China Wins Big at Latest Trade Talks

Predictably, the Bush administration and its media mouthpieces trumpeted the latest U.S.-China trade agreement as a solid win for the United States. Just as predictably, their conclusions are ludicrous.

In the wake of the late-April trade sessions, Vice President Cheney’s visit to East Asia, and an extraordinary China press conference held by four Cabinet officials shortly thereafter, it’s painfully clear that the Chinese are running rings around the United States economically, politically, and national security-wise.

The main reason: Although the administration views China policy as an exercise in public relations and election-year politicking, the Chinese view their America policy as a way to gain wealth and power. These differing outlooks can be seen on both the long-term strategic and the short-term tactical levels of Sino-American relations.

The Bush administration’s three main strategic goals vis-à-vis China are: (1) keeping the China’s Asian neighborhood quiet to avoid distractions from the interlocking Iraq war and anti-terror campaigns; (2) securing meaningful Chinese help in dealing with North Korea; and (3) preventing American voters’ trade and job anxieties from forcing responses that could antagonize Beijing and jeopardize the first two goals. U.S. officials clearly also value superficially good vibrations from China at a time when U.S.-European relations are a mess.

In addition, softpedaling and actually caving in on Sino-American economic disputes is exactly what is wanted by the U.S. multinational companies that are (1) determined to keep supplying the all-important U.S. market from low-wage China, and (2) totally in control of U.S. trade policy – thanks to the money with which they flood Washington.

Unfortunately, America’s goals reveal a total misreading of Chinese and U.S. interests, at least judging from the subtle messages I periodically get from my academic Chinese contacts. First, the Chinese themselves want to keep Asia peaceful for the time being – because conflict would disrupt the trade and investment flows so critical to maintaining growth, speeding economic and technological development, curbing unemployment, and thus keeping the regime in power.

Second, the Chinese have no incentive to provide Washington with material assistance against North Korea unless all heck breaks loose on the peninsula – in which case, Beijing’s help would be too late. However ardently the Chinese may wish for a non-nuclear Korean peninsula, their overriding goal in Northeast Asia is stability. A few North Korean nuclear weapons need not lead to chaos in Beijing’s view. Yet sanctions strong enough to topple the Kim Il Sung dictatorship could produce precisely that result.

Third, because no amount of American economic appeasement can override these Korea considerations, Washington has no reason to tread softly with China on trade and other economic issues. Indeed, because America soaks up so many of the exports essential to maintaining Chinese growth and employment, China needs the United States economically far more than the United States needs China.

Beijing, meanwhile, has used American naivete to gain tangible advantages. Periodic bouts of anti-Taiwan saber-rattling and even political vitriol have been enough to keep Washington focused on cooling Chinese tempers – to preserve a peace Beijing already values – rather than on responding firmly to Chinese economic outrages. Further, by simply dangling the prospect of cooperation on North Korea before Washington and by largely sitting out the Iraq and terrorism conflicts, Beijing has maintained a trade policy status quo that has yielded hundreds of billions of dollars of hard currency and militarily valuable technology.

The contrasting U.S. and Chinese approaches were all on display during the recent flurry of bilateral trade diplomacy. Indeed, the results of the trade talks, the Cheney trip, and Bush’s emphatic rejection of two proposed trade law complaints against China indicate that Beijing is all but dictating American trade policy.

The grand bargain pushed through by China apparently went as follows: You Americans squelch efforts by the AFL-CIO and various manufacturing groups to use U.S. trade laws to combat our oppressive labor practices and our currency manipulation. In return, we Chinese will throw you some crumbs for the workers and voters back home.

The crumbs were disclosed first, when the Washington trade talks concluded, but even as tokens they were unimpressive. Most cynically, China made a set of promises to crack down on intellectual property theft likely to be as meaningless as the numerous broken promises it’s already made on this score.

The Chinese also committed to work with Washington to improve monitoring of China’s use of militarily applicable dual-use technologies. In this instance, however, as both sides know only too well, the main fault lies with the United States. It’s been the Clinton and Bush administrations that have toed the multinational company line and let America’s export control system reach near-breakdown. It’s been the United States that has encouraged enough militarily useful technology to flow to China to doom practically any inspections arrangements.

Consequently, it’s the United States that needs to realize that China’s abuse of technology-use agreements is best prevented by sharply limiting the technology flow into China in the first place. Washington must also start pressuring U.S. allies to fall in line – if necessary, by barring them from selling their Chinese output into the United States. Then their incentives to redouble their investments in China and fill the vacuum created by reinvigorated U.S. export controls would practically vanish.

