Last month, news broke of a landmark 25-year, $400 billion deal between Iran and China. This development has rightly caused outrage both outside and inside Iran. The deal represents a long-term strategic alliance between the world’s foremost sponsor of terror, namely Iran, and the most significant threat to the American way of life since the end of the Cold War, namely China. Both countries’ governments are corrupt regimes intent on spreading their malign influence to every corner of the globe.
For the Iranians, this deal further solidifies a primary method of undercutting U.S. and international sanctions by providing its kleptocratic leadership with much-needed cash flow. But for the Chinese, it fits into a broader, and perhaps even more terrifying, plan to dominate the globe.
China has long been a country willing to do business with and take advantage of just about anyone, having established a record of helping despots avoid U.S. sanctions by purchasing shipments of hydrocarbons, whether coal from North Korea or oil from Iran and Venezuela.
To be sure, China’s aspirations are far more sinister than such narrow bilateral transactions. China’s ultimate goal is to use its economic influence to build a geopolitical empire capable of dominating world affairs. At the core of these aspirations is the “Belt and Road” initiative launched in 2013 which aims to create a sphere of influence spanning from Europe and Africa to the Pacific Islands.
Through the initiative, China intends to lure countries into subservience through large infrastructure investments. Despite these investments, the benefit to host nations is often minimal, with China imposing predatory financing obligations and using the projects to employ primarily Chinese workers. Thus far, most of the projects are focused on either expanding avenues for China’s exports or on the collection of raw materials needed by China’s manufacturing sector.
This deal with Iran appears to be no different. Ahead of the agreement’s signing, Iranian President Hassan Rouhani publicly recognized that Iran was joining the Belt and Road initiative via the pact. The deal reportedly provides for the regular export of Iranian oil at a heavily discounted price, with little detail on potential Chinese investments outside the oil and gas sector. Since the signing, the deal has even sparked opposition within Iran because of its allegedly lopsided provisions. Still, the Iranian regime needs cash, and China is happy to oblige, even if only under predatory terms.
And, as we have explained before, "China and Iran are not our friends." Any coordination between the two can only increase the danger to the U.S. and our allies.
China’s other Belt and Road investments aim to provide China with not just oil, but with the other necessary inputs to achieve its Made in China 2025 plan. That plan’s stated goal is for China to be self-sufficient in and dominate the global market for the next generation of cutting-edge technologies.
Unable to innovate its way to success on its own, China has used forced technology transfers, intellectual property theft (as much as $600 billion worth annually from the U.S. alone), and foreign acquisitions to fuel development of everything from 5G to artificial intelligence to electric vehicles to solar panels. China has subsidized production in China to gain market share in the U.S. and other free market countries, while at the same time limiting access to its massive domestic market for the benefit of its national champions.
Unsurprisingly, two such national champions, ZTE and Huawei, were punished by the Trump Administration for having violated sanctions on Iran.
In 2017, ZTE came to a plea agreement with the Department of Justice and Department of Commerce after having shipped sensitive telecommunications equipment to Iran in violation of sanctions. ZTE was later found to have violated the terms of that agreement in 2018, and so was placed under a denial order by the Commerce Department, barring it from importing critical U.S. components and crippling its business. ZTE nearly collapsed as a result, leading it to accept a new agreement where it paid a record fine and gave a U.S.-appointed-and-managed monitoring team access to ZTE operations and records to ensure compliance.
This agreement lifted the denial order, but China learned a lesson from ZTE’s near-collapse. Officials accelerated their Made in China 2025 plans, and companies like Huawei began stockpiling components.
Then, in late 2019, the Commerce Department added Huawei, China’s largest telecommunications manufacturer, to the so-called “Entity List” after having found that it had violated sanctions on Iran and posed a significant threat to U.S. national security.
This meant that Huawei and its affiliates were unable to acquire virtually any U.S. goods, software, or technology from the United States without a specific Commerce Department license. These rules were later tightened so that even items produced abroad using American tools and technology would require a special license if they were destined for Huawei.
These restrictions, combined with aggressive diplomatic outreach through the State Department’s “Clean Network” initiative, led to a dramatic reduction in Huawei’s 5G commercial contracts, by some accounts from 91 at the beginning of 2020 to just 12 outside of China by the end of the year. It also led to a year-over-year reduction in revenue growth from 19% in 2019 to 3.8% in 2020.
China has thus far been unable to build its own cutting edge chip manufacturing capacity that could address the challenge of U.S. restrictions. That is a major impediment to its Made in China 2025 plan.
What is China to do? The Chinese Communist Party’s long-term answer has been to pour money into domestic champions like Semiconductor Manufacturing International Corporation (SMIC), a company that the Department of Defense designated as controlled by the People’s Liberation Army and the Department of Commerce added to the Entity List in 2020.
Unfortunately, the more immediate answer may lie just 100 miles off the coast of China, on the island of Taiwan, which China claims as its sovereign territory despite Taiwan having an independent democratic government.
As China has grown in power and influence, it has become more and more willing to assert itself on the world stage. Perhaps the most striking example of this was the security law imposed on Hong Kong last year in violation of China’s treaty with the United Kingdom.
Concerns are on the rise that, just like with Hong Kong, a resurgent China may soon move to bring Taiwan to heel by force, taking control of roughly half of the world’s cutting edge semiconductor manufacturing capacity in the process.
Since President Biden took office, we have seen increasingly aggressive actions against Taiwan by the Chinese military, which has flown multiple sorties into both Taiwanese and Japanese air defense zones in so-called “pincer formations” around the island.
The Trump Administration recognized the threat to Taiwan and approved over $5 billion in arms sales in 2020 to bolster the island’s ability to defend itself. Most of those approved sales are due to be delivered under the Biden Administration. These advanced defensive weapons will greatly increase the potential cost of a Chinese invasion, and China’s military knows it would have an easier path to success if it were to move before those new weapons systems are put into place.
The question now is, what comes next? While the U.S. military presence in the region is thought to be a deterrent to China, President Biden has not yet made clear what he would do in the event of an invasion. Hopefully President Biden will continue to build on the successes of the Trump Administration. Will he do so? Will he aggressively stand up to China? Will his Administration continue to approve arms sales to Taiwan so that its democratic government can defend itself?
The answer to these questions will have an impact on global freedom and liberty for generations to come. President Biden must stand firm against China’s malign activity. The future of the United States, and the world, literally depends on it.
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