Reckless Challenges, Overwhelming Retribution

The reckless challenge and the overwhelming retribution that followed. It was only natural that the cyber 911 terrorism would escalate into an economic war between the United States and China. After all, China, with the largest population in the world, was an entirely different country from Afghanistan.

Unlike Afghanistan, where special forces could move in and out like it was their own backyard and missile barrages or bombings could be carried out without hesitation, China was a nuclear power with formidable economic strength. The situation had to be different.

In truth, the U.S. government, still reeling from the shock of 9/11, had assumed there would not be much of a problem dealing with China either. No matter how large China’s size, America’s overwhelming power would allow them to intimidate Beijing into handing over every criminal who had planned and executed the cyber 911 attacks.

It did not take long for that complacent thinking to change. On the surface, China appeared flustered and troubled, yet it rejected every American demand. When the U.S. offered a compromise—allowing American investigators to come to China to interrogate the crackers if extradition proved difficult—Beijing rejected it the moment the words left American lips.

Having made bold declarations to the world, the United States had no choice but to act. Sending special forces and conducting airstrikes the way it had in Afghanistan was impossible, so economic measures were the obvious path.

The blanket imposition of a 10 percent special tariff on all Chinese imports was a powerful weapon. Annual trade between the U.S. and China in 2001 exceeded $400 billion; this single decision effectively fired a $40 billion shot across Beijing’s bow.

Yet China’s refusal to flinch caught Washington off guard. Then, thanks to Yoo Jae-won’s tip, the location of the Qing Dynasty bonds came to light. With nothing to lose, the bonds were immediately deployed as the next weapon.

When the bonds held in U.S. government vaults, those traded on the internet, and those for which negotiation rights had been delegated by private holders were all gathered, their current value reached approximately $500 billion. What pleased Washington even more was that the move could ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠strike at the heart of China’s core foreign policy: the principle of “One China.”

China, which had shown little reaction to the tariffs, reacted violently to the Qing Dynasty bonds, and that, too, was satisfying. Still, all these exchanges took place between working-level officials on the diplomatic and economic tracks of both nations. Ordinary citizens received no special information.

Even when American and Chinese negotiators shouted at each other behind closed doors, only the top leadership in both capitals knew the details. To the rest of the world, the U.S.-China confrontation seemed to have reached a stalemate, while the upheaval in Afghanistan appeared far more significant.

Al-Qaeda had been decisively crushed inside Afghanistan. A tiny remnant had slipped into Pakistan, but the vast majority had been eliminated by U.S. special forces within Afghan borders. With Osama bin Laden and al-Qaeda wiped out on Afghan soil, the Taliban began to waver.

The United States had refrained from attacking the Taliban to avoid unnecessary escalation. To Islamic extremists, however, this looked as though the Taliban had sold al-Qaeda to the Americans in exchange for its own survival. When the Taliban belatedly prepared to fight the U.S., internal dissent erupted over the sheer overwhelming power of the American military.

Amid the internal chaos, the Taliban regime in Afghanistan collapsed rapidly, and the resulting disorder grew increasingly severe.

In the past, America would have used that chaos to install a pro-American government in Kabul. Indeed, the Pentagon continued to send daily recommendations urging a delay in withdrawal so that pro-American figures could be groomed as new leaders.

Yet President Al Gore, following Yoo Jae-won’s advice, chose to focus on the strategy against China and confirmed the withdrawal. This, too, placed enormous pressure on Beijing. It made Washington’s intention to discipline China unmistakably clear.

The Chinese leadership felt a strong resolve not to yield any further ground and dispatched a special envoy to North Korea. Before news of that mission broke, however, China’s announcement of retaliatory tariffs was made public.

“Chairman! Have you seen the breaking news?”

“You mean CNN? I’m watching it right now.”

Back at home, Yoo Jae-won had called his in-laws and Frederick to check in. While doing so, he caught CNN’s breaking report on China’s retaliatory tariff announcement. Moments later, a call came from President Ellen.

