China Trade: High Time for a Change in US Policy

In response to the manufacturing recession that has slowed the U.S. economy, and cost the country 2.7 million factory jobs in the last three years, Commerce Secretary Don Evans, Treasury Secretary John Snow, and Labor Secretary Elaine Chao have been holding roundtable discussions with business and labor leaders outside the Beltway. In the Washington Post on August 1, Steven Pearlstein reported on the tour's hottest topic, "It came up at every stop on this week's Cabinet-level bus tour through the Midwest. Business lobbyists say it's all their members want to talk about....We're talking here about China, now on the fast track to becoming a dominant player in the global economy and causing major disruptions along the way."

American officials will have to do more than listen to complaints and respond with stock phrases about "fair trade" and the value of manufacturing to the economy if they are to solve the problem. Effective counteraction will require the imposition of countervailing duties to offset Beijing's currency manipulation and to put some teeth into U.S. diplomatic efforts to assure Chinese compliance on a number of pending trade issues – including intellectual property theft, subsidies to Chinese exporters, forced tech transfer from U.S. firms wishing to operate in China, and many other areas. How do we get from talk to action?

Treasury Secretary Snow seems to want to approach the matter very quietly. Visiting a Harley-Davidson plant in suburban Milwaukee in late July, he said he was "encouraged by the fact that the Chinese have indicated that they are looking at widening" the allowable fluctuation of the yuan. He said he may address the issue when meeting Chinese officials later this year, but warned against escalating the matter into a trade battle. "These are sovereign decisions," he said. "These are not decisions the United States can impose on anybody."

It is unknown whether Snow realized that the reason there was still a Harley-Davidson plant to visit is because the Reagan Administration acted directly to protect the American motorcycle industry from damaging Japanese imports. Reagan approved a Section 201 finding by the U.S. International Trade Commission (ITC) and imposed tariffs on Japanese exports as an act of American sovereignty.

The Chinese response to rising complaints about their behavior has not given much hope that talk alone will change anything. "We believe that a stable renminbi exchange rate is not only in the interest of China's economic development but also in the interest of Asia and the world," said Chinese Foreign Ministry spokesman Kong Quan at a Beijing press briefing. Commerce Minister Lu Fuyuan told a recent meeting of Asian and European trade ministers that China's exchange policy will be "determined first and foremost based on China's own domestic economic needs." Given the benefits that China is reaping from the current situation, there is no domestic pressure to change.

Article XV of World Trade Organization rules prohibits the use of currency manipulation that would provide an unfair trade advantage or that would "frustrate the intent of the provisions of this (the WTO) Agreement." An unfair trade case against China could be brought before a WTO dispute panel, but that process is very long, involved and subject to political pressures within a pool of foreign jurists with a marked anti-American bias. Even if a ruling favorable to the United States emerged and survived on appeal, how would it be enforced? If China resorted to a "dirty float" that merely expanded the range within which it allowed the yuan to move, without substantially affecting current trade pattern, would that constitute sufficient compliance such that the WTO would deny Washington authority to take direct action? The Chinese, like the Japanese, are expert at playing delaying games within international organizations.

Indeed, as public and Congressional demands for action increase, it can be expected that those who do not want to see anything change will shift from downplaying the problem to claiming that only the WTO can handle the situation. A WTO case combines the illusion of action with the promise of futility -- a perfect ploy for those business interests who have invested in China and the politicians who front from them.

Even if everything went perfectly for the United States at the WTO, enforcement would still depend on Washington imposing across-the-board countervailing duties to offset Beijing's undervalued currency. Those tariffs would have to be in the 40-50% range. The United States has the authority to take such action now, under its own laws and in defense of its own interests, and should do so. Until Washington starts to move, Beijing has no reason to take American complaints seriously.

The Bush Administration should initiate an ITC investigation, with a mandate to determine the most effective way to counter China currency manipulation, either as a form of illegal dumping or as a damaging import surge resulting from abnormal (and artificial) overseas conditions. President Bush can use the special provisions negotiated by President Clinton allowing temporary tariffs and quotas to protect U.S. industries by sudden surges in Chinese imports.

