Robert D. Atkinson is president of the Information Technology and Innovation Foundation.
Of all the issues that will be on the table when President Trump hosts Chinese President Xi Jinping this week at his Mar-a-Lago resort in Florida, none is more important for the U.S. and global economies than China’s mercantilist campaign to dominate advanced industries by flouting the rules of the international trading system. China has been kidney-punching its competitors and has received in return only the occasional sheepish rebuke at ministerial dialogues. Trump is right when he says that China has been eating our lunch and that it is time to do something about it.
Doing something about it requires that Washington neither continue its flaccid appeasement nor retreat toward economic nationalism. Instead, the United States should adopt a strategy of constructive, alliance-backed confrontation. Only by leading an international coalition of market-based, rule-of-law economies will it be able to prevail on China’s leaders to start competing fairly.
For such a strategy to work, however, Washington’s pro-trade establishment first must come to grips with the reality that China is a conspicuous outlier — and that its unremitting mercantilist behavior represents a threat not only to the U.S. economy but also to the very soul of the global trading system.
Xi has unabashedly trumpeted a goal of making China the master of its own technologies, by which he means Chinese firms should produce most of the technological goods and services that China consumes while also having free rein to dominate global markets. To achieve this, Xi has promulgated policies such as the “Made in China 2025” strategy, which calls for using at least 70 percent locally produced code, content and components in an array of advanced-manufacturing products, as well as a cybersecurity strategy aimed at mastering core technologies such as operating systems, integrated circuits, big data, cloud computing and the Internet of Things. Indeed, from computing to biotech to aerospace, almost no advanced U.S. industry is immune. Losing in these industries would mean fewer good U.S. jobs, a weaker dollar and severe vulnerabilities in the nation’s defense-industrial base.
It would be one thing if China were just another middle-of-the-pack nation following international norms to reach ambitious industrial goals. But when the world’s second-largest economy makes by-hook-or-crook mercantilism the animating force of its economic and trade policies, that is a whole different kettle of fish. In addition to stealing intellectual property, forcing competitors to hand over their technologies and thumbing the scales on behalf of its state-owned enterprises, China’s unfair policies include a pattern of flatly denying some foreign firms access to its markets; weaponizing its antitrust laws to extort concessions; and underwriting acquisitions of foreign technology firms. These policies are especially damaging in the absence of a true rule of law or an independent judiciary to constrain Chinese officials.
The previous three U.S. administrations sought dialogue with Chinese leaders in the hope that they would have an epiphany and embrace the one true path of Western, market-based economics. But it should be clear by now that approach has failed miserably. Indeed, rather than reform, China has been doubling down.
Trump is right that China is flouting global trade rules to the detriment of the United States, but adopting a policy of economic nationalism — simply slapping tariffs on foreign goods, for example — will not solve the problem. In fact, it would simultaneously crimp U.S. prospects for growth, leave the global playing field wide open for China to dominate, and alienate allies who would have no choice but to cut flawed deals with the world’s new economic hegemon. But neither is it a viable option to blithely accept Chinese domination of advanced industries.
So what should the Trump administration do? One step would be to resurrect a new and improved version of the Trans-Pacific Partnership trade agreement. Much of the opposition to the TPP was based on a combination of ideology and misinformation, but it is true that the agreement could have been better. Trump should make it his own by adding new protections, such as strong curbs on currency manipulation, and then claim victory. Another step would be to more vigorously prosecute trade cases against China. But doing this would only chip away at the core problem. Neither approach represents a direct challenge to China’s systematic pattern of abuse.
To fundamentally change Chinese government behavior, Trump needs to assemble an alliance of nations that collectively raise the stakes. China won’t willingly abandon its mercantilist policies unless it is compelled to do so by outside pressure that goes beyond the narrow, legalistic limits of the World Trade Organization. This fight will be won or lost not in the tribunals of Geneva, but in the court of global opinion where countries are held accountable for delivering tangible results. That means the Trump administration needs to enlist the international community to pressure China to show by its actions that it can be a responsible player in the global trading system.
The first step in enacting this new doctrine should be to build an ironclad prosecutor’s case that catalogues all of the unfair, mercantilist practices China engages in and explains how they harm the entire world economy, rich and poor nations alike. Next, Trump should have top administration officials fan out around the world to line up allies, including in Europe, the British commonwealth nations, Japan and South Korea, to develop a coordinated response. This could even include orchestrating a Group of 19 meeting that excludes China — for the express purpose of formulating an agenda for how market-based, rule-of-law economies can respond both in unison and individually to Chinese mercantilism.
Isolation is not a formula for economic greatness; leading the defense of the global trading system is. Other countries lack the heft to push back against China’s mercantilism on their own for the (very real) fear of retaliation. But the United States can and should lead this effort. “America First” should mean standing in the vanguard and pointing the way forward.
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