk to you all real soon. Be good.
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