China is grabbing advanced American know-how, including by clandestine means. But how to combat it?
The real meat in the Trump administration’s trade beef with China has little to do with steel or aluminum.
Tariffs are too late to address the “China Shock” of the early 2000s, after that country entered the World Trade Organization, which some scholars say cost around 2 million American jobs. This was felt heavily in manufacturing exposed to import competition.
The U.S. economy readjusted and now substantial portions are supported by trade with China. Washington, the leading state exporter, sold $18.3 billion in merchandise exports there last year, along with billions more in services. This ranged from airplanes to apples. Anyway, the biggest enemy of the American factory worker is automation.
No, if we’re to take the administration seriously, attention should be paid to U.S. Trade Representative Robert Lighthizer, a D.C. lawyer who also served on the Reagan trade team.
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His office produced a study concluding that China’s intellectual-property practices rob the American economy of at least $50 billion a year. This is mild compared with a bipartisan commission last year estimating the theft of intellectual property at between $225 billion and $600 billion.
“Technology is probably the most important part of our economy,” Lighthizer said recently. “And we concluded that, in fact, China does have a policy of forced technology transfer; of requiring licensing at less than economic value; of state capitalism, wherein they go in and buy technology in the United States in noneconomic ways; and then, finally, of cybertheft.”
This is a real challenge.
The centerpiece is President Xi Jinping’s Made in China 2025 plan. This ambitious effort seeks to dominate cutting-edge industries, including artificial intelligence, aviation, electric vehicles, high-speed rail and advanced microchips.
Beijing is spending billions in homegrown companies and research, as well as acquiring technology abroad. The goal is to be much less dependent on the West for advanced tech, as well as becoming a significant exporter of advanced products.
Some of those acquisitions come willingly, others through clandestine means. One notorious case involved hacking defense contractors to gain information on advanced aircraft, including the F-35.
As with Trump, Xi wants to make his country great again.
China endured its “century of humiliation” at the hands of Europeans and the Japanese. Mao didn’t help with the deadly Great Leap Forward and Cultural Revolution. But when Deng Xiaoping took over in the 1980s, he inaugurated capitalism in tandem with a one-party state.
“A basic contradiction between socialism and the market economy does not exist,” Deng said. He encouraged people to get wealthy. It was spectacularly successful from an economic standpoint.
The paramount leader also famously advised: “Hide our capabilities, bide our time.”
But Xi Jinping is bringing this 4,000-year-old civilization into the open as a great power again. To some in the West, a final quote, this one attributed to Napoleon, is apt: “Let China sleep. For when she wakes, she will shake the world.”
The American consensus before Trump was to welcome China’s rise, in the hope that it would be peaceful and become part of the law-based system led by the United States. This has a long history: FDR insisted that China, albeit under the Nationalists, have a permanent seat (and veto) on the new United Nations Security Council.
Unfortunately, the results have been hit-and-miss. China has been a bad actor on trade. For example, it has long required companies that want to do business in the country to partner with a Chinese firm and share technology. This and certain other Chinese practices have violated WTO rules.
But responding has been difficult. Targeted tariffs by the George W. Bush and Obama administrations failed. They raised prices on American consumers. They also disrupted the supply chains of allies — many “Chinese” products are assembled from components made elsewhere, such as Japan.
And let’s be honest. American multinationals are often eager to do whatever Beijing requires to sell their products in the world’s largest market. American consumers eagerly snap up stuff from China at low prices.
Also, as economist Dean Baker frequently points out, the United States engages in a form of protectionism with copyrights and patents, such as those on prescription drugs.
Now Beijing wants an advanced economy and, like the United States, one driven by consumers.
While Beijing is happy to play at least a nominal role in the rules-based order established after World War II when the outcomes suit its purposes, it is establishing its own competing system. Most prominent here is the One Belt One Road, which is intended to spread Chinese investment, trade and influence worldwide. China, an authoritarian state that censors media and jails dissidents, also has no use for Western democracy.
A smart American response would be to gather together allies and partners, say a dozen, and create a high-standard trade agreement binding the Pacific Rim, continuing U.S. leadership. The benefits would be economic and geopolitical.
Unfortunately, the Trans-Pacific Partnership was not to be, at least with essential American participation. Opposition didn’t come only from Trump but from Bernie Sanders on the left. (Hillary Clinton said she opposed the deal as negotiated, but I suspect she would have finessed it into being, had she won the White House.)
So in an unintended way, Trump and Xi share another goal: Wrecking the post-World War II “neoliberal” American system. Both, from different perspectives, see America in decline and China rising.
Trump is obsessed with the trade deficit, a largely meaningless statistic as to economic health. Advisers such as Lighthizer and Treasury Secretary Steven Mnuchin bring more concrete responses. These include blocking Chinese acquisition of U.S. companies and technology of strategic importance and filing a WTO complaint. Also, the tariffs could be aimed at China’s advanced industries.
Some of this makes decent sense. With a different president, without the tariffs, with TPP, it might even be constructive. But not now. Not with Donald Trump.
This could change with a couple of election cycles. But given the hostility toward trade on the left, don’t count on it.
That leaves China with the whip hand, patronizing Trump with largely symbolic “deals” and paying less attention to his successors. Or a future where two nuclear-armed superpowers face each other across the perversely named Pacific Ocean, without the mediating power of commerce.