Why we must challenge China on trade despite the risks
There is much to dislike in President Trump’s trade agenda, but he is correct on one subject: China’s relentless quest to extort American “intellectual property” — technologies, business methods, patents. Trump took a swipe last week at China’s policies by ordering his top trade officials to investigate. Whether he can alter China’s behavior is unclear, but he is right to try, even at the risk of a trade war.
China has high economic ambitions, write David Dollar and Ryan Hass of the Brookings Institution.
Its industrial policy, called “Made in China 2025,” envisions the country becoming the global leader in 10 crucial sectors: information technologies; machine tools and robotics; aerospace equipment; rail transport; maritime equipment; new energy vehicles; power equipment; agricultural equipment; new materials; and advanced medical products.
To get to the top, China also needs advanced know-how. Here’s where foreign companies make a bargain with the devil.
The Chinese require them to surrender technology in return for the right to invest and sell in China.
To this legalized technology extortion must be added an indeterminant amount of illegal cybertheft of business secrets. Whatever the source, the consequences hurt Americans — and Europeans, Japanese and workers in other advanced countries.
The danger of global overinvestment, driven by China’s subsidies, is obvious. “To put it plainly, China could do to semiconductors, artificial intelligence and pharmaceuticals what it has done to steel and aluminum,” writes Scott Kennedy of the Center for Strategic & International Studies in a report.
If global gluts of production capacity emerge — as they have in steel and aluminum — and China protects its producers, then losses will fall heaviest on non-Chinese firms.
Finally, there’s national security. Writing last week in The New York Times, former Director of National Intelligence Dennis Blair and former National Security Agency Director Keith Alexander argued that the mounting pillage of American intellectual property poses a threat to national security as well as the economy.
The case for doing something is compelling; the ability to make progress is much less. Trump acted under Section 301 of the trade laws, an obscure provision that hasn’t been used extensively for several decades.
It authorizes the U.S. special trade representative to investigate allegedly unfair trade practices, which could lead the president to order sanctions, including high tariffs, against offending countries.
Sounds simple. We’ll just hit China with higher tariffs until it ceases its offensive practices. Sorry, that’s not reality. China could retaliate and probably would. Boeing, Apple and U.S. soybeans are mentioned as potential targets. Down this path lies a trade war. A further complication is that, although many of China’s extortionary practices contravene the WTO’s spirit, they are not illegal under WTO rules.
Atkinson calls the Chinese system “innovation mercantilism.” He thinks that if all the other advanced societies — the United States, the European Union, Japan, South Korea and some others — protest in unison against some of Beijing’s egregious practices, the Chinese night retreat. Dollar and Hass are dubious. They fear “a trade war, which will be ‘lose-lose.’”
The larger question involves how the new world order operates. Ideally, the United States and China would cooperate on many issues where they have similar interests.
These would include a viable world trading system and the nuclear future of North Korea. So far, there’s scant evidence of this enlightened collaboration.