Chris Fetzer

Chinese tech in Washington’s cross hairs

On May 29, the Trump Administration announced that the United States (US) will: (i) “impose a 25 percent tariff on $50 billion of goods imported from China containing industrially significant technology, including those related to the ‘Made in China 2025′ program,” and (ii) “implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology.”

Meanwhile, both the House and Senate versions of the National Defense Authorization Act for Fiscal Year 2019 (NDAA), Congress’ over $700 billion annual defense policy bill, include provisions targeting Chinese technology companies.

$50 billion in tariffs on Chinese technology sector /  Investment restrictions and enhanced export controls targeting Chinese acquisition of US technology

The White House’s announcement of these measures to “defend America’s intellectual property and proprietary technology from theft and other threats” comes less than a week before a US delegation led by Secretary of Commerce Wilbur Ross is scheduled to return to China for another round of trade talks from June 2-4.  The final list of covered Chinese imports containing advanced technologies that will be subject to the tariffs will be announced by June 15, and the list of investment restrictions and enhanced export controls will be announced by June 30.  However, there is no guarantee that the US will implement these measures.  Today’s announcement may be viewed as an attempt to create negotiating leverage in advance of the upcoming US-China trade talks.  It may also be a response to bipartisan pressure from Capitol Hill arising from President Trump’s announcement on May 25 about a deal that would lift severe sanctions imposed on Chinese telecom company ZTE in exchange for a $1.3 billion fine, oversight by American compliance officers, and the replacement of certain members of ZTE’s executive/management team.

Of course, President Trump has established a consistent track record of following through on proposed trade and related actions.  Therefore, companies that would be impacted by the imposition of the 25 percent tariffs on $50 billion worth of Chinese goods containing advanced technologies, and the imposition of new investment restrictions and enhanced export controls related to the acquisition of US technology, should monitor all forthcoming developments related to today’s announcement closely and prepare for the Administration’s corresponding follow-up announcements on or before June 15 and June 30, respectively.

House and Senate versions of NDAA include provisions prohibiting US Government procurement of certain Chinese technologies

Capitol Hill has become an increasingly hostile environment for Chinese technology companies.  The wave of opposition in Congress against Chinese technology companies is not limited to members of one party or a select few in both parties.  Widespread, bipartisan concern exists about the real and potential threats to US national security resulting from the use by federal employees and appointees, and in particular — military and intelligence community personnel — of Chinese technology / devices.

The US House of Representatives passed its version of the NDAA by a vote of 351-66 on May 24.  The Senate’s version of the annual defense policy bill was approved by the Senate Armed Services Committee (SASC) on May 23 and could be considered on the Senate floor as early as during the week of June 4.  The House-passed version of the NDAA “directs a whole-of-government strategy to confront the People’s Republic of China” and prohibits all US Government agencies from acquiring or using technology developed by Huawei or ZTE.  The House bill also includes a provision that would prohibit federal agencies from acquiring or using certain Chinese-made surveillance equipment.

Although the SASC-approved version of the NDAA that is on its way to the Senate floor has not been released by the Committee, it contains provisions that adhere to a core tenet of the US Department of Defense’s (DOD’s) National Defense Strategy, which classifies China as a “revisionist power” and “strategic competitor” that “seek[s] to shape the world toward [its] authoritarian model through destabilizing activities that threaten the security of the United States and its allies.”  The current Senate version of the NDAA contains a provision that would prohibit DOD from acquiring or using technology developed by Huawei or ZTE (as compared to the House version of the bill that prohibits all US Government agencies from such acquisition or use).  The Senate bill also includes a provision that would require all companies doing business with DOD to disclose whether they allow foreign government access to sensitive company information, including their software source code.  This provision is said to be a direct response to Russian and Chinese government contracting processes that at times require companies pursuing government business to submit to source code reviews.  Additionally, Committee on Foreign Investment in the United States (CFIUS) reform legislation — the Foreign Investment Risk Review Modernization Act (FIRRMA or S. 2098) — which would impose heightened restrictions on Chinese investment in the US, is included in the Senate version of the NDAA.  An effort to add FIRRMA to the House NDAA via amendment failed.  The unsuccessful action in the House and successful action in the Senate are a direct acknowledgment of Secretary of Defense Jim Mattis’ requests in separate letters on May 4 to House Armed Services Committee (HASC) and SASC leadership to include FIRRMA in this year’s NDAA.

