Of all the commentary this week on China, none got to the heart of the problem anywhere near as well as Steven Pearlstein did in the Washington Post.
American trade policies toward China are a giant WTF—something akin to a boxer agreeing to fight straight while letting his opponent bring weapons into the ring, bribe the judges, and pay off the ref. Free trade for me but not for thee, and that’s okay, we say.
And so as China brazenly breaks trade rules in order to gain dominance of critical future industries at astonishing speeds, the U.S. whines (too late) to the World Trade Organization, which will do nothing.
So what does Pearlstein propose instead? Reciprocity:
The right response to these challenges would be for the president this week to laud China for the success of its economic policies and announce that the administration will begin forthwith to apply each and every one of them to Chinese exports into the United States. Subsidies and directed credit for local companies, buy-American provisions for government agencies and government contractors, currency manipulation, the rules on “conditional market access” and “indigenous innovation” – surely China could hardly complain if we were to pay them the highest compliment by embracing their economic model.
Why wouldn’t we do this? Why don’t we do it already—and not just with China but with everybody we trade with?
For instance, Obama’s recent, much-ballyhooed trade agreement with South Korea (“Could Mean Thousands Of US Jobs,” was the AP’s credulous headline) eliminates both countries’ tariffs on car imports over the next several years. But how is it “free trade” when the Koreans will effectively still limit imports of American cars to 75,000 a year? Meantime, South Korea will sell us about a million cars this year—more than half of which will be made over there.
That’s why South Korea could confidently say last month that “the revised free trade agreement with the U.S. is mutually beneficial and won’t hurt the nation’s carmakers.”
Which brings us back to Pearlstein’s point: Why don’t we give the same as we get? And particularly with China?
Pearlstein:
To start things off, the administration might announce its intention to block the joint venture Hu intends to announce later this week with General Electric. GE already sells lots of engines to China for all those Boeing and Airbus jets it buys. Now GE is hoping to get the contract to provide avionics to the state-owned Commercial Aircraft Corp. of China, which intends to go into direct competition with Boeing. What better way than by forming a 50-50 joint venture with Aviation Industry Corp. of China, another state-owned firm?
In addition to $200 million, GE will be contributing technology to the partnership that will operate as the avionics brain for Boeing’s new 787 Dreamliner. And going forward, the partners will jointly develop new radars, controls and guidance system at a jointly run research and development laboratory that is already under construction. Call me cynical, but this sure sounds as if one of America’s leading technology companies has decided to sell some of this country’s crown jewels to ensure access to China’s rigged market, potentially jeopardizing the competitive advantage enjoyed by this country’s leading export industry.
Can anyone explain why we do this? What’s the logic?
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.