China has upended the classic idea of free trade and market access. Just ask Uber, which hit a great wall.
Uber, the hip ride-sharing outfit, has grown around the world. But in China, where it placed a central focus on becoming a giant, it failed. In selling its business there to Chinese rival Didi Chuxing, it learned a costly lesson: China makes its own rules in the global economy.
New York Times tech columnist Farhad Manjoo put it this way, “Plagued by opaque and ever-shifting regulations and a culturally abstruse way of doing business, American companies fell to a series of local giants. Instead of Google, Baidu. Instead of Facebook, WeChat, owned by the giant Tencent. And instead of Amazon, Alibaba.
“That has left us with a divide: Today, there is the Chinese internet, and there is the internet of the rest of the world. A network seen in its early days as a tool to foster financial and political unity across a fragmented planet has irrevocably cleaved into two completely separate spheres.”
But this is not a situation confined to the “new economy.” Most of the American manufacturing jobs lost since 2000 — and the ones never created — have been because of China, not NAFTA, which is a flashpont in the presidential election. Industry after industry — from textiles and apparel to machine tools — has been hollowed out by China’s unique way of doing business.
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Corporate greed for cheap labor plays a role. So does American consumerism and some other factors (Germany, playing by the rules, has remained an export powerhouse). But China entered the World Trade Organization operating under a very different set of imperatives than “free trade.” If companies wanted to do business in China, they needed to establish factories there instead of sending imports. In recent years, the stakes have been upped: Foreign companies are required to set up research operations and share technology (a prominent example being General Electric and jet technology).
Meanwhile, China engages in stealth protectionism that goes beyond that of Japan and South Korea. Currency manipulation is perhaps the least of the problems.
One of the few counter-examples has been China buying airplanes from Boeing assembled here, which accounts for it being Washington’s largest merchandise export destination. But this shouldn’t be taken for granted. China badly wants to be a world player in commercial aviation.
In other words, China places its national interest first. And the legitimacy of the Communist Party is dependent on continued economic growth and widespread prosperity. Otherwise, people might get subversive democratic ideas.
But thanks to its size, China has upended the classic understanding of free trade and with it the liberal post-World War II economic order put in place by the United States. Its centerpiece was lowering tariffs and an even playing field. Yet China is so big and consequential that nobody has an answer to “China rules.” Donald Trump’s threat of a trade war (yeah, yeah, as a negotiating point) is not convincing.
Managed-trade agreements such as the Trans-Pacific Partnership may have strategic value for American alliances. They don’t address the Middle Kingdom’s trading practices. The WTO has proved toothless. But when you unpack the trade discontents in this election, you need look no further than China as Disruptor in Chief. Uber — which almost rhymes with hubris — is only the latest to figure it out.
Today’s Econ Haiku:
Dump your equities
So advises The Donald
Whose stock is falling