The Trump administration has been clear about its view of China. A 2017 national security strategy document called China a “revisionist” power attempting to reorder international politics to suit its interests. It’s difficult to think otherwise given Beijing’s military buildup, its attempts to undermine American influence and power, its retaliations against American allies such as Canada, and its economic actions.
How to respond is more controversial. After years of unsuccessful talks and handshake deals with Beijing, the United States should change course and begin cutting some of its economic ties with China. Such a separation would stop intellectual property theft, cut off an important source of support to the People’s Liberation Army and hold companies that are involved in Chinese human rights abuses accountable.
This will be no easy task. Some industries will have problems finding new suppliers or buyers, and there are entrenched constituencies that support doing business with China. They argue that any pullback could threaten economic growth. But even if American exports to China fell by half, it would be the equivalent of less than one-half of 1 percent of gross domestic product. The cost of reducing Chinese imports is harder to assess, but there are multiple countries that can substitute for China-based production, none of them strategic rivals and trade predators.
The United States economy and its national security have been harmed by China’s rampant theft of intellectual property and the requirement that American companies that want to do business in the country hand over their technology. These actions threaten America’s comparative advantage in innovation and its military edge.
Even uncoerced foreign investment in technology can strengthen the Chinese military-industrial complex, especially since the Communist Party has moved, since President Xi Jinping took office in 2012, to a defense industrial policy that translates in English to “civil-military fusion.” In practice, many Chinese and foreign “civilian” companies serve as de facto suppliers for the Chinese Army and its technological-industrial base. Residents and visitors are subject to constant visual surveillance, and a nascent “social credit program” in which disobedience to party dictates is reflected in credit scores, which could affect everything from home purchases to job opportunities. These forms of social control often use technology developed by Western companies.
The United States should make major adjustments to its economic relationship with China. Comprehensive tariffs, which harm American consumers and workers unnecessarily, are not the right reaction. But neither are admonishments to “just let the market work.”
The scale of China’s industrial-policy distortions, technology thievery and efforts to modernize its army are too significant for such superficial responses. The American government must intervene in the market when it comes to China, although that intervention should be limited to areas that are genuinely vital to national security, prosperity and democratic values.
For example, the United States government should impose sanctions on the Chinese beneficiaries of intellectual property theft and coercion, in cooperation with our allies. This was the legitimate target of the United States trade representative’s original inquiry in August 2017 under Section 301 of the Trade Act of 1974, but the policy steps chosen — tariffs — focus on the trade deficit instead of loss of intellectual property.
Rather than across-the-board tariffs, Chinese companies receiving stolen or coerced intellectual property should not be allowed to do business with firms in America or, with our allies’ cooperation, in Europe and Japan. The United States should also intervene to halt foreign investment in any technology that assists the Chinese Army or contributes to internal repression and limit the access to global markets of any Chinese company that is tied to human rights abuses and army modernization.
Taking these actions would require an enormous amount of intelligence collection by American security agencies as well as crucial information from American companies. The latter is difficult to obtain: Out of fear of Chinese retribution, the foreign business community will cooperate only if there is a clear, bipartisan and long-term commitment by the American government.
While the United States must act unilaterally if necessary, the cooperation of allies such as Japan, Germany and Britain would make these steps more effective. Such countries have their own interests in China. Imposing sanctions in the name of national security on the European Union and China, as the Trump administration has threatened, would unwisely give them common cause.
Previous efforts to assert America’s influence against China, such as the discarded Trans-Pacific Partnership, did not push back effectively on Chinese economic aggression. Working with allies to directly address China’s malfeasance would.
All this means putting China at the top of American international economic priorities and keeping it there for years, without overstating or overreacting to trade disputes with our allies.
The administration has demonstrated some good instincts on China, but it must not be distracted by the next round of Beijing’s false economic promises. Protecting innovation from Chinese attack makes the United States stronger. Hindering the Chinese security apparatus makes external aggression and internal repression more costly for Beijing.
China is our only major trade partner that is also a strategic rival, and we should treat it differently from friendly countries with whom we have disputes. If Washington wants the global free market to work, it must intervene to blunt Beijing’s belligerence.
By Derek Scissors and Daniel Blumenthal
The New York Times