We may be living through an era in which free trade is relegated to the dustbin of history. That’s because the notion of tariff elimination equaling free trade is becoming quaint. And the concept of a “level playing field” is similarly vague — and probably distracting.
Strategic trade has been and always will be the norm as nations use industrial policy, exchange rate devaluation, and tariffs to win the global competition for good jobs and industries. More specifically, nations that successfully produce and trade use exchange rate devaluation to achieve a continuing trade surplus, and they often rely excessively on foreign consumers.
They also use tariffs, industrial strategies, and other means to improve the composition of their production and trade, usually aiming toward advanced manufacturing and high-tech goods.
President Donald Trump’s recent Section 301 investigation of China revealed a systematic, state-sponsored strategy of forcibly acquiring and stealing technology from the U.S. It also highlighted how dramatically wrong was the core assumption behind China’s entry into the World Trade Organization (WTO). Many expected that China would become a free-market, capitalistic democracy when agreeing to WTO rules, and would trade more openly with western democracies.
Not surprisingly, Trump’s decision to impose tariffs on $50 billion worth of Chinese goods that benefited from technology theft was met with criticism from old guard free traders. But public support for the tariffs has grown to a majority.
A new report by the White House Office of Trade and Manufacturing Policy has further pulled back the curtain on Beijing’s predatory strategy. It documents over 30 acts, policies, and practices used to boost Chinese state-influenced companies as globally dominant designers and manufacturers of key technology and products.
In the report, physical theft and cybertheft are revealed in prominent detail. China also uses foreign ownership restrictions, such as forced, joint ventures with government-influenced companies, to mandate technology transfers.
Security reviews, intrusive testing, indigenous technology standards, information harvesting, and many other tactics are only a part of this comprehensive plan. China’s Ministry of State Security deploys no fewer than 40,000 intelligence officers abroad to assist in cyber-enabled espionage. And estimates of the cost of trade secret theft alone range “between $180 billion and $540 billion annually.”
America takes pride in its economic, investment, and academic openness. But the White House report shows that China uses this beneficence against us. Foreign investment from China in the U.S. has also been weaponized, with critical military and infrastructure technologies and companies being purchased at a troubling rate. This is a significant problem because many technologies have dual-use applications in both the civilian and military sectors.
Even our academic openness to foreign university students has been weaponized. The Chinese state has put in place programs to send its students to the U.S. “to master technologies that may later become critical to key military systems.”
FBI Director Christopher Wray told Congress that Chinese students and professors in our universities are often “nontraditional collectors” of intelligence. “I think the level of naïveté on the part of the academic sector about this creates its own issues,” Wray said.
The White House report reveals how difficult it will be to find a compromise solution with President Xi. China’s core economic model is one designed to build overcapacity in many sectors, to dominate those industries, and to deny market access to non-Chinese companies.
If China agrees to stop 10 wrongful practices, it will still maintain 20 more for the same illicit purpose. And a compromise would require the U.S. to “give up” something. But what would we give up in this unilateral war against us?
Unfortunately, it is also hard to see success through a multilateral response using Canada, Japan, the European Union, and other allies.
First, many of these countries simply do not have much of a China problem. Japan and South Korea have trade surpluses with China as a result of their own successful mercantilism. Germany also, according to Chinese trade data, runs a surplus with China. But the U.S. has a massive $375 billion goods trade deficit with China. Those countries fear that if the U.S. does not absorb global overcapacity, they will have to do so.
Second, multilateral and bilateral negotiations have proved notoriously unproductive. Multilateral negotiations on global steel overcapacity were started under President Barack Obama, went on for years, and produced no results.
The WTO proved more of an enabler of Chinese misconduct than an enforcer — and remains blind to trade imbalances. Presidents George W. Bush and Obama both pursued strategic and economic dialogue with China but failed to make a difference.
Third, it is hard to negotiate with China when it will not admit wrongdoing. Free traders now say, “Well, yes, China is a problem, but we should not use tariffs.” But they don’t offer any other solution that is not naïve. It should be eminently reasonable to deny market share in the U.S. to foreign firms that benefit from technology theft.
Ultimately, China will have to stop its wrongful practices and rely upon its own consumers to buy their production. Harvesting key technologies from American companies and selling to U.S. consumers to fund China’s geopolitical and economic rise should no longer be an option.
Constructive unilateralism is not only appropriate but a crucial necessity to ensure that the U.S. has jobs and a strong economy in 20 years.
Michael Stumo is CEO of the Coalition for a Prosperous America (CPA).
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