Once the Senate has passed its version of the bill, the NDAA will be conferenced, during which time HASC and SASC staff will work to resolve the minor disparities between the two versions of the bill, HASC and SASC members and staff will resolve some of the more challenging disparities, and the Big Four (the Chairmen and Ranking Members of the two committees) will resolve the most contentious disparities.

Congress has passed the NDAA for 57 straight years.  It is one of but a few remaining must-pass annual bills on Capitol Hill.  Companies that could be impacted by these provisions in the two versions of the NDAA moving through Congress should monitor the NDAA consideration process closely in anticipation of the bill’s enactment later this year.

As Congress returns: foreign policy looms large

On July 14, 2017, the House passed, with strong bipartisan support, its version of the National Defense Authorization Act (NDAA) for FY18 by a vote of 344–81. The Senate did not consider its version of the annual, must-pass defense policy bill before departing for August recess, and is set to dispense with the legislation this week. Thereafter, a conference committee will be formed to resolve the differences between the House-and Senate-passed versions. With top-line defense spending levels in each bill that exceed the $549 billion cap on base DOD spending for FY18 imposed by the Budget Control Act of 2011, lawmakers must raise the defense spending cap for FY18, which will inevitably require Congressional Republicans to make concessions to their Democratic colleagues on a domestic spending cap increase. A deal to increase the FY18 defense and domestic spending caps will likely be struck within the broader framework of the required short-term CR. Congress has sent the NDAA to the president every year for the past 55 consecutive years, and that streak will continue this year.

North Korea

Amidst escalating rhetoric and shows of force between North Korea and the US and its East Asian allies over North Korea’s unwavering pursuit of advancements in its nuclear capabilities and corresponding missile tests, the UN Security Council unanimously imposed new sanctions on North Korea on August 5, 2017, including a prohibition on key mineral and other exports from the totalitarian state. Undaunted, the Kim Jong Un regime fired a ballistic missile over the northern tip of Japan on August 29—one of the Hermit Kingdom’s most provocative acts in the past 20 years.

State-run media described the launch as “a meaningful prelude to containing Guam,” a US territory in the Western Pacific that serves as a strategic hub for US military power projection throughout the Asia-Pacific region.

US Secretary of Defense Jim Mattis and Chairman of the Joint Chiefs of Staff General Joe Dunford, while continuing to emphasize that the US has a range of military options that are immediately deployable, insist that diplomatic engagement with the mercurial Kim regime remains the preferred option for mitigating tensions arising from North Korea’s nuclear ambitions.

Afghanistan

President Trump campaigned on a promise to withdraw from military conflicts abroad, including Afghanistan. However, on August 20, 2017, he announced a new US plan for Afghanistan based on his administration’s policy review. Trump’s plan is to deploy more troops there, with primarily a training purpose for the Afghan National Army and the Afghan police. He also suggested the US will place even more pressure on Pakistan, which supports militants inside Afghanistan, to stop providing sanctuary, support and a platform to the Taliban. Under the Trump plan, the US will also continue its counter­terrorism mission with US Special Forces in Afghanistan.

Trump declined to indicate the amount of the troop increase, the benchmarks for success or how long US troops will stay. His plan is not altogether different from the last administration and can be viewed as a victory for Secretary of Defense Jim Mattis and National Security Advisor H.R. McMaster, both of whom advocated for continued US commitment in Afghanistan to prevent the ascendancy of the Taliban and ISIS that would surely occur in the wake of a withdrawal.

The plan also calls for greater emphasis on diplomacy and economic development in Afghanistan, but these goals will be difficult to achieve with the proposed cuts to State Department and AID funding.

 

General order: Kelly quickly imposes discipline and stability on turbulent West Wing

I have never had a problem speaking truth to power, and I firmly believe that those in power deserve full candor and my honest assessment and recommendations.  I also value people that work for me speaking truth to power.

