Trump Must Crack Down on China's Dangerous Business Practices
The China-specific trade and investment policies announced by the Trump administration—both tariffs on incoming goods and services and stipulations on Chinese foreign direct investments—will predictably elicit concerns that the measures will damage U.S. companies doing business in and with China. Nothing could be further from the truth.
With these actions the Trump team is stepping up its game to redress critical imbalances, in a strategy crafted to defend the American industrial base and the workplace that this base affords to U.S. workers. At the same time, we must proactively protect the intellectual property that underpins that base and protects the future of American commerce. The Trump team’s initiatives also spotlight and confront Chinese investment and trade practices that impede the ability of U.S. firms to do business in China. We must call out Chinese state actions calculated to strip the United States and other foreign firms of technology while limiting their market share, all to the benefit of Chinese competitors.
The requirement for an “active defense” of the U.S. industrial base in the face of distortive Chinese trade practices is obvious. This is a long-delayed and wholly-legitimate reaction to the Chinese state’s open manipulation of its export policies and the fine-tuning of Chinese investments in selected U.S. industries. These practices are designed to dominate selected markets while systematically acquiring critical technologies and production processes. The other half of the Chinese trade and investment walnut is the deteriorating commercial environment which confronts U.S. firms attempting to do business in China. A plethora of Chinese regulations, evolving nationalistic investment restrictions, and project-specific measures allow the Chinese state to compel, if not extort, key concessions from individual U.S. firms. Too often this coercion demands advanced technology and know-how transfers to Chinese “partners,” with such concessions accepted as the cost of doing business in China.
All too often American firms and other foreign firms, desperate to maintain the market share they have fairly claimed in China, have quietly paid the price demanded by the Chinese state, accepting technology loss and eventual market position. Many firms have been reticent to raise these issues publically. They often finesse the concessions internally by not sharing with their board and shareholders the degree to which they have allowed themselves to be compromised by Chinese demands. Beijing’s pressure to transfer current or next-generation IP and related production know-how is unrelenting. China is a compelling market and it often comprises a major share of a U.S. firm or foreign firm’s earnings and profits. Thus, U.S. firms are understandably disinclined to complain. They routinely acquiesce in a get-along, go-along passive response that degrades their company’s own future. The analogy of the frog in the lab beaker works well, and the Chinese are adept at tweaking the heat to achieve just the right temperature and desired result.
Very recently U.S. and foreign firms active in China have begun to air their concerns, expressing their discomfort with the zero-sum bargain they have struck to sustain a market position in China. But this reckoning may have come too late. While many companies now see and acknowledge the writing on the Chinese wall, they are not in a position, on their own, to confront the Chinese monolith. For this reason, the Trump administration must, in the context of its active engagement on the broader China trade and investment front, deal with the deteriorating position of American firms. This administration’s actions should be applauded. They will help to defend those companies, if not for their own protection, then for the protection of the technology they possess.
China was invited by the Bush administration, back in the feel good days of 2005, to become a “responsible stakeholder” in the international trade system. Successive U.S. administrations have pined for that outcome, demonstrating a patience that the Chinese have taken advantage of. China never understood the concept of reciprocity and, even if it did, was disinclined to embrace it. Instead, Beijing took its stake in hand and maneuvered to extract maximum one-way advantage in international trade and investment practices—while dramatically improving its own competitive position. In its own market, it has manipulated American and other foreign investors, allowing them to profit while enforcing a system that extracts an ever-increasing price. The Trump administration has no choice but to defend American core interests by assertively confronting these Chinese practices and in so doing will begin to reset the game table.
Richard Lawless is the former Pentagon deputy undersecretary of defense for Asian and Pacific security affairs and served under Defense Secretaries Donald Rumsfeld and Robert Gates during the period 2002–2008.