“Do you have any detailed information?”

“Yes. China’s retaliatory tariffs total $40 billion—the same scale as the U.S. measures. CNN’s report was rushed and only stated that China had decided on retaliatory tariffs; specifics have not yet been released. But I have more concrete details.”

“It’s exactly the same as what we did. We’ll be affected a little as well.”

When the United States imposed blanket tariffs on Chinese goods, countless companies had panicked. Chinese-owned factories took the hardest hit, but American and many foreign firms had also established operations in China. Some had entered to target the domestic market, but most had been drawn solely by China’s absurdly low labor costs. These factories were built not for Chinese consumption but to manufacture goods for export worldwide. The United States accounted for the largest share of those exports.

During the Clinton era, global corporations would have protested furiously and Congress would have treated the issue as a major crisis. In the post-9/11 United States, however, the tariffs were met with cheers. Still, the turmoil sent stock markets in America and around the world into chaos—except for ID Group, which had neither factories nor expansion plans in China.

If ID Group had built plants in China to produce iWorks or Livepods, a 10 percent price increase would have been unavoidable. Instead, its production bases remained in Korea and the United States. The situation changed, however, the moment China announced its own retaliatory tariffs.

ID Group’s smartphones, computers, operating systems, and various software products had substantial export volumes to China. Even in a country notorious for poor respect for intellectual property, the sheer size of the market generated meaningful sales. Moreover, hardware products that could not yet be replicated—especially Android smartphones—had become dominant in China. Less than a year after official sales began, cumulative sales in China alone had surpassed five million units. Given ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠China’s income levels, this was extraordinary; people were willing to stretch their finances to buy Android phones.

If China imposed retaliatory tariffs, the IT sector—which made up the largest portion of Chinese imports from the U.S.—would be hit hardest, and Yoo Jae-won’s ID Group would almost certainly be singled out as the primary target.

“But when you look at the details, there are quite a few surprises.”

“What do you mean?”

“It’s not a blanket 10 percent like ours. Different categories carry different rates, and IT is effectively zero percent.”

“Oh. That’s unexpected.”

“China knows that while IT imports are significant, imposing tariffs on them would be shooting itself in the foot.”

President Ellen was correct. The world was in the midst of an IT revolution. Computers were spreading rapidly, and smartphone penetration was climbing steeply. Nations that failed to keep pace with the IT revolution would remain second-class forever, while those that completed it could rise to the ranks of advanced economies, as Korea had done. Analyses crediting the IT revolution with Korea’s early graduation from the IMF enjoyed strong support.

China was no different. Since the reform and opening policy, it had been rapidly adopting capitalist systems, with particular enthusiasm for computerization. ID Group dominated that computerized world. Completing digitization without Android OS and ID Office was nearly impossible. Furthermore, the only computer system capable of perfectly supporting the complex Chinese characters was the Android platform. The same held true for smartphones. No one could deny that the smartphone had kept the IT revolution alive and ongoing after the spread of the internet and PCs might otherwise have marked its completion.

Imposing retaliatory tariffs here would ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠be like pouring water into the fuel tank of a car that was running perfectly. Tax revenue might rise slightly, but the burden would fall entirely on Chinese citizens. Higher prices would slow computer and smartphone adoption, effectively causing China to voluntarily drop out of the global IT revolution that every other nation was racing to join.

That was why, even when imposing retaliatory tariffs, China limited them to items that would not severely damage its future or economy, rather than applying them across the board as the United States had done.

“And the measures are weaker than expected as well.”

“A barking dog doesn’t bite, as they say. This is a rational response rather than a reckless one. At the same time, it’s a decision that inevitably invites accusations of weakness.”

“Ah, how are things progressing with the Qing Dynasty bonds?”

“It’s intense. China claims the matter ended in 1979, while we naturally disagree. At the same time, they insist they will never tolerate any action that undermines the principle of One China.”

