As all the talk about how the evil Chinese empire is destroying our economy drags on, some of the diatribes about it border on unbelievable. For example, a couple of months ago White House trade advisor, Peter Navarro publicized what he terms the “seven deadly sins” that China must stop doing before the ongoing tiff with the United States can be ended.
China is unlikely to change and neither is President Donald Trump’s position likely to change between now and the next presidential election, even if he, somehow, comes to understand his second term may be in jeopardy.
That being said, according to Navarro, there are seven points of contention that the United States has with China. They are:
· stealing our intellectual property
· forcing technology transfers
· hacking our computers
· dumping into our markets with cheap goods (which he claims puts American companies out of business)
· support from state-owned enterprises with heavy subsidies
· importation of fentanyl
· currency manipulation
Fair enough. Let us unpack this characterization of China.
IP theft – While China has been the poster child of IP theft visibility lately, they are, really, not at the top of the IP theft high rise. In reality, according to an article in Chief Executive, there are 45 countries on the U.S. Government’s watch list when it comes to IP theft potential. And China is number 27. While they may have moved up in the last year, they are not at the top of the list. Only in the top 11 (Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Thailand, Ukraine, and Venezuela) are the 11 countries on the “Priority Watch List.”
Forcing Technology Transfers – Forced technology transfer is when foreign multinational companies are required to provide strategically significant technology to an indigenous entity that they do not control. In China, this is used to gain access to the massive Chinese market.
This is a valid concern. The economic fallout from this can be substantial because when firms allow these indigenous entities to use their technology, without compensation, they lose money. They cannot recoup the investments they have made in producing innovations based upon their technology.
However, there is a difference between forced and willing. While Trump makes it sound like this is a bad thing, it is not, necessarily. And, it is not new.
Much of the technology transfer between the U.S and China has been mutually agreed to over the years. Technology transfer goes back decades. It started in the 1970s when Taiwan and South Korea worked such a deal with Japan – and it still exists today.
In another case, Siemens, a German high-speed train manufacturer, entered into an agreement with state-owned China CNR Corporation Limited. The deal was for the first high-speed rail link in China. Now, mostly due to production shortages, Siemens is purchasing high-speed rail components from CNR. In addition, CNR is currently competing with Siemens for international contracts.
I sounds like this is widespread and nefarious. In reality, most of this is exaggerated.
Hacking our computers – China is no more prolific at hacking our computers than Russia or North Korea (remember the Sony hack?) It is a global problem across all first-world countries, and singling out China as the world’s top bad guy is ridiculous.
Interestingly, according to Cyware, the United States ranks second in this category. We, actually, have the largest and the best cyber arsenal in the world. And we use it. Remember Stuxnet? The U.S. and Israel planted that Trojan into Iran’s nuclear power plant to disrupt the centrifuges. As per various estimates, the U.S accounts for nearly 10 percent of the world’s attack traffic. It is home to many famous and infamous hackers.
Dumping cheap goods into our market – First it was Japan, then Korea, now China. That is the way the modern world works. Dumping has an easy fix and has been going on forever. What China is doing is nothing every other developing nation has done in the U.S market. We should react to China the same way we have reacted to other nations when they do this. This is where tariffs are a good thing.
Support by state-owned subsidiaries – Well, is this unique to China? Practically every nation does this to some degree. We do it here, farm subsidies, the airline and auto industries, chemical companies, tech companies, the list goes on and one (this is an interesting site that drills down a bit on this topic: www.mic.com/articles/85101/10-corporations-receiving-massive-public-subsidies-from-taxpayers).
Importation of fentanyl – Research shows that China is sending fentanyl to the U.S. Not a good thing, but fentanyl is only one of the illegal drugs smuggled into the U.S. It seems a myriad of countries hold the title of top supplier to the United States. There is cocaine from Columbia, pot and meth from Mexico, and heroin from Afghanistan and South-East Asia. There are others but one gets the point. Stopping fentanyl from China is no more important than stopping other drugs smuggled into the United States.
Currency manipulation – The fact is that all governments, via their central banks, monetary authorities or Departments of the Treasury, manipulate their currency values in the interest of “stability.” Some countries, such as China, do it more aggressively than others. Most non-capitalistic nations use aggressive currency manipulation to better position their economies.
We are being convinced that China is enemy number one. This, after years of using them to the advantage of the United States. Now China has matured and has economic muscle to flex, and we have to deal with them as a major power.
Is China clean? Of course not. But it is not the axis of evil in the world. China is doing what is good for China. These seven sins are not unique to China. Virtually every country can have such accusations leveled against them. And when push comes to shove, we can be just as ruthless as any nation on the planet.
I don’t have room to talk about how these any of these issues should be tackled, but I want to present unbiased views and facts of the story.
Making this nation great again is not going to be done on the back of China, or any other nation, for that matter. The tariffs levied against China are negatively affecting our economy. Instead of blaming China, we should summon up enough intestinal fortitude to focus on the big picture inside this country and fix what is broken with our economy.