China is still legally (and properly) treated as a non-market economy, which gives the United States considerable leeway in its approach to the problem. Though there have been market reforms in China, and the rise of a capitalist class, the one-party Communist state still controls the bulk of the economy. China tightly controls the flow of capital across its borders allowing only partial convertibility of the currency on the capital account. Foreign exchange trading on the current account is regulated. The government still directs the allocation of scarce inputs, state-owned enterprises are heavily subsidized and protected, and the private sector only employs one-fourth of the urban work force. China is a mercantilist, not a free market system. Its currency manipulation is central to its approach to the world economy, not an exception.

There were many airy predictions about China "opening up" when it made the various trade agreements and understandings with the United States during the process of joining the WTO. But there were also more realistic voices warning that Beijing would resort to new stratagems in pursuit of national advantage in a world economy China sees as a battleground rather than a marketplace. Washington must contest China's predatory actions not just in currency manipulation but across the board, for negotiating from strength is the only way to gain the respect of Beijing's leaders.

William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.

China is still mired in its communist roots. The one-child-per-family policy resulted in the abortion of many little girls resulting in an unatural and unbalanced bias favoring boys over girls. At its peak, the demographic anomaly will produce 26 million more men than child bearing women.

If Chinese women are like the rest of the world, they will marry men that have jobs and resources. Chinese authorities will eventually need to contend with 26 million angry men with no wives or social standing. In a culture that requires ancestor worship or remembrance of the dead to keep alive the spirit of the deceased, many families will perish spiritually as well.

What will the authorities do with 26 million angry Chinamen. Most likely, they will put them in uniforms and march them into battle. The thrust of the action will be towards natural resources in Siberia or the Middle East.

The army that fights the Chinese will need to eliminate 26 million soldiers before the Chines side even begins to care. Pressure will mount for the Russians or the MidEast to be the first to sign a nonagression pact with the Chinese.

I know this will sound absurd to most of you, but I pray for the conversion to Christianity of the Chinese - I prefer to hope for 26 million celibate priests.

What will the authorities do with 26 million angry Chinamen. Most likely, they will put them in uniforms and march them into battle. The thrust of the action will be towards natural resources in Siberia or the Middle East.

The army that fights the Chinese will need to eliminate 26 million soldiers before the Chines side even begins to care. Pressure will mount for the Russians or the MidEast to be the first to sign a nonagression pact with the Chinese.

I know this will sound absurd to most of you, but I pray for the conversion to Christianity of the Chinese - I prefer to hope for 26 million celibate priests

Well, I know in the 1950's to the 1980's, NATO was concerned about a massive Soviet/Warsaw Pact push into West Germany through the Fulda Gap. If it got too much for NATO's conventional troops to handle, the nukes will fly. I think there is a good point where after some time, the "new Fulda Gap" will be Siberia and I think the Russians faced with a massive march of humanity from Red China and with their declining population, they will be forced to the same conclusion that NATO had during the Cold War, using nukes. That will be the only way to stop the Red Chinese. I know it's messy, but I think current policy is a disaster and all we are doing is giving the Chi-Coms the money and technology to make themselves more dangerous. Yes prior to 1990, the Red Chinese did have "The Bomb" and perhaps an outside chance of hitting the U.S. Pacific Northwest since about 1982 or so, but it was more of a "hail Mary, wing and a prayer thing" back then. Even back then, if they got into with with the USSR, they could tear up a good amount of Soviet forces but the USSR would have hit them back harder. If they got into with with anyone else, they only had some 1950's era tanks and planes for the most part. Well thanks to the policies of our government and in the name of "free trade" they're modernizing faster than you can say "Jack Robinson." What was a "hail Mary" capability to hit the U.S. in 1982 is more of a sure thing now.

Lenin did say that "that Capitalists will sell us the rope that we will use to hang them with," and I'm afraid the guy is right on the money on this one.

Scapegoating China is a easy thing to do.

Lets see now high tariffs by China on US goods. Artificial pegging of the Yuan, Non tariff barriers to US goods See the threads of a couple weeks ago regarding Harley Davidson being unable to sell its large motorcycles in China yet without teh Chinese market they have captured 20% of the world market for these large motorcycles. And I haven't even gone into the technology demands on companies "investing" in China.

