U.S.Trade War With China?
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U.S.Trade War With China?

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A good way to directly or inadvertently start a trade war with China would be to take on the economic development goals expressed in the Five-Year Plan. After all, China's leaders see continued economic growth as the key to their survival. 

Conscious that massive investment in heavy industry is unsustainable, Party planners have focused for years on “innovation.”  In the future, they believe, China must change from manufacturing goods for multinational companies to selling products developed by Chinese companies under Chinese brands.  Thus, China's leaders hope to avoid the “middle income trap” and a prolonged recession that could fatally undermine the legitimacy of the Party.

After the first five years of the “indigenous innovation” policy, it has become known in the international business community as a massive scheme for protectionism and technology theft.  Dealing with its impact remains a top priority for American trade negotiators.  But a few Chinese companies have emerged as global brands during this period, establishing a niche in international markets as reliable low-cost alternatives – PC maker Lenovo, the appliance company Haier, and the network equipment manufacturers Huawei and ZTE.

So the way that the U.S. has dealt with Huawei and ZTE, pillars of China’s economic development, over the past year is remarkably ill-advised.  Friday's Wall Street Journal suggests that American regulators are taking a page from China's protectionist playbook – using vague national security concerns, secret hearings, and behind-the-scenes pressure on private companies to exclude Chinese competitors from American markets.  This is hardly consistent with Washington’s efforts to open Chinese markets to American IT equipment – an issue which dominates.

Most recently, U.S. regulators have pushed Japanese and American telecom operators Softbank and Sprint to swear off using Chinese-made equipment as a condition of their proposed merger. The move was driven by concern about Chinese hacking and intellectual property theft.  This follows a move by Congress two weeks ago that added language to a budget resolution strongly discouraging government agencies from buying IT equipment from companies “owned, directed or subsidized by the People's Republic of China.”

As the Journal shows, the decision in the Sprint-Softbank deal was suggested by the national security apparatus, and doesn't appear to have followed any set rules – it differs from the deal worked out by the Federal Communications Commission  in the T-Mobile/Metro PCS deal also under negotiation.  Federal officials have evidently settled on a ban that isn't a ban:

“Because of concerns about violating trade rules, any constraints wouldn't specifically exclude gear from Huawei, which Softbank has used in its home market of Japan, or ZTE, a person familiar with the process said. Nor would they explicitly give the government a veto, this person said. But U.S. officials have made no secret of their distrust of the Chinese companies and are aiming to make sure their equipment doesn't become a core part of U.S. telecom infrastructure, the people said.

"You have to find a way to say, 'Don't buy from the Chinese,' without saying, 'Don't buy from the Chinese,' " said a person who has spoken with Sprint.”

The national security concerns may well be justified. Still, given the available public evidence – the net effect of the Sprint-Softbank vetting procedure is likely to be undermining many of the United States' top priorities with China.  Using non-transparent processes to avoid World Trade Organization rules will only confirm widespread Chinese suspicion that American talk of international norms is a tool to constrain Chinese development.  Huawei is a particularly critical example – as one of the champions of China's current development goals, it is a high priority for China's leaders.  If global rules cannot protect it from backhanded treatment, Beijing is much more likely to give up on global trade agreements and turn to tit-for-tat protectionism.

Government meddling in the procurement decisions of private companies undermines another key goal of our relationship with China: reaching an agreement on the government procurement protocol of the WTO, under which governments that are party to the protocol agree not to discriminate against other members’ companies in sourcing.  China's accession to the Government Procurement Agreement, however, has been held up for more than a decade by legal technicalities regarding the question of State-Owned Enterprises.  China would prefer not to consider them as part of the government, which would allow them to keep “buy Chinese” policies, while the U.S. argues that their role in carrying out public projects makes them part of the government.  If the American government can ban private companies from using Chinese products in infrastructure, that severely blurs this line.

The U.S. should not have to compromise its national security to uphold free trade – but following China's example is not the way to do it.  Rather, it should develop transparent procedures that allow companies like Huawei and ZTE to clear their names – and which can serve as models for procedures American companies could deal with overseas. 

Hundreds of billions of dollars of U.S. trade are at stake with these issues: U.S. companies have struggled for years to overcome protectionist measures loosely justified by national security (a report from the U.S. Trade Representative covers China's restrictions on foreign IT) – in the IT field, Microsoft, Google, and Intel, have all been cast as possible American Trojan horses, while cultural exports like Hollywood movies and Facebook contend with the charges of ideological infiltration – in Chinese eyes, another form of national security.