Ellen was thoroughly briefed on the Qing Dynasty bonds issue as well. Although her official title was President of ID Technology, she handled all major group-wide matters, not just technology. Her previous position had been General Counsel of the group, and all complex legal disputes remained under her purview. Even after her promotion, she remained ID Group’s foremost legal expert. The Qing Dynasty bonds were one of the matters entrusted to her.

China’s reference to 1979 recalled an earlier episode when the bonds had surfaced and a U.S. court had dismissed the claims to improve relations with China. Because the dismissal had not come through a formal trial, however, the claims had not been fully extinguished.

“We’ll have to wait and see.”

“Ah, I understand what you mean.”

Even though the Qing Dynasty bonds issue appeared stalled, Yoo Jae-won had no intention of pressuring the Al Gore administration. He knew the administration was determined to collect every last dollar of the bonds it owned and those it had been authorized to pursue.

A telling sign was the renewed attention in Washington to the book Rising China. Its author, Ed Royce, saw his own stock rise sharply. Politicians who had once casually regarded China as merely a large East Asian nation after it began opening up were now forced by the cyber terrorism and economic war to confront China’s true capabilities. As their view of China grew more objective, they recognized that Beijing could become America’s new threat—and that the Qing Dynasty bonds offered the perfect instrument to bring that rising power to heel.

China’s economy had grown rapidly since reform and opening. Even if $500 billion were suddenly drained away, the country would not face an IMF-style crisis the way Korea once had. Yet the loss of investment capital needed for growth could prevent China from becoming an economic superpower on par with the United States. Of course, its enormous population meant it would eventually reach G2 status, but merely delaying that timeline would count as success. While China marked time, the U.S. could complete its encirclement of China. On top of that, redirecting the recovered funds into American investments would be pure profit.

China undoubtedly understood America’s intentions. The retaliatory tariffs were therefore nothing more than the opening salvo of Beijing’s counterattack.

“Then the real story is North Korea?”

Yoo Jae-won found himself wondering what decision the North Korean dictator had made. Fortunately—or perhaps unfortunately—he did not have to wonder for long.

On March 2, 2002, a major event had taken place the previous day in Kumho District, Sinpo City, South Hamgyong Province, North Korea. The light-water reactor project of KEDO—the international consortium formed by Korea, the United States, and Japan—had been successfully completed, and the 1,000 MW reactor named Kwangmyong Unit 1 officially began operation.

With Kwangmyong Unit 1 online, Sinpo City glowed like a city that never slept, and Pyongyang was no different. Once the second reactor of identical capacity under construction also came online, North Korea would possess enough power that electricity shortages would no longer be a concern for the foreseeable future.

Because the KEDO project carried immense historical significance—inter-Korean reconciliation, world peace, and denuclearization—the dignitaries gathered for the completion ceremony were extraordinarily prominent. North Korea naturally sent its supreme leader and National Defense Commission Chairman Kim Jong-il along with the entire Workers’ Party leadership. From South Korea came President Kim Dae-jung. From the United States came Vice President Joe Lieberman and the Secretary of State. From Japan came Prime Minister Junichiro Koizumi. All attended as state guests.

The atmosphere on the day of the ceremony had been excellent. It felt as though unification might happen at any moment. Yet the very next day, those expectations shattered. Upon returning to Pyongyang, Chairman Kim Jong-il issued an emergency statement.

Yoo Jae-won shook his head and clicked his tongue at the confident image of Chairman Kim Jong-il filling the cinema display monitor.

“As expected, he never disappoints.”

Kwangmyong was Kim Jong-il’s self-styled nickname and also the name given to the satellite launch vehicle. ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠Of course, what was called a satellite was in reality a ballistic missile. In other words, North Korea had openly declared it would launch a missile development project under the guise of a space program.

Yoo Jae-won had half-expected it, yet the choice was quintessentially Kim Jong-il—always selecting the worst possible option. His mind raced furiously. What form of retribution should be delivered to those who made reckless challenges—China, North Korea, and figures like Rupert Murdoch of News Corp—so that they would come to their senses? The more he considered it, the longer he thought.