—Retired Marine Corps General John Kelly, during his January 10, 2017 confirmation hearing to be Secretary of the Department of Homeland Security (DHS)

A straight-talking, bright, widely respected leader with hardscrabble South Boston roots, John Kelly served for over 40 years in the Marine Corps, including as the head of US Southern Command.  On July 31, Kelly transitioned from his position as DHS Secretary to the White House, to take the reigns as President Trump’s second Chief of Staff (COS).  Although there’s limited precedent for a current or former general to serve as White House COS, Kelly is the first to do so since Alexander Haig served as COS to President Nixon (and then very briefly to President Ford).

With less than five days on the job, Kelly has moved aggressively to bring needed order and discipline to an often chaotic White House.  In his first major act as COS, Kelly fired newly-installed White House Communications Director Anthony Scaramucci, a longtime Trump loyalist, sending an unambiguous message to West Wing staff that a lack of discipline will not be tolerated.  Scaramucci had just committed an unforced (and unforgiveable for a communications staffer) error by unwittingly giving an on-the-record interview during which he criticized then COS Reince Priebus and current Chief Strategist Steve Bannon in profanity-laden and graphic terms.

Kelly has also limited access to the Oval Office, requiring that all West Wing personnel – including Bannon, First Daughter and Advisor Ivanka Trump, and the President’s son-in-law and Senior Advisor Jared Kushner – must report to him directly.  Reince Priebus, Kelly’s only predecessor, during his approximately six-month tenure as COS, never enjoyed the same authority Kelly now appears to command after less than one week as COS.  As has been widely reported, Bannon, Ivanka Trump, and Kushner, among many other White House personnel, would go around Priebus to carry their inputs directly to the President.  That President Trump has agreed to this new chain of command structure, at least for now, is a critical early win for Kelly as he seeks to secure control of the at-times warring factions within the staff ranks he now oversees.

Kelly, Secretary of Defense Jim Mattis, Chairman of the Joint Chiefs of Staff Joseph Dunford, National Security Advisor H.R. McMaster, and Secretary of State Rex Tillerson have been dubbed the “Axis of Adults” by members of the GOP national security and foreign policy “establishment” who believe these men and their allies are an essential stabilizing force against influential ideologues within the Trump Administration.  Kelly has already shown deference, support, and loyalty to McMaster, a friend and three-star Army general, who has weathered widespread reports in recent weeks that he and the President have an at-times strained relationship.  After pitched battles with some of the competing interests within the West Wing over National Security Council (NSC) staffing and policy matters, McMaster has prioritized a purging of NSC staff brought on by his predecessor, Lieutenant General Michael Flynn.  Not coincidentally, two days into Kelly’s tenure as COS, McMaster dismissed a member of the NSC staff that he’d been seeking to terminate for several months with no success as a result of pushback against the staffing change by Bannon and Kushner.  This was a long-sought win for McMaster and clear demonstration of the substantial authority and influence Kelly wields as COS.

Elder GOP statesman and two-time White House COS James Baker summed up the critical choice any new COS must make in choosing a leadership style, in sharing recently with The New York Times that: “You can focus on the ‘chief,’ or you can focus on the ‘of staff.’  Those who have focused on the ‘of staff’ have done pretty well.”  A leader of unquestioned character, forged by a lifetime of putting country before self, Kelly appears to be adhering to Baker’s guidance as he focuses on creating order out of chaos to empower an often dysfunctional White House to more effectively pursue and execute the President’s agenda.

Although Kelly is expected to achieve at least some success in imposing military discipline on his staff, he doesn’t believe that it’s his role to attempt to do the same with the President, in large part because, as he has shared privately, such an effort would very likely be futile.  However, Kelly demonstrated during his tenure as DHS Secretary a willingness to “speak truth to power,” including during frank conversations with the President to emphasize his staunch disagreement with the roll out and structure of the Administration’s original travel ban.  In this vein, Kelly has indicated that he plans to mitigate the flow of bad information to the President, whether from West Wing staff seeking to shape the President’s thinking (hence the restricting of access to the Oval Office), or from less than credible media outlets.  Acknowledging that wholly stanching the flow of bad information to the President isn’t possible, as an offset, Kelly has stated that he’ll serve as a provider of unassailable facts to Trump.