These are legitimate issues not "scapegoating." Either you were unaware of them in which case I recommend a perusal of the trade issue threads over the past months here on Free Republic so you are more informed, or you are intentionally trying to mislead in which case I recommend you realize taht you will be called on that and exposed. The other problem is that if you can name a country in the world that does not manipulate it's currency to achieve some trade goal, I would like to know it.

Absolutely every country that allows its currency to "float" on the international market.

Now the proposed solution to these problems (not enough coffee yet).

In no particular order of importance.

1. Get rid of government subsidies for offshore investment of US companies. OPIC is the first such program which should go but support of World Bank programs that subsidize the outflow of Capital would be another.

2. Use tariffs on those nations which are engaged in unfair trade practices such as currency manipulation (China and India for example), those nations which refuse to open their markets to US products (China for example with its 50% tariffs on US consumer goods and non tariff barriers), those nations that subsidize competition to American Industry (airbus for example) and those nations which have slave conditions for their workers.

3. Use tariffs and other means to prevent the relocation of jobs offshore that are essential to the national defense. If necessary take control of the company seeking to export vital technology or industry by means of eminent domain (No I do not like this last option and I will only defend its use as an absolute last resort like say in the case of rare earth magnets essential to smart bomb technology).

4. An immediate end to guest worker programs. If people wish to come to the USA to work and make a life let them immigrate according to the rules.

5 Provide economic development zones where the corporate income tax is zero for operations within these zones. In order to operate in this zone a company must agree to only purchase American components if available and employ only American citizens or legal immigrants in these operations. These economic development zones shall be eventually be expanded to include every bit of every state once the benefits are shown I would like them to be totally implemented immediately but I realize4 that may be overreaching.

6. Scale back unnecessary regulation including the tort system. Institute a cap on punitive damages, limits on class action suits, and limits on liability to the actual percentage of liability with no plaintiff able to collect if said plaintiff was involved in the commission of a felony at the time of the alleged tort or was more than 49% negligent in the alleged tort. Note that the loser in a frivolous lawsuit shall pay the attorney fees of the winner. There are many other regulatory structures that also need to be included that need to be included such as repealing the Family leave mandate, getting rid of OSHA etc.

7. Increase the domestic content in purchases by the Department of defense and give absolute preference in non-domestic content to proven allies of the USA over say the French or Germans. The only reason any content for DOD purchase may come from non US allies is that content is not available elsewhere and is essential.

8. Do not allow expense involved in moving operations overseas to be included in business expenses under the IRS code.

9. Prosecute for perjury anyone who has made a false statement in order to employ an H1B or L1 visa worker. I will be lenient on the actual perjurer if he/she was ordered to make this false statement and he/she provides testimony to aid in the conviction of the person ordering the perjury. Just because a person is a CEO does not give them a pass on criminal behavior.

10. Prosecute anyone who orders the transfer of vital defense technology or funds a R&D project that could be of use to our military overseas except to strong allies of the USA. Make the necessary enhancements to our espionage laws so that continued support or funding of any R&D in a nation whose government has threatened the USA is guilty of espionage. The UK and Australia come to mind as meeting these criteria for being eligible for transfer of technology first. There will be other nations and a gradation of what can be transferred to which specific nation. Under no circumstances may technology be transferred to any nation whose government has threatened the USA within five years without a complete change of government or specific exemption from Congress and the administration.

11. Deport all illegal aliens immediately and take measures that prevent the entry of any more illegal aliens. Fine all companies knowingly employing illegal aliens Criminal sanctions should be imposed on anyone helping an illegal alien stay in the USA in violation of our laws.

12. Decrease the punishing levels of taxation on companies and eliminate the double taxation on corporate dividends. See effects of item 5 for how minimal this will be if item 5 covers the entire USA. Eliminate all IRS provisions that inhibit free use of independent contractors by businesses for example section 1706.

13. Eliminate the minimum wage so that the worker can be paid based on productivity. Overtime compensation will remain the same but instead of 150% of the "wage" the worker would receive 150% of the production pay. If one through 13 are enacted # 14 becomes an irrelevancy as no one will be working for that low a wage.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.