“This won’t revolutionize the U.S.-China relationship or the terms of trade between us, but it shows that the two countries can work together on an important issue,” said Clete Willems of Akin Gump to Bloomberg, referring to President Trump’s “phase one deal” announced October 11. “Learning to do so is critical to avoid a broad deterioration of all aspects of our relationship, which is not in anyone’s long-term interest.”
Despite what Willems said, it now is in the long-term interest of the United States to walk away from trade deals with the People’s Republic of China.
Why? Four reasons: First, communist China has never accepted the notion of comparative advantage, which underpins the global trading system. Yes, the mercantilist Chinese believe we should buy their products, but they, the masters of non-tariff barriers and other forms of predation, have worked hard to keep foreign goods out of their market. How can America trade with a state that does not believe in the benefits of trade?
Second, Communist China has in fact never honored a trade deal with the US. Beijing, over the course of decades, has systemically violated both its World Trade Organization obligations and its obligations to America in various bilateral agreements.
Third, China’s economic system is incompatible with America’s. Xi Jinping, the Chinese ruler, has in recent years been forcibly marching the country backwards, the “great regression” as it is now called.
He has, with ruthless determination, been closing off the Chinese market to foreigners with, among other things, highly discriminatory rule enforcement and the enactment of prejudicial laws and regulations. He has at the same time been recombining already large state enterprises back into formal monopolies, reversing the partial privatization of earlier years by increasing state ownership of state enterprises, having the state take control of private companies, shoveling more state subsidies to favored state market participants, and pursuing development through dubious industrial policies such as his infamous Made in China 2025 initiative to dominate 11 crucial technology sectors.
As they now say in China, the state sector is rapidly “advancing” and both the private and foreign sectors are “retreating.” That is because Xi is seeking to return China to a modern form of Maoism.
Fourth, it is especially difficult to trade with a thief, especially when the thief views commercial contact as an opportunity to steal more. Xi’s China has continued to criminally take U.S. intellectual property to the tune of hundreds of billions of dollars a year. This crime is essential to the achievement of the extraordinarily ambitious Made in China 2025 initiative.
If all this were not bad enough, Xi’s future plans are especially pernicious. He is, for instance, now about to apply the 2016 Cybersecurity Law to outlaw the use of virtual private networks and encryption so that he can take all the data and communications of foreign companies operating in China. Chinese officials will surely hand over information they seize to China’s own enterprises so that they will then know everything about foreign competitors. China has already used stolen data and technology to cripple foreign companies and drive some, like Nortel Networks, out of business.
Moreover, Xi Jinping looks as if he will be even more bold in requiring U.S. companies operating in China to swear obedience to Beijing, to advance Communist Party positions, and to implement its policies wherever they operate. That, after all, is apparent from the reprehensible behavior of the National Basketball Association, Apple, and ESPN, which all acceded to Chinese bullying this month.
Yet as bad as these American businesses appeared—none of them stood firm in defending American values—they could not be expected to resist an onslaught from a mighty communist state. Therefore, Americans are going to have to make a choice: take Chinese money or maintain a free marketplace of ideas.
The disengagement of the two economies is, of course, unfortunate, but it is necessary as China presses Americans and leaves them no choice if they are to defend freedoms and sovereignty.
All this brings us back to ongoing trade discussions. When it became clear there would be a trade deal of some sort, big-box retailers began to place large orders for the coming season with Chinese manufacturers. If it had appeared there would be no deal, many of the orders would have gone to factories elsewhere.
On October 11th, Beijing harvested another big benefit. Trump agreed to defer a tariff increase scheduled for the following Tuesday.
Having gotten what it wanted, China then began to play hardball. On October 17, Beijing denied it had made a commitment to buy $40 billion to $50 billion of American farm products. President Trump, in his Oval Office meeting with Liu He, China’s chief trade negotiator, said Beijing had made such a promise as a part of the trade deal with the U.S.
If Beijing did not agree to the additional purchases, the time to say so would have been when Liu was next to Trump while he talked about the agricultural purchase. By his silence, Liu allowed Trump to think he had a deal when, in reality, he did not. So Trump made a real concession—the tariff deferral—for a promise that was not a promise.
Another broken trade promise is another reason for Americans to agree with the University of Pennsylvania’s Arthur Waldron, who argues that the “engagement” of China is Washington’s “greatest foreign policy failure.” America’s China policymakers predicted Beijing’s trade—and other—behavior would improve over time, but the opposite has occurred.
Engagement, by failing to impose costs for Beijing’s predatory moves and for other reasons, has contributed to the evident deterioration of Chinese behavior. Trump has begun to break with that failed approach, which has dominated American policy ever since Nixon went to the Chinese capital in 1972 to meet Mao.
In retrospect, going to Beijing was the wrong move. Also wrong is Clete Willems. Judging from Beijing’s breaking one more trade arrangement in recent days, it is evident the communist regime in China is not able to work with the United States—or any other country for that matter.
So let’s not trade with a China that lies, cheats, and steals.