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Stocks plunge on US-China trade tension

Stocks dove on Wall Street over US-China trade war worries. CNN's Victor Blackwell talks with Michelle Singletary about the impact this could have.

Posted: Dec 10, 2018 7:34 AM
Updated: Dec 10, 2018 7:48 AM

Every week, I offer a glimpse of the kind of intelligence assessments that are likely to come across the desk of the President of the United States, modeled on the President's Daily Briefing, or PDB, which the director of national intelligence prepares for the President almost daily.

Here's this week's briefing:

The US is focused on reaching a short-term trade deal with Beijing. But China is focused on playing the long game in ways that threaten US national security.

US negotiators are preparing for talks during their 90-day trade truce with China, and this isn't a simple game of Chinese checkers. While alleviating the economic pressures of the trade war at home is a priority, China's President Xi Jinping also wants to extend its reach elsewhere.

We appear narrowly focused on selling more soybeans and reducing our trade deficit, but China is not as myopic. It is just as focused on other priorities, many of which impact our own national security. That's why any moves we make against China -- including the arrest of Huawei's CFO Meng Wanzhou -- could be met in a variety of threatening ways.

Here are several activities that China is already engaged in to advance its strategic interests:

The best in the business: We've said publicly that China is one of our biggest cyber threats. And since China views cyber operations as a low-cost tool to achieve strategic objectives, it will keep improving its cyber capabilities. While we plan to address cyber theft as part of our trade negotiations (with possible charges against Chinese nationals for hacking), Chinese hackers have penetrated a lot of our public and private places.

We have not publicly verified reports that it was behind the massive Marriott data breach. But China has penetrated classified security clearance information before -- in addition to state-sponsored cyber espionage against the private sector for commercial advantage.

They've had time to refine their skills since agreeing to stop this in 2015. Increased Chinese economic uncertainty and any anger directed at us for trade war intransigence could lead to increased efforts to ramp up cyber espionage that would jeopardize sensitive information and expose China's skills, and our own insecurities, in cyberspace.

Cementing the new North Korean normal: You are preparing for a second summit with Kim Jong Un while China seeks to continue Kim's steady march toward normalcy on the world stage. Now that the Chinese have less reason to fear a US military strike against North Korea, they are less concerned with placating the White House and can double down on making North Korea great again. Xi probably figures that the more integrated Kim is with the world, the less likely the US is to revert to fire and fury rhetoric.

Plus, if Kim behaves better, you could eventually lift some sanctions which would benefit China. China is North Korea's largest trading partner and wants sanctions lifted so it can resume exporting at pre-sanctions levels.

Xi's also reportedly thinking about a trip to North Korea soon. With or without a visit, Xi's aware of your perception that he has some control over Kim and could try to exploit any of his leverage over Kim -- including trying to pull Kim further away from your stated goal of denuclearization -- if trade talks falter.

Relationship advice: Relationships with China are complicated, and if you get into a fight, China has a lot of tools to make your life uncomfortable. Take Taiwan as an example. The island nation has been at odds with China for decades and suffered the economic, security and diplomatic consequences. Because Taiwan's recent election resulted in a victory for the pro-Chinese Kuomintang Party, it's likely that China will step up its efforts to bolster pro-China sentiment in Taiwan while trying to peel away more of its allies, business contacts and global support system.

The Chinese also know Taiwan's security is a core focus for the US. Any increased Chinese pressure on Taiwan could be a double win for Xi because it serves China's interest in controlling Taiwan while concurrently hurting our focus on opposing further Chinese gains, especially while they try to extend their sphere of influence elsewhere in the region.

Buying new friends: While we criticize "questionably run" Third World countries, China is devoting a lot of time and money-making inroads around the world. Xi has visited Africa four times and just hosted another economic cooperation summit where he emphasized the shared future of Africa and China and announced $60 billion in investments in Africa. While China continues investing in Africa and around the world (Xi's multibillion-dollar One Belt, One Road initiative covers more than 60 countries) expect Xi also to continue his debt diplomacy efforts so more countries are tied to, and reliant on, China going forward.

But US policymakers can act to protect national security interests. They can do so by making clear to Chinese counterparts that regardless of what happens on trade, we're going full steam ahead when it comes to countering Chinese aggression on every other front. This could include indicting Chinese hackers to declaring our ongoing commitment to defending Taiwan.

We're also assessing evolving developments on the following issues:

Dancing to the White House shuffle: The high pace of administration staff changes may be viewed as exploitable opportunities for our enemies. As part of their mission to undermine our credibility, you should expect them to use information warfare to exploit perceptions of US disorganization during these transitions.

Yellow Vests and friends: Russia likes to stoke protests and create discord. They've supported divisive groups on all sides of controversial issues in the US. And there are indications that Russia got involved in the Yellow Vest protests in France, at least via social media, where we've seen Russian accounts spread inflammatory content. If protests continue, we should expect Russia to keep amplifying them as part of their overall mission of sowing divisions and undermining the democratic order.

Keep talking about Yemen: While Congress continues its scrutiny of Saudi support for the war in Yemen, the "positive spirit" at ongoing peace talks could be a sign of progress toward at least mitigating some of the violence and ongoing humanitarian disaster. We assess that ongoing congressional scrutiny of Saudi Arabia could, in fact, lead the Kingdom to make some concessions in the talks because of a desire to try to improve its public image, even slightly.

The chicken or the egg: Iranian President Hassan Rouhani said last week that if sanctions continue, Iran's abilities "in fighting drugs and terrorism in their origins is undermined" and "you will not be able to survive the debris of drugs, refugees and bombs and assassination." Rouhani has it backwards -- sanctions don't beget terrorism. Rather, Iran is currently the largest state sponsor of terror in the world and is sanctioned because of its support for terrorism, among other things.

Still, Rouhani just blamed sanctions for the country's inability to control future attacks on the West. His fear-mongering statements are propaganda (he won't ever miss a chance to blame others for his own shortcomings) but also a clear threat. You should expect the Iranians to ramp up their warnings about the consequences of more sanctions as the sanctions start to really bite. We will also monitor whether there are increased threats -- terrorist and otherwise -- as Iran tries to push back on the US.

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Cooling off, B-E-A-utiful weekend ahead!
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