Following up with China

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Saturday, January 22, 2011

PRESIDENT HU JINTAO of China left Washington on Friday, having done little to assuage the growing fear among Americans that his country has the United States over a barrel, economically. Supporters of free trade, including trade with China, must acknowledge what's legitimate about this concern. As its economy has taken off, China has seemed bent on imposing mercantilist policies rather than assimilating the norms of international legality nurtured by the United States and its allies after World War II. Cases in point: China's clinging to an undervalued currency; its refusal, or failure, to thwart systematic theft of U.S. intellectual property; its discrimination against U.S. firms in government procurement; and its apparent use of its monopoly on rare earth materials to punish Japan. These and other attempts by China to gain unfair advantage must be resisted.

The question is not whether to push back but how. Trade sanctions or retaliatory tariffs might cost the United States as much as, or more than, they would punish the Chinese. Washington needs to defend its interests more deftly, with a clear-eyed view of the power balance. For example, China's efforts to suppress the value of its currency are already producing inflation, with damaging economic and political consequences. The very lack of intellectual freedom in China is an important constraint on growth; it may even be one reason Chinese firms resort to intellectual property theft.

As Treasury Secretary Timothy F. Geithner noted in a speech Jan. 12, China's post-1979 growth has been fueled by rapid urbanization combined with rapid labor force expansion. Yet both trends have just about peaked. According to estimates by Jack Goldstone, a professor at George Mason University, China's demographic profile resembles that of Japan two decades ago, when that erstwhile economic champion entered a period of long-term stagnation. By comparison, the U.S. demographic and social outlook is favorable to continued growth; the U.S. economy is still more than three times larger than China's and is likely to remain the world's biggest for years.

To be sure, the U.S. ability to contend with China depends in part on Washington's ability to lessen its own fiscal predicament; the sooner that gets done, the fewer cards America's "bankers" in Beijing will have to play. But even now, the United States has leverage. Once easy for China to set against one another, U.S. corporations have begun to present a more united front in the face of Chinese pressure. Supported discreetly by the Obama administration, the corporate resistance has forced China to yield, albeit modestly, on procurement and other issues.

Mr. Geithner appropriately outlined the administration's approach in his speech, reminding China that its growth "was also made possible by the access China enjoyed to the markets, the investments, and the technology of the United States and the other major economies" and suggesting that increases in that access "will depend, of course, on how much progress we see from China." That strikes us as the right way to do business.


© 2011 The Washington Post Company

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