A combat-decorated retired general and generational peer whom Trump has sought out often for guidance during the first six months of his presidency, Kelly has a level of respect and admiration from the President that Priebus did not.  So while any pragmatist would concede that President Trump will forever be his own chief of staff, were there ever an individual with the right combination of grit, character, experience, and no-nonsense leadership acumen to bring much-needed order to an often undisciplined White House, we must look no further than the man who has just entered the building.

A Coats for all seasons: former ambassador, US senator tapped to oversee intelligence community

President-elect Trump has tapped Dan Coats, a former member of the US House of Representatives (R-IN 4th), former US Ambassador to Germany under President George W. Bush, and two-time US Senator (R-IN), to serve as Director of National Intelligence (DNI). In this role, Coats will oversee the 17 organizations that comprise the US Intelligence Community (IC), and he will be the chief advisor on intelligence matters related to national security to Trump, the National Security Council, and Homeland Security Council.

No stranger to Washington and its inner workings, Coats has also had successful stints as a lawyer-lobbyist at two prominent firms. The former member of the Senate Armed Services and Intelligence Committees enjoys strong relationships with Republican and Democratic senators alike.  Key lawmakers on both sides of the aisle, and in both chambers, have welcomed his selection, including Senate and House Intelligence Committee Chairmen Richard Burr (R-NC) and Devin Nunes (R-CA 22nd), Senate Intelligence Committee Ranking Member Mark Warner (D-VA), senior Intelligence Committee member Ron Wyden (D-OR), and Senate Armed Services Committee Chairman John McCain (R-AZ).  Coats is expected to have a smooth confirmation process.

If – and more likely when – confirmed, he may take the reins of the IC amidst uncertainty regarding the nature and scope of the DNI role.  Trump transition team officials are said to be examining the prospect of IC reform, including a restructuring of the Office of the DNI.  Nevertheless, Coats is best described as an “intelligence hawk.” He has a legislative track record of supporting robust IC authorities in the face of staunch opposition from civil liberties and privacy advocates, including on contentious policy matters such as domestic surveillance and cyberthreat data-sharing between the government and private sector. Additionally, following the damaging leaks of classified information by former NSA contractor Edward Snowden, Coats became an outspoken proponent of increasing domestic counterintelligence powers to better identify insider threats and foreign spies in the US.

Unlike some of his potential future high-ranking colleagues in the Trump Administration (reportedly), and the president-elect himself, Coats is persona non grata in Moscow.  He is one of nine current and former Members of Congress, including McCain, on a list of lawmakers banned from entry into Russia. When the ban, in retaliation to US sanctions imposed on Russia for its annexation of Crimea, was announced by the Russian government in 2014, Coats dismissively stated: “While I’m disappointed that I won’t be able to go on vacation with my family in Siberia this summer, I am honored to be on this list.”  He soon followed up that response with a mocking list of “the top 10 things I won’t be able to do since Putin banned me from Russia.”

Needless to say, Coats is an intriguing pick for DNI by a president-elect perceived by many to be interested in a reset of the US-Russia relationship.  The choice is another “win” for GOP defense, intelligence, and national security establishment types.

Trump selects Bush 43 White House veteran Bossert for key homeland security role

Tom Bossert, former Deputy Assistant for Homeland Security to President George W. Bush, will serve as Assistant to the President for Homeland Security and Counterterrorism in the Trump White House, the transition team has announced. In this role, informally referred to as Homeland Security Advisor, Bossert will serve as the President’s chief White House advisor on homeland security and counterterrorism matters. The Trump transition team has shared that the position will be “elevated and restored to its independent status.”  Unlike his predecessors in the Obama Administration, who served as subordinates to the National Security Advisor, Bossert will hold equal status to incoming National Security Advisor Lt. Gen. (Ret.) Michael Flynn. The Trump transition team has emphasized that Bossert will focus on “domestic and transnational security” matters, while Flynn will focus on “international security challenges.”

Bossert is the current President of CDS Consulting, a risk management advisory firm, and a Cyber Risk Fellow at the Atlantic Council, a leading global think tank focused on international affairs.  A co-author of the 2007 National Strategy for Homeland Security and an early participant in the development of US cybersecurity policy, he has indicated that the safeguarding of critical US infrastructure from cyber threats, and due consideration of privacy and civil liberties concerns in creating new cyber doctrine, will be top priorities.