As for the new forum created to discuss China’s designation as a market or non-market economy, it seems like a total waste of time. Beijing was widely reported to covet winning market status, which ostensibly would make it less vulnerable to American anti-dumping suits. But could a country that openly manipulates its currency to under-sell its competitors, subsidizes numerous major business costs, and consequently runs a huge, chronic trade surplus with the United States really be worried about a new American anti-dumping offensive? Simon Cowell probably worries more about wounding the psyches of “American Idol” contestants.

The closest China seems to have come to a real concession was its agreement to shelve indefinitely its proposals to force foreign semiconductor companies to share their wireless communications technology with Chinese chip-makers. At the same time, this undoubtedly is a concession China could afford to make. Beijing knows that most foreign semiconductor companies already plan to place ever more factories and make ever more sophisticated products in China. As it already has, this trend will continue transferring increasingly valuable technology to these factories’ Chinese workers and managers – unless it’s simply stolen first and used to start rival Chinese firms.

Moreover, China hung tough on its policy of discriminating against imported semiconductors in rebating value added taxes, which is clearly designed to promote chip manufacturing in China. The Bush administration has actually filed a World Trade Organization complaint against the Chinese rebate policy, but Beijing isn’t acting the slightest bit concerned.

And why not? Since most other WTO members engage in similar practices, China could well win the case. Second, even if China loses, it could drag out the proceedings for years, during which time European and Asian chip-makers would be strongly tempted to cut their own special deals with Beijing, and their U.S. counterparts would feel enormous pressure to follow suit.

The rest of the Sino-American quid pro quo became clear at the press conference held one week after the trade talks by no less than four Bush cabinet-level officials: Treasury Secretary John Snow, Commerce Secretary Donald Evans, Labor Secretary Elaine Chao, and U.S. Trade Representative Robert Zoellick.

Beijing had plainly told the United States that using trade laws to attack its internal labor controls and currency policy was verboten, and the Bush administration dutifully complied by trotting out its four biggest economic policy guns to transmit the message. Zoellick even sunk to resurrecting rhetoric from the mid-1980s American policy debate over apartheid, echoing South African apologists by urging a policy of “leveraged engagement” and deriding calls for concrete pressures as “economic isolationism.”

Despite considerable voter anxiety about job security, Bush’s appeasement of China is anything but politically suicidal. Thanks to massive stimulus, the U.S. economy’s headline numbers are improving, and should be good enough through November to at least neutralize the issue. Perhaps more important, John Kerry shows no sign of offering serious trade policy alternatives, leaving the Bush’s opponents in the unenviable position of trying to beat something with nothing.

Beijing had plainly told the United States that using trade laws to attack its internal labor controls and currency policy was verboten

Yet for the USAFTA, United States Australia Free Trade Agreement, the United States must follow international labor laws as defined by the United Nations ILO (International Labor Organization).

Once again free traders give away the store to benefit the few elitists running the global trading system who are skimming the cream off the top of these agreements.

First, the Chinese themselves want to keep Asia peaceful for the time being – because conflict would disrupt the trade and investment flows so critical to maintaining growth, speeding economic and technological development, curbing unemployment, and thus keeping the regime in power.

Odd, the open borders/free trade/occupation light folks would have us believe just the opposite.
China is like a child who has figured out that if it cries loud enough, mommy will always give in.

Where are the sources proving China's economy is open to U.S. corporations' competition (w/o Chi-com partners) and where are the numbers proving there is enough consumer income to buy U.S. products even if the market was open? For that matter, where are the numbers proving there's any consumer income outside the "capitalist" zone?

That would be free trade.

"Free" trade is Beijing dictating American trade policy. The Chi-coms deliver "cheap" labor and promise access to China's market. In return they get hundreds of billions of dollars and all forms of technology.

"Free" trade is making China a "kinder, gentler" nation? Where's the proof? (Dan Rather described China as a "kinder, gentler" nation back in 1989 just hours before Tiannamen Square was covered with blood and body parts.)

Here's a government that murdered tens of millions of their own citizens and we trust them because we can buy a microwave for forty dollars?

Lucky for us the Chi-coms seem to be destroying themselves. The Party cadre get rich and get rights while the 700 million outside the "capitalist" zone (and millions of unemployed) get poorer, angry and more restless.

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