Co-founder and co-editor, 'The American Prospect'
American Policy Made in China
LAST week, President Obama forcefully declared that the United States
would not withdraw from the Asia-Pacific, telling the Australian
Parliament that he was dispatching 2,500 Marines as well as ships and
aircraft to serve at a base in the Australian port of Darwin. The
message, in case anybody missed it, was unmistakably directed at
But while Obama was making symbolic military gestures, his
administration was doing nothing serious to contest China's growing
threat to America's economic base. That threat is spelled out in an
official government document that should be mandatory reading for all
of us -- the annual report of the U.S.-China Economic and Security
Review Commission, released last Thursday.
What's noteworthy is that this is a bipartisan commission created by
Congress, and that all of its 12 commissioners, six Republicans and
six Democrats, signed off on the report.
The basic findings: China is a mercantilist and authoritarian state
that is determined to appropriate not only U.S. jobs but also U.S.
advanced technology through illegal subsidies, suppression of worker
rights, and deals with U.S. industry that are one part lucrative
carrot (cheap wages, state capital) and one part illegal stick (if you
want to do business in China, take a Chinese partner and share your
trade secrets). Even then, you must produce mainly for export back to
the U.S., not for sale in China.
Worse still, U.S. industry has been happy to take these deals, which
makes them a domestic ally of the China lobby. While our government
periodically makes half-hearted complaints that the Chinese currency,
the Renminbi, is seriously undervalued, American corporations like
that just fine -- because it makes their exports to the U.S. from
Chinese factories even cheaper. The U.S. Chamber of Commerce, which
fights industrial policy at home, lobbies fiercely against any
pressure from Washington against Beijing's mercantilism.
So while the Obama administration flails around with small-bore
military gestures and bipartisan free trade deals with smaller
countries, it does not dare to challenge the grand bargain America's
corporations have made with China, or China's own illicit policies.
Among the Commission's more important findings:
The U.S.-China trade gap continues to widen, especially in advanced
technology. China sold the US $81 billion in advanced technology
products in the 12 months ending last August, and imported just $13.4
billion worth. The total trade deficit with China was a record $273
billion, more than half of America's total trade deficit with the
world. By mid-2011, China's overall trade surplus of $3.2 trillion was
up $800 billion in just a single year.
Although China agreed in 2001 to stop explicitly requiring foreign
companies to surrender their technology to China in return for market
access and investment opportunities, the government in Beijing still
employs several tactics to coerce foreign firms to share trade secrets
with Chinese competitors. China's industrial policy in general and its
indigenous innovation policy in particular seek to circumvent accepted
intellectual property protections and to extort technology from U.S.
These requirements and extortions explicitly violate prohibitions of
the World Trade Organization.
China is becoming a national security threat, both because it is an
increasingly important player in the supply chain for advanced
components no longer made in the U.S., and because of its
sophistication in cyber-warfare.
The U.S. government, foreign governments, defense contractors,
commercial entities, and various nongovernmental organizations
experienced a substantial volume of actual and attempted network
intrusions that appear to originate in China. Of concern to U.S.
military operations, China has identified the U.S. military's reliance
on information systems as a significant vulnerability and seeks to use
Chinese cyber capabilities to achieve strategic objectives and
significantly degrade U.S. forces' ability to operate.
Despite the threatening and unpredictable conduct of North Korea, the
Chinese Communist Party appears to have calculated that its interests
are better served by the support of the [North Korean] regime than by
its removal. Likewise, China's relationship with Iran undermines
international efforts to curtail Iran's pursuit of weapons of mass
destruction and support of international terrorism.
China continues to be an autocratic, one-party state that brutally
represses dissent, even as it becomes a more effective state-led,
pseudo-capitalist world power. Despite China's increasing
productivity, the Chinese government suppresses domestic consumption
so that it can have ultra-low wages and cheap capital to build its
economic machine and bribe American industry to collaborate with its
mercantilism. Its state-owned industry sector is still immense, as its
favoritism for domestic companies in its public procurement.
Because of the American reliance on Chinese capital to finance the
U.S. public debt and American capital markets and because so many of
our largest corporations have made their separate peace with the
Chinese regime, we may have already reached a tipping point where
Washington is unwilling to make more than token complaints that
Beijing knows not to take seriously. Though China's suppression of the
value of its currency has been thoroughly documented, Treasury
Secretary Geithner has repeatedly refused to formally cite China as a
currency manipulator, which would compel the U.S. government to pursue
While the West teeters on the brink of a second recession and perhaps
a collapse of the Euro, China's autocratic state capitalism is largely
unchallenged by either the U.S. or Europe. After the most recent
European summit meeting desperately sought to cobble together a new
bailout fund, European leaders went hat in hand to Beijing, where they
were told in no uncertain terms that if they wanted China's help, they
needed to stop pressing trade complaints and change China's status
from "non-market" to "market" economy. This is how China exercises its
immense leverage to tilt the playing field even more extremely in
As the Commission reports, this is the 10th year of China's
provisional membership in the World Trade Organization. Though the
U.S. government and others still have some leverage to change China's
behavior, if they choose to use it, the Commission reports that China
hopes gradually to "strong-arm its way into market economy status, and
shake free of restrictive terms and obligations in its [WTO] accession
Many Americans naively emphasize China's great progress in improving
its educational system. While we can only applaud the social strides
China has made, the source of America's growing economic disadvantage
vis-à-vis Beijing lies elsewhere.
While Republicans and Democrats elsewhere agree on nothing, all
commission members after extensive testimony and study agreed on the
mounting threat of Chinese mercantilism. The problem is that other
Republicans and Democrats -- such as those in Congress and in the
White House, have a much more benign view of the Chinese government
and continue to naively promote a "free trade" that China doesn't
And while U.S. industry occasionally complains about the outright
theft of intellectual property, for the most part the largest
corporations like the deal they have with its outsourcing, its cheap
and docile labor and its capital subsidies by the Chinese government.
The Commission reports that this costs the U.S. between 600,000 and
2.4 million jobs.
It is ironic that both the Republican jingoism, support for expanded
democracy overseas, and saber rattling against other perceived
threats, and the Obama administration's desire to look credibly tough
in the Pacific, both stop well short of defending America's real
national interests against Beijing.
As for those 2,400 Marines soon shipping out to Australia, they just
might have the sweetest posting of any U.S. servicemen and women
anywhere. Reenlistments should be no problem. Our newly truculent
policy toward China might as well be called "Throw another shrimp on
Robert Kuttner is co-editor of The American Prospect and a senior
fellow at Demos.