Although Bossert’s position does not require confirmation, his selection has received widespread praise from senior officials who served in the Bush 43 White House, all members of the so-called GOP establishment.  This group of supporters includes two of President Bush’s former Homeland Security Advisors – Ken Wainstein and Fran Townsend.  Additionally, former Bush National Security Advisor Stephen Hadley is reported to have recommended Bossert for the position. GOP national security policymakers on Capitol Hill have generally applauded the Bossert pick as well, in particular because he will bring valuable Executive Branch experience to the incoming Trump national security team.

Overall, in comparison to some of President-elect Trump’s picks for other key Administration posts, the Bossert selection is considered non-controversial.

Trump picks billionaire entrepreneur to lead Army, adds more stars to national security team

President-elect Trump has nominated Vincent Viola to serve as the next Secretary of the Army.

A US Military Academy at West Point alum, former Army infantry officer, and graduate of the service’s elite Ranger School, he is the founder of Virtu Financial, an electronic trading firm, and the owner of the NHL’s Florida Panthers. Viola is also the former Chairman of the New York Mercantile Exchange. Although he has spent the majority of his professional life in the private sector, Viola played a vital role in the establishment of West Point’s Combating Terrorism Center, an independent research and educational institution that contributes to the academic body of knowledge and informs counterterrorism policy and strategy.

A longtime proponent of defense innovation and DOD engagement with the commercial technology sector, as Secretary of the Army Viola is expected to champion rapid acquisition programs, dramatic improvements in cyber warfare capabilities, and the type of fail-fast culture celebrated by leading Silicon Valley technology companies. In 2011, during his opening remarks at a major defense conference, he predicted that, “the Army of the future will be built around a gestalt of geekdom,” adding that the service “is going to have to rethink the model of a warrior.” Elaborating, Viola proclaimed that at his company, he would “gladly trade 10 pull-ups and five minutes on a run for 20 IQ points and heart.”

Unlike some of Trump’s other recent selections for high-level Administration positions, the Viola nomination has received strong bipartisan praise. Incoming Senate Minority Leader Chuck Schumer (D-NY) has stated that Viola’s “dedication to the [Army] is second to none” and that he is “up to the job.” With staunch support from the Senate’s new top Democrat, Viola should enjoy a smooth confirmation process.

Retired Lieutenant General Keith Kellogg named NSC Chief of Staff and Executive Secretary

Adding another general officer to the ranks of his defense and national security team, the President-elect has selected retired Army three-star general Keith Kellogg to serve as Chief of Staff and Executive Secretary of the National Security Council. An early and ardent Trump supporter, and longtime Trump campaign advisor, Kellogg is a veteran of the Vietnam War, Panama Invasion, and Gulf War. He commanded the Army’s 82nd Airborne Division, worked as Director of Command, Control, Communications, and Computers for the Joint Chiefs of Staff, and served as the Chief Operating Officer of the Coalition Provisional Authority transitional government in Baghdad, Iraq.

After his retirement, Kellogg held several executive-level positions with defense firms, including Cubic, CACI, and Oracle. He will serve directly under incoming National Security Advisor Michael Flynn, who is also a retired Army three-star, and Deputy National Security Advisor KT McFarland. In this role, Kellogg will be one of the President-elect’s leading advisors on national security matters. He joins Flynn, and retired Marine generals James Mattis and John Kelly, Trump’s respective Secretary of Defense and Secretary of Homeland Security nominees, as the fourth general officer selected to serve in a Cabinet or other high-level position within the incoming Administration.

Trump selects ExxonMobil’s Tillerson to lead Department of State

President-elect Donald Trump announced this week his selection of Rex Tillerson, Chairman and CEO of ExxonMobil, one of the largest and most profitable companies in the world, to serve as Secretary of State.   Although the reaction to the pick by many pundits and policymakers has focused in large part on Tillerson’s reported relationship with Russian President Vladimir Putin, an objective assessment by the Senate of Tillerson’s background and experience will likely result in an at-times contentious and intense, but ultimately successful, confirmation process.