Huawei and ZTE are national champions, and the Chinese state has frequently proved willing to bend over backwards on their behalf in domestic affairs.  Their access to the U.S. market could be a huge step for China's development goals – which could give Washington substantial leverage to get concessions on free trade or security issues.  But to get those concessions, the U.S. will have to show that it is negotiating in good faith – and to convince China's leaders that its concerns about security are not excuses to exclude China from its market.

Comments
31
JohnX
April 20, 2013 at 12:38

Liang1a wrote: "So China winds up buying useless things like soybeans and apples (the edible kind)".

 

I am sure that 1 billion hungry Chinese would not find those useless or that the Government facing hungry and angry people would also not find them useless.

 

Though if they are useless than tell the Chinese to stop buying them and buy bullets instead, I hear eating bullets is quite tasty.

Liang1a
April 12, 2013 at 07:18

Dan wrote:

April 10, 2013 at 2:12 am

@ Lang1a,

Easier said than done, my old Lang1a. Hope with your Chinese 'prestigious universities' & all the advanced/high technologies 'borrowed' from the West via industrial & cyber espionages, China would soon become the lonely 'superpower' 'resting-in-peace-for-ever' & in its own fantasy 'middle-kingdom-world'. All the best of luck, China!

—————–

Only a very naive man will think there is such a thing as "friends" between nations.  America has no friends.  NATO will turn against America if it (America) became weak.  America does not station tens of thousands of troops in Germany to protect it but to prevent it from attacking America again.  The same thing with Japan.  "Lonely superpower" is an appropritate description of America.  And no superpower can be anything but lonely.  But there is nothing dangerous or shameful about that.  It is foolish to think a nation has permanent friends or enemies.  Therefore, grow a bit of brain and stop being so naive.  If you want to demonize China at least say something real.

In the end, no country can be the most powerful in the world by having a lot of friends or by relying on the technologies of other countries.  China can only be truly powerful by relying on its own technologies, on being self-sufficient in creating the richest domestic economy in the world and by deploying the most powerful military in the world based on the most advanced weapons in the largest numbers.  Mock all you want.  Your laughter will be nothing but silly cackle as China rises steadily and be the most dominant nation in the world as America sinks into abject poverty.  Already your infrastructures are crumbling and your medical system neglect many of your own people while your minorities earn less and less than your white people.  America is a fraud and progressively becoming a poverty stricken fraud.

Liang1a
April 11, 2013 at 17:37

Dan wrote:

April 10, 2013 at 2:12 am

@ Lang1a,

Easier said than done, my old Lang1a. Hope with your Chinese 'prestigious universities' & all the advanced/high technologies 'borrowed' from the West via industrial & cyber espionages, China would soon become the lonely 'superpower' 'resting-in-peace-for-ever' & in its own fantasy 'middle-kingdom-world'. All the best of luck, China!

———————–

The Americans are very arrogant and think the world needs them.  Anybody with any ability to do simple arithmatic knows China cannot rely on the puny American economy to grow a big economy.  If China exports $1 trillion then that is only $666 for each Chinese.  ($1 trillion / 1.5 billion Chinese equal $666 per Chinese.)  So even if America spend all its GDP of $15 trillion to import Chinese products, it is only $10,000 for each Chinese.  And the Chinese people would still be firmly mired in the middle income trap.  Obviously, anybody who has an ounce of brain understands that China cannot rely on export to America to achieve the same GDP as the Americans which is $50,000.  Therefore, in order to achieve the same GDP as the Americans, China must rely on itself.  Americans cannot bear the thought of Chinese achieving more than they do.  But China had rely on themselves to achieve the biggest economy in the world for thousands of years even before America became a nation.  And China will now rise up to its full potential.  Americans, Japnese and their sundry toadies will mock.  Let them just wait and see.

If China just just grow 7.5% per year for 30 years it will grow 8 times.  In 2012 the Chinese GDP in yuan is 52 trillion yuan.  8 times trillion yuan is 416 trillion.  But let's say it is just 300 trillion.  Than at 3 yuan per dollar, it will be $100 trillion.  Obviously 95% of China's GDP must rely on itself since nobody in the world can import $100 trillion of products from China.  Especially since the entire world GDP is only around $50 trillion.

Dan
April 10, 2013 at 02:12

@ Lang1a,

Easier said than done, my old Lang1a. Hope with your  Chinese 'prestigious universities' & all the advanced/high technologies 'borrowed' from the West  via industrial & cyber espionages, China would soon become the lonely 'superpower' 'resting-in-peace-for-ever' & in its own fantasy 'middle-kingdom-world'. All the best of luck, China!

