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Belatedly Recognizing China’s Trade Aggression

detail image of the flags of the United States and China
photo by Lance Cheung, courtesy the U.S. Department of Agriculture

Whether the U.S. and China are engaged in a trade dispute or a trade war may depend on who you ask. But semantics aside, these days everyone recognizes that the relationship is a combative one.

That recognition is new. The combativeness is not.

Secretary of State Mike Pompeo observed in an appearance on Fox News in late September: “The trade war by China against the United States has been going on for years. Here’s what’s different in this administration: to the extent one wants to call this a trade war, we are determined to win it.” Pompeo added that if a country truly wants to be a global power, it must adhere to norms such as rule of law, transparency and respecting intellectual property rights – all areas in which China has repeatedly and dramatically fallen short.

Pompeo’s remarks followed closely on the latest round of U.S. tariffs, which targeted $200 billion in Chinese goods. China retaliated by canceling planned trade talks and imposing an additional $60 billion of tariffs on U.S. imports in return. President Trump has said another $267 billion in tariffs were “ready to go on short notice.” Should these tariffs take effect, nearly all Chinese exports would be affected.

The Trump administration has put direct trade pressure on China since the beginning of 2018. But the trade war between the U.S. and China has been going on for much longer. The difference is that, until recently, only China was waging it.

An unnamed senior administration official told The Wall Street Journal, “This administration inherited a situation where the U.S. was being treated unfairly by China for a very, very, very long time.” The official said that the Trump administration gave China over a year to propose a way forward that did not result in punitive tariffs, but that Beijing continued to avoid the economic reforms the U.S. asked for. As recently as Nov. 9, Treasury Secretary Steven Mnuchin spoke with his Chinese counterpart, Vice Premier Liu He, but sources briefed on the conversation told The Wall Street Journal that they continued to disagree over whether China should put forward a concrete opening offer before or after negotiations begin.

China’s reluctance to implement economic reforms, or otherwise cave to U.S. pressure, should not have surprised anyone paying much attention to how it has conducted business in recent years – or in recent decades. China forces technology transfer when it can; steals technology that it can’t get by other means; withholds, obfuscates or falsifies economic information that other advanced economies freely share; and blatantly walls off vast sectors of its economy – especially e-commerce – from foreign companies.

A report released in January confirmed that China has forced U.S. companies to transfer intellectual property to the country as a condition of doing business there. Interviews with dozens of government and corporate officials back up this claim. And American businesses have long said that Chinese firms have outright stolen ideas and software that they cannot appropriate by other means. In late October, the Commerce Department restricted American companies from dealing with Chinese microchip maker Fujian Jinhua Integrated Circuit Co., a state-owned business accused of stealing proprietary information from Micron Technology Inc. Because Micron is a U.S. military supplier, officials identified the Chinese company’s intellectual property theft as a national security concern. DuPont Co., which formerly partnered with a Chinese company, pushed back against suspected theft of its chemical technology; for its trouble, its Shanghai offices were raided by government antitrust officials.

A report from the Australian Strategic Policy Institute found that Chinese military scientists have recently expanded their efforts at international collaboration, at times hiding their affiliations from host institutions in the U.S. and elsewhere. By masking their military ties, scientists secured positions on projects at American campuses including Carnegie Mellon and Texas State University.

This is not to mention China’s rule-by-law, as opposed to rule-of-law, system that denies justice to foreigners engaged in local business as readily as to its own citizens.

Although primarily directed toward getting fair treatment for American companies and workers, the Trump economic pushback is a long-overdue recognition that China purports to be a trade partner but behaves, in most respects, as an adversary. There is an important difference.

Washington will not force fundamental change on the Beijing regime, with sanctions or by any other means. But it may be able to enforce at least minimal standards of transparency and fair business dealing as the price of access to U.S. markets, technology and educational institutions, which are still world leaders in many respects. Such accomplishments aren’t a given, and they will not be won without economic cost. But it is worth trying.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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