Some may view the Tillerson nomination as an outside-of-the-box decision by an unpredictable incoming Commander-in-chief, but the ExxonMobil head was highly recommended to Trump by revered GOP heavyweights within the defense and foreign policy establishment.

A Texas native and engineer who joined the then Exxon Company in 1975, Tillerson ascended the ranks within the oil and gas giant over the course of a prominent career, assuming his current position in 2006.  An Eagle Scout, he is the former National President of the Boy Scouts of America, the highest volunteer position within the organization.  Tillerson is also a past Director of the United Negro College Fund and the former Chairman of the American Petroleum Institute.  In addition to his current role at ExxonMobil, he is a member of the Business Roundtable, an honorary trustee of the Business Council for International Understanding, a nonpartisan, US-based organization focused on the expansion of international trade and commerce through engagement with foreign governments and businesses, and a member of the Board of Trustees of the Center for Strategic and International Studies, a leading global think tank focused on security and foreign policy based in Washington, DC.

Although he has no public sector experience, Tillerson has helmed a company for a decade with virtually unrivaled global dealings, interests, and influence.  If ExxonMobil were a country, its annual revenue would make it the 41st largest economy in the world.  According to Robert McNally, the former Senior Director for International Energy on the National Security Council under President George W. Bush, “the closest thing [the US has] to a secretary of state outside government is the CEO of Exxon.”

Tillerson’s nomination has given rise to an expected range of reactions from prominent former and current government officials – from unwavering support, to measured praise, to concern, to outright opposition.  Reportedly, former Secretaries of State James Baker (Bush 41) and Condoleezza Rice (Bush 43), and former Secretary of Defense Bob Gates (Bush 43 and Obama), all recommended Tillerson to President-elect Trump for the State Department role.  However, Tillerson’s supporters and detractors are not easily separated along party lines.

Of most concern to Senate GOP defense and foreign policy hawks, including Senator’s John McCain (R-AZ), Lindsey Graham (R-SC), and Marco Rubio (R-FL), and many Democrats, is Tillerson’s apparently close relationship with Putin.  ExxonMobil has extensive interests in Russia and the Caspian Sea region, which Tillerson oversaw directly during his tenure as Vice President of Exxon Ventures (CIS) Inc. and President of Exxon Neftegas Limited.  During his confirmation hearing before the Senate Foreign Relations Committee, which is likely to take place in early January, the subject of Tillerson’s receipt of the Order of Friendship award by Putin in 2013 is likely to be raised.  Further, the Senate Foreign Relations Committee is set to hold both open and classified hearings in January focused on alleged Russian hacking of the US presidential election.  That Tillerson’s confirmation hearing will be held in close proximity to this hearing is likely to generate intense scrutiny of any perceived conflicts of interest Tillerson would have as Secretary of State based on his relationships with Putin and members of the Russian president’s inner circle.

Nevertheless, Tillerson’s list of key Senate advocates is growing.  Senate Majority Leader Mitch McConnell (R-KY) and Majority Whip John Cornyn (R-TX) have expressed strong support for the selection, and perhaps even more importantly, Senate Foreign Relations Committee Chairman Bob Corker (R-TN), who will lead Tillerson’s confirmation hearing and was himself on the President-elect’s short list for Secretary of State, described the ExxonMobil leader as “a very impressive individual” who has “an extraordinary working knowledge of the world.”

Additionally, Tillerson has expressed public support for the Trans-Pacific Partnership and Paris [Climate] Agreement, positions that put him at odds with the President-elect’s positions on these deals.  His support for the Paris Agreement may lead certain Senate Democrats vulnerable to defeat in the upcoming 2018 election to justify support for Tillerson during his confirmation, which in turn could offset a lack of support from a small number of Senate Republicans who remain skeptical of his fitness to serve as Secretary of State.  Further, Tillerson’s reluctance to embrace increased US diplomatic engagement with Iran will likely curry favor with some of the GOP foreign policy hawks who are scrutinizing his relationship with Putin.

Melodrama aside, Senate Republicans will control a 52-seat majority during the 115th Congress, and Tillerson will require a simple majority of 51 votes for confirmation.  So although there is little margin for Republican opposition to his confirmation, Tillerson is expected to emerge from an at times tempestuous confirmation process as the next Secretary of State.