Liang1a
April 9, 2013 at 09:55

Dan wrote:

April 9, 2013 at 2:24 am

I quite agree with you, Lang1a. China never needs the world. It could be doing business with itself like thousand years before. Isolation is good for your china, Lang1a. Still remember the Qing's defeat & humiliation due to this sort of arrogance of the 'Middle-Kingdom-mindset' & four decades of hunger & destitution of Mao's era for this kind of isolationism?

——————————

Countries trade for various reasons.  Singapore must trade because it cannot even produce its own food and water.  S. Korea must trade because it lacks most raw materials as well as most high tech products.  Japan must trades because it lacks most raw materials and some high tech products.  America trades because it lacks a few raw materials and can enhance its dollar purchasing power by importing cheap foreign manufactured products.  China is self-sufficient in food and water as well as all manufactured products.  China can develop all its own high tech products.  China can be energy self-sufficient.  China is mostly self-sufficient in raw materials.  Therefore, it is China's great good fortune that it does not need to trade.  China can produce 300 trillion yuan of GNP with 200,000 yuan of per capita GNP.  95% of this has to come from domestic services, food, energy, manufactured products, etc.  Therefore, China cannot do more than $5 trillion of foreign trade because other countries cannot afford more than $5 trillion to buy Chinese products.  In fact, I don't think the rest of the world can afford even $3 trillion to buy Chinese products whether they are labor intensive products or high tech products.  So, China can produce 95% of its own economy while the rest of the world cannot buy more than 5% of China's GNP.  Therefore, China can only achieve a $100 trillion economy by being self-reliant and self-sufficient by 95%.  The fact that China can be self-reliant and self-sufficient is its greatest good fortune.  China should not throw that great advantage away and deliberately shackles itself to foreign trade and thereby be dominated by foreign enemies and be reduced by them.

Chinese leaders must have the wisdom and courage to break with the conventional wisdom of the world and see the uniqueness of China and implement unique policies to develop China to its fullest potential.  In the end, if China wants to be the greatest nation in the world then it must do things differently from the common countries.

And also remember how the countries of the West and Japan are sinking into the toilet.  America and Japan are two of the countries with the most trade and also with the biggest public debts.  America has the biggest trade deficit.  In the end, trade has not brought prosperity and wealth to these countries but only debts and more debts and recession with decreasing wealth for their peoples.  Therefore, China should see the fallacy of trade and concentrate on creating genuine wealth based on the productivity of its own people producing more goods and services for the consumption of its own people.

If this is too much for some people's limited intelligence, then let me give them a simple example.  If you are producing 100 loaves of bread a day, is it a good idea for you to trade them for 60 loaves of bread produced by your neighbor?  Obviously it is a stupid idea.  Therefore, it is stupid for China to trade when it already has all it needs and can only lose the value of its products by trading and end up with less.

And the argument that China declined because it isolated itself is nonsense.  It is not logical.  Technological advancement is based on the knowledge of science and mathmatics.  Qing China declined because it did have advanced technologies.  And Qing China did not have advanced technologies because it did not build great universities.  Now Chinese leaders know very well that China needs high technologies and are building many great universities.  As a result China's technologies are advancing with increasing speed and will overtake the West and Japan soon.  China is already exploring the space and is just about the only country in the world with a full scale moon exploration and will be the only country with a space station by 2020.  Therefore, it is not logical to correlate isolation to backwardness.  To say that isolation leads inevitably to backwardness is itself unscientific.  Only people with little knowledge will make such nonsensical statement.  Obviously, their intent is to keep China open to their silent invasion through trade and investment and ultimately domination and colonization.  China derives no benefit by trading with these parasitic Japnese and Westerners and should logically not trade with them.

Dan
April 9, 2013 at 02:24

I quite agree with you, Lang1a. China never needs the  world. It could be doing business with itself like thousand years before. Isolation is good for your china, Lang1a. Still remember the Qing's defeat & humiliation due to this sort of arrogance of the 'Middle-Kingdom-mindset' & four decades of hunger & destitution  of Mao's era for  this kind of isolationism?

Whichwaydidhegogeorge?
April 9, 2013 at 02:19

You fail logic 101. Huawei routers were straight up stolen from Cisco. They weren't inspired, they were straight duplicated down to typos found in manuals of early versions of Cisco IOS. This Internet we're conversing upon? The 'net is a descendant of ARPAnet which was funded by DARPA which is funded by the blood, sweat & tears of hard working Americans. These investments (like solar tech) can sometimes take decades to recoup.

 

Does the average Chinese person condone outright theft & 2 faced deception? 

