Competing with China

(Imaginechina via AP Images)

Flags were hung in Tiananmen Square in Beijing to welcome the visit of President Obama on November 17, 2009.

While Steve Bannon’s departure from the White House is being cheered and largely welcomed by the so-called mainstream media, progressives, liberals, and even some conservative Republicans, it is important to remember that not everything he said was wrong.

This is particularly true with regard to America’s relationship with China.

Since the early 1990s, the foreign policy and economic elites of both parties have adopted the view that China’s economy is becoming increasingly privatized and capitalist, that China’s rapid economic development is both desirable and benign for the rest of the world, and that Anglo-American-style free trade and investment with and in China will open both its markets and thereby lead to its political liberalization and eventual democratization. On top of all this, it will make us all rich, said the elites.

During the debate in 2000 over whether to admit China into the World Trade Organization (WTO), the U.S. trade deficit with China was about $80 billion. President Bill Clinton, U.S. Trade Representative Charlene Barshefsky, Commerce Secretary Mickey Kantor, and Treasury Secretary Robert Rubin all promised Congress that this number would decline dramatically once China joined the WTO. They reasoned that while China had high tariffs against American imports, U.S. tariffs were already quite low. Thus China would be making most of the concessions and the United States would be scooping up most of the riches and jobs to be generated by surging exports to China once those high Chinese barriers were removed.

Republicans said the same thing. The George W. Bush administration’s trade representative and then–Deputy Secretary of State Robert Zoelleck declaimed that we want China to be “a responsible stakeholder in the global system,” by which he meant the largely Western (plus Japan, Taiwan, Korea, and Singapore) and mostly capitalist, free-trade, and free-investment system under the administration of the WTO, the International Monetary Fund (IMF), and the World Bank. Everything seemed perfectly established to allow China just to slide into its pre-appointed free-market, democratic slot.

Well, that was then. Now, instead of falling as predicted, the U.S. trade deficit with China has soared to close to $400 billion while some experts say Americans have lost more than three million jobs to China. One doesn’t have to swallow Bannon’s white nationalist line to recognize that he is right to say that foreign policy and economics experts, the guys and gals from the Council on Foreign Relations, the winners of the Nobel prize in economics, and most of those from Ivy League and prestige West Coast colleges have just plain been wrong.

I remember being in Hong Kong a few years ago, just before Christmas, and having a drink with an old Chinese friend. I particularly remember a comment he made after a few rounds. He said, “Now we have all the foreign dogs in the kennel (meaning the foreign corporations), and we’re going to beat the crap out of them.” Think Google, Corning Glass, Microsoft—even Apple. What’s happening to them in China? They are either not there at all or are getting the “crap” beaten out of them.

China is not playing or interested in playing the Western game. Actually, its game looks more like the 1970–1995 one played by Japan, Korea, Taiwan, and Singapore. But the Chinese have moved way beyond that. Just last week they wrote into corporation laws that corporations must be dedicated to the best interest of the Chinese Communist party.

So, when you see Alibaba CEO and founder Jack Ma (whose company did a big share offering in the United States) at the World Economic Forum or some other global watering hole, just keep in mind that Jack’s main job is not improving returns to the shareholders who bid up Alibaba’s price. Rather it is returns to the Chinese Communist party.

Bannon is correct in understanding that the United States and West (broadly defined) are facing a total economic, trade, technology, energy, business, diplomatic, military, social, spiritual, and political challenge from China for the future shape of world society.

To respond to this challenge, the United States must play, as China does, a totally integrated game. It cannot look at trade and globalization as something different from military defense and global geopolitical strategy. China’s overseas investment is blessed and guided by Beijing. It will therefore no longer do for Washington to be unaware of the plans American CEOs have for investing in and transferring technology to China. By the same token, Washington should know at least as much about the plans of Chinese companies for investing in America as does Beijing.

In many ways, the United States would do well to imitate China. For example, U.S. companies are often forced to transfer technology to Chinese competitors as a condition of being allowed to operate in China. To be true to its commitment to the rule of law, the United States should strongly challenge these practices in the WTO and elsewhere. But because they are often a matter of unwritten administrative guidance and threats, the United States should also prepare to act reciprocally.

In no case should Washington stand by while a cutting-edge U.S. industry is overwhelmed by the theft of its intellectual property or by the subsidized creation of enormous excess production capacity in China.

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