Trump is right on China
The key to free and fair trade is that every nation follows the rules.
From the first day China joined the World Trade Organization in 2001, after President Bill Clinton’s encouragement, the Communist government has bent and broken the rules. President Donald Trump is correct to say enough is enough and threaten $60 billion in tariffs.
As China made the transition from a state-controlled to a capitalist economic system, Clinton and President George W. Bush gave China some leeway in the beginning, hoping that the government would eventually see the wisdom of open markets. They were tragically naïve.
Chinese leaders never conformed and instead used WTO membership to develop economic strength, expand global influence and expropriate intellectual property from foreign companies.
“China is determined to maintain the state’s leading role in the economy and to continue to pursue industrial policies that promote, guide and support domestic industries while simultaneously and actively seeking to impede, disadvantage and harm their foreign counterparts," according to a report released by U.S. Trade Representative Robert Lighthizer.
Frequent readers know I am a globalist who believes free and fair trade creates wealth and deters conflict. Which is why I am also a critic of China’s economic cold war on the United States.
China’s strategy is laid out in the State Council’s Made in China 2025 plan. Rather than
engage in mutually beneficial trade, China aims to freeze out foreign companies in 10 advanced sectors, including artificial intelligence, robotics, electric vehicles, biopharmaceuticals and advanced medical products.
The United States leads in these sectors, and losing our edge would hurt our long-term economic prospects. Which is why Trump’s limits on Chinese investment in these industries makes perfect sense.
“MIC 2025 (Made in China 2025) illustrates the state’s intent to leverage China’s legal and regulatory systems to favor domestic Chinese companies over foreign ones in targeted sectors,” the U.S. Chamber of Commerce concluded in a report last year. “By targeting and channeling capital to specific technologies and industries, MIC 2025 risks precipitating market inefficiencies and sparking overcapacity, globally.”
Containing Chinese President Xi Jinping’s campaign for global economic dominance requires strong action coordinated with other regional powers, which is why Trump’s misguided attacks on Asian allies and the European Union are so disabling. Equally puzzling is the administration’s focus on the trade deficit, which is irrelevant compared to China stacking the deck to favor its economy, and by extension its government.
For example, unlike in free markets, China requires foreign companies to have a Chinese partner that owns 51 percent of the enterprise. Any intellectual property employed by the foreign investor, therefore, becomes Chinese property, and Chinese companies are expected to share that property with the government.
China also requires tech companies to turn over their source code. All foreign companies are required to store their data on government-accessible servers and conduct their research and development in China. Much of that technology ends up with new governmentbacked competitors to the foreign company.
And while I think Trump exaggerates when he says China has cost the U.S. 60,000 factories and 16 million jobs, he is right about one thing:
“We’re doing things for this country that should have been done for many, many years,” he said before ordering Lighthizer to produce a list of tariffs.
Since no president acted sooner, mostly because major U.S. companies did not want to lose their foothold in China, there will be significant repercussions. China is threatening tariffs on $3 billion in American goods.
“China is not afraid of and will not recoil from a trade war. China is confident and capable of facing any challenge,” its embassy said in a statement. “If a trade war were initiated by the U.S., China would fight to the end to defend its own legitimate interests with all necessary measures.”
That will likely mean less food, aircraft and automobiles bought from U.S. companies. U.S. consumers will pay more for Chinese goods. In the past, Chinese officials have retaliated by harassing U.S. companies and their executives in China. No war is without casualties. Given Xi’s escalation in military activity in the China Sea and his recent appointment as president for life, there is no sign he will soften his stance. In fact, U.S. companies report that conditions have only worsened since he took power.
After 17 years of patient cajoling, China has given the U.S. government no other choice but to enforce the rules that the Communist government never intended to follow in the first place.
For the sake of fair trade in the future, Trump is right to act now.