 

The CCP dreams of indigenous innovation & I can see hints of it in the burgeoning DIY engineer/inventors beginning to take hold in China. However, if the Chinese people want this sort of explosion of creativity then they MUST learn to enforce native & non-native IP protection. While you may see results from state sponsored research. You are not going to get big fundamental breakthroughs like the Internet without rewarding inventors & visionaries; if the creators know they're going to be ripped off, then why bother?

Dan
April 9, 2013 at 01:57

Hey Lang1a,

Just a keystroke, my poor old man. There's no need for China to buy US T-bonds any more. The American individuals, institutions & other countries (Japan, Saudi Arabia etc.) would pick up the slack. China bought US T-bonds just for the sake of its self-servingness: holding down the Yuan for its own export advantage ( currency manipulation) & its safest investment (default-free). So, you need to clear the long-time  myth of 'China helping or funding the US by buying its Tbonds! ' in your foggy cloudy head. China is an untrustworthy nation that the world should be very careful in doing business with ! BTW, don't you know that your China is also notorious for its money-printing addiction, printing money like crazy from thin air?

Choi Soonha
April 8, 2013 at 23:51

Cheapshot.  You US trolls, whenever you cannot counter effectively, you get personal with your remarks and use BS and lies to colour your opponents. 50 RMB?  Looks who's the jobless guy begging for handouts from the CIA and Pentagon to slander others as a job? I am truly sorry for you.  Honesty is not you. Hope your mother or girlfriend don't find what you do for a living.

Bobby
April 8, 2013 at 03:16

How could you trust a country like this? And …business as usual?

Why does China have so few true friends?

Posted by  Alfred Wilhelm Meier ⋅ April 7, 2013 ⋅ China Daily Mail.

On his first foreign foray as  China's  new President, Xi Jinping visited Russia and then Tanzania, two countries with which China has frosty relations at best.

“China and Russia, as the biggest neighbours share many commonalities,” Xi declared in Moscow. But in truth, the two nations carry on carefully crafted civility, and that’s all.

“All of Africa is China’s friend,” Xi said in Dar-es-Salaam, Tanzania.

But many Africans say they hold a different view. “China takes our primary goods and sells us manufactured ones,” Lamido Sanusi, Nigeria’s central bank governor, wrote last month. This, he scoffed, is “the essence of colonialism”…..

Its belligerent, assertive stance on territorial rights in the South China Sea  the last few years has driven away almost every Asian nation. Nearly all of them are now asking the US for help – even Vietnam. China’s only regional “friend” is Cambodia, a nation Beijing has almost purchased with $8 billion in aid over the last few years and another $5 billion promised. Hun Sen, Cambodia’s Prime Minister, no longer openly disparages China.

Beijing used to count Burma as its friend, but Burma’s ongoing transition toward democracy came about in large part because its rulers didn’t like being dependent on Beijing. North Korea and China routinely criticise each other, but for political reasons they stay inseparable…….

China faces trust issues all over the world

What about the rest of the world? Why does China have so few friends? Put simply, China faces trust issues all over the world. Would you trust a government that tells its people: No worries: the water is clean – after more than 16,000 diseased, decomposing pigs were found in the river that supplies water for Shanghai’s 23 million people?

How trustworthy would you find a nation whose young men infiltrate the US workforce, steal industrial secrets and take them home? Recently, a federal court sentenced Chinese citizen Sixing Liu to nearly six years in prison for passing thousands of files from a military contractor to Beijing. His conviction was the latest of about 100 similar cases involving Chinese infiltrators in the past four years.

Not every problem is so grand. Late last month, according to multiple sources, Swedish car-maker Volvo complained that some of its Chinese dealerships had inflated sales figures to qualify for cash bonuses – when Volvo sales had actually declined. By now you see the pattern.

Even a senior Chinese official said that the government often fakes its national economic statistics, like the GDP, inflation and unemployment rates. He once called them “man-made”, according to a leaked US diplomatic cable.

Speaking at a university in Moscow last month, President Xi acknowledged that “no country or block of countries can again single-handedly dominate world affairs”. His unspoken target: the US and Europe. But given China’s frequent dishonest behaviour that nation won’t soon dominate world affairs, either.

Author:  Joel Brinkley

( China Daily Mail)

 

 

China Watcher
April 7, 2013 at 23:23

David Cohen is not just silly.  He misstates both economic logic and the stated intention of the Chinese regime.  The solution to their trade and current account imbalance with the world is not the promotion of domestic brands.  Everything else being equal, that could make matters worse.  Rather the key to Chinese rebalancng, as Tim Geithner so clearly stated in his 2009 soeech at Peking University, is to rely on increases in domestic consumption as the driver of GDP growth.  Higher exports, reducd imports and continued speculation in real estate development are part of the problem, not the solution.

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