The Delusion Of Peaceful Commerce With China
by WILLIAM R. HAWKINS
January 22, 2011
It has long been a central faith of liberalism that, as the British Radical Richard Cobden famously claimed, commerce is "the grand panacea" and that under its influence "the motive for large and mighty empires, for gigantic armies and great fleets would die away." Cobden was writing in the mid-19th century, as was his French colleague Frederic Bastiat who argued that "Free trade means harmony of interests and peace between nations" and asserted, "I shall not hesitate to vote for disarmament." It is this line of thought that seems to have inspired President Barack Obama in his approach to his summit with Chinese President Hu Jintao last week.
Obama's first priority was to "ease tensions" which had risen during the summer and fall from the Korean peninsula through the South China Sea to Iran. Beijing was responsible for the confrontations. It continues to back Iran and North Korea as both rogue states develop nuclear weapons and long-range missiles; and China protested loudly against any retaliation against Pyongyang for its acts of war against South Korea. Beijing escalated its claims to disputed islands and sea zones with Japan and the countries of Southeast Asia. These disputes were backed by competing military exercises of the "great fleets" of China, Russia, Japan and the United States.
The Washington summit, however, was dominated by pledges of economic cooperation. At a roundtable of American and Chinese business leaders held next door to the White House in the Executive Office Building, Obama opened his remarks by noting, "There has been no sector of our societies that have been stronger proponents of U.S.-China relations than the business sector. And so I’m very pleased that we have some of America’s top businesses here. Many of them have a longstanding relationship with China." So when the U.S. economy is struggling to recover from a recession, Obama calls in the CEOs of the major transnational corporations and banks that have been working to build up the Chinese economy.
The spin was the summit would open the Chinese market to American exports, something that has been promised for decades but has yet to happen. Beijing's policy remains that to sell in China; firms must produce in China--- and transfer technology to state-owned enterprises as the price of doing business. Joint ventures have kept American firms subservient to Chinese "partners" until those partners can become strong enough to drive the foreign firms out of the market. An annual survey by the American Chamber of Commerce in Shanghai found 47.7 percent of responding firms saying they face a Chinese regime that shows a preference for domestic companies. By a 2-to-1 margin, the firms said Beijing's efforts to reduce intellectual-property theft are stagnant at best. This last point is hardly surprising since technology theft is an aim of Chinese strategy. Seventy-two percent of firms reported stronger competition from Chinese rivals. Yet, since 80 percent also said they were making money in China, they are still willing to back an appeasement policy towards Beijing.
Much was said of the $45 billion worth of export deals supposedly agreed to at the summit, but as the Wall Street Journal reported, "Many of the agreements, including China's deal to buy $19 billion of airplanes from Boeing Co., have been previously announced; the report of Chinese approval was something of a flourish to bolster Mr. Obama's message that expanded trade with China can create U.S. jobs." Indeed, some of the Boeing orders go back to 2007. The deals are also spread over a number of years to create a more impressive sounding aggregate number. Yet, even if all the deals were consummated in one year, it would barely dent the trade deficit America runs with China, which totaled about $260 billion last year.
Most of the opportunities offered American firms are to continue building up China, not the United States. The Wall Street Journal gave one example coming out of the summit; "The White House said Navistar has received Chinese central government approval for joint ventures with Anhui Jianhuai Automobile Co. to make diesel engines and assemble medium- and heavy-duty trucks in China." This is what Hu had in mind when he told the roundtable meeting, "I also have a message to American entrepreneurs. That is, we welcome you as companies to China."
One of the prominent CEOs involved in the summit was Jeff Immelt of GE (General Electric). In December, GE announced ajoint venture with Aviation Industry Corp. of China (AVIC), a state-owned enterprise producing both civilian and military aircraft. GE is putting up the technology and AVIC is putting up the money, which means the Chinese government is essentially buying GE's avionics sector. If the deal is finalized, all of GE's existing and future "civilian" avionics contracts will go to the joint venture located in Shanghai. The deal supposedly forbids transfer of any technology to military programs, but the safeguards are laughable. The joint venture will be in separate offices from AVIC's military division, with separate computer systems; but does anyone really think GE's "secrets" will not be grabbed by the Chinese engineers and cyber experts who work for its regime partner? GE is being paid to help China expand its aerospace industry and is happy to take the money, regardless of the larger consequences.
There is only one category of products that China wants to import from America; high-tech "dual use" technology of value to Beijing's military which can be copied. The Chinese understand this is the one gap they must close if they are going to become the equal of the U.S. in a "multi-polar" world where America has lost its preeminence.
A lengthy commentary on Sino-American disputes published by the Chinese Communist Party newspaper Global Times on the day of the summit argued,
The complaint about the lack of access American companies are supposed to have to Chinese markets. Some of this is self-inflicted. After all, the US has very strict policies preventing high-tech, military and other companies from selling a lot of highly valued goods to China. The concern is that China will get access to sensitive technology that could be used by its military.
An earlier news story in the same ruling party publication had quoted Tao Wenzhao, a researcher at the Institute of American Studies at the Chinese Academy of Social Sciences, "Instead of quibbling over a point or two in the exchange rate, it makes more sense for the US to loosen export restrictions, especially high-tech export restrictions on China, to balance the bilateral trade, which would bring more benefits to both countries." Yet, it would be difficult to see what benefits would come to American national security from letting China gain access to more advanced technology. The impact would be far greater on the balance of power than on the balance of trade.
Addressing a luncheon during the summit hosted by the U.S.-China Business Council and the National Committee on United States-China Relations, Hu said China would "improve the socialist market economy," a system in which economic reforms are overseen by the communist one-party state. "We will develop socialist democracy and build a socialist country under the rule of law." One of those laws is the regime's new 5-year plan which calls for continued integration of the civilian and defense industrial sectors and double-digit annual growth rates in military output.
The question of "dual use" technology exports only serves to highlight why U.S.-China commerce is so fundamentally different from other economic relationships. Beijing and Washington are strategic rivals in world politics. The classical liberal notion of trade as the antidote for international strife is not just naive and historically invalid. It is not just an academic exercise. It is dangerous because it breeds appeasement in the United States while improving the military capabilities of the rival power. It's a two-edged sword being handed to China, a society that knows from thousands of years of bloody experience how to use the sword all too well.
FamilySecurityMatters.org Contributing Editor William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former economics professor and Republican Congressional staff member.
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