Disarming China’s Weapons of Job Destruction
America’s politicians need to get a whole lot smarter about the box that a mercantilist and protectionist China is putting us in — because it looks more and more like a coffin every day! That’s why Congress and the President must tell China in no uncertain terms that the United States will no longer tolerate its anything-but-free trade assault on our manufacturing base.
If China refuses to lay down its Weapons of Job Destruction — which violate every rule in the free trade book — the President and Congress will have no other choice than to take swift action. Here’s how America can unilaterally disarm these Chinese weapons.
#1: Pass the “American Free and Fair Trade Act”
The simplest and most effective legislative cure for China’s mercantilist and protectionist ways — and one that avoids direct confrontation because it need not mention China directly by name — is for Congress to pass the “American Free and Fair Trade Act.” This Act would set out the following ground rules — with appropriately tough sanctions for failing to play by them:
By passing such legislation, Congress can both safeguard the international system of free trade and ensure the long-term prosperity of the American economy. Such legislation is not “protectionist” — as the China apologists will no doubt leap to brand it. Rather, it is simply common sense and a legitimate self-defense in the face of Chinese economic aggression.
#2: Global Cooperation and Coordination Is the Watchword
To quote the great American patriot, Ben Franklin: “We must all hang together, or assuredly we shall all hang separately.” That’s why as a companion action to passage of the Free and Fair Trade Act, the United States must partner with Europe, Brazil, Japan, India, and other victims of China’s mercantilism and protectionism to petition the World Trade Organization for full compliance of its rules by China. Only by strength through numberswill the U.S. and others succeed in bringing a now “beggaring thy neighbor” China into a true community of free trading nations.
#3: A Secret Currency Manipulation Mission
If we were asked to identify the single most egregious problem in the U.S. -China relationship, we’d have to call out the yuan peg to the U.S. dollar. A floating currency is fundamental to automatically adjusting trade flows and prevent the sort of chronic trade surpluses that China runs with so many of its trading partners.
We do agree, however, with the China apologists that the Chinese government doesn’t respond well to direct pressure. That’s why, at least on the currency question, the first best option to bring about a fairly valued Chinese currency may be found in some top secret “shuttle diplomacy.”
To this end — and this is an extremely urgent matter! — the White House should immediately send a secret emissary to inform the Chinese Communist Party of this: The United States will have no other choice than to brand China a currency manipulator at the next biennial Treasury Review and impose appropriate countervailing dutiesunless China strengthens its currency to fair value on its own.
In this discussion, America’s emissary should make it clear that the United States would much prefer that currency reform be “China’s idea,” not that of the United States; and that in no way does the United States wish for China to “lose face” on this issue. In fact, that is why this mission must be conducted in total secrecy.
America’s emissary must be clear, however, that after more than seven years of debate on this issue, patience has run out in the United States politically, and time has run out economically. Of course, if China fails to act in a timely manner, the Department of the Treasury must follow through on branding China a currency manipulator and impose appropriate defensive duties to bring the Chinese yuan to fair
#4: Recognize the Real Corporate Risks of Chinese Offshoring
Far too many American executives who decide to strategically offshore production and jobs to China invariably fail to adequately assess a range of risks. Obvious risks include the loss of a company’s intellectual property either through outright theft or via China’s policies of forced technology transfer and forced relocation of research and development to Chinese soil.
Beyond the loss of a company’s intellectual property, other risks range from endemic corruption, severe pollution, and looming water shortages to the need to scale China’s Great Walls of Protectionism. In any comprehensive corporate risk assessment, executives must also acknowledge this reality:
If there is any one country the United States is likely to engage in military conflict with over the next several decades, it certainly is a rapidly militarizing China. And if you were an American business executive contemplating an offshoring decision, would you really want all of your company’s eggs in the China basket when such a conflict arises over Taiwan or Tibet or territorial rights in the South China Seas or access to oil in the Middle East?
It follows that American executives offshoring to China must remove their rose-colored glasses and do a far more comprehensive risk assessment. Such a sober look at the real risks associated with offshoring to China should help, in turn, power a new “reshoring” tide that brings jobs back to America, Brazil, Japan, Europe, and emerging markets outside of China.
#5: Be Like Nucor Steel’s Dan DiMicco — Not GE’s Jeffrey Immelt
If American corporate executives want to better understand the art of fighting back against Chinese mercantilism and protectionism, they need look no further than Nucor Steeland the example set by its CEO, Dan DiMicco. Besides running one of the most successful and technologically innovative companies in the world, DiMicco spends considerable time in the public arena lobbying for real trade reform with China. In this way, DiMicco provides a sharp counterpoint to the naïve or even turncoat behavior of CEOs like GE’s Jeffrey Immelt and Westinghouse’s Jack Allen.
#6: Stop Forced Technology Transfer and the Hijacking of U.S. R&D
As the U.S. -China Commission has strongly recommended, the U.S. government must “help U.S. companies resist attempts by Chinese authorities to mandate or coerce foreign high-technology firms to reveal sensitive product information as a quid pro quo for market access in China.” The U.S. government must likewise help companies resist the forced relocation of their research and development facilities to China as a condition of market entry. We, as a nation, are dooming ourselves to decades of stagnant growth by surrendering our technology to the Chinese, and this must be stopped! Because of the importance of this issue, we must also consider legislationthat would prevent our firms from entering into deals with China that require any such technology transfers as a condition of market access.
#7: Stop the Use of Censorship as a Non-tariff Trade Barrier
Many of America’s greatest exports are from our best-in-the-world entertainment, media, and Internet firms. China’s heavy-handed use of censorship in movies, television, and the Internet combined with tacit support of rampant piracy is a massive assault on free trade. While Facebook is totally blocked in Shanghai, its Chinese counterpart RenRen is receiving a grand welcome in the United States and a $500 million listing on the NASDAQ. This is just so very wrong!
To ensure that China does not benefit from such predatory economic warfare, Congress should pass legislation that blocks any Chinese media and Internet firms that engage in censorship from raising funds from the U.S. stock markets.
#8: Prohibit Chinese State-Owned Enterprises from Buying Private Firms
We must stop pretending that a giant national oil, telecom, or mining firm with the backing of the Chinese state that buys up a competitor in America, Canada, or Australia will ever create any real value for our consumers or shareholders. Instead, we must recognize that China’s state-owned enterprises are nurtured in a monopoly environment, fed with profits from unfair trade practices, have access to massively subsidized state bank financing, and are all run by members of a communist party elite intent on locking up markets and locking downresources around the world. While some American CEOs have been happy to sell off our national treasures to Beijing’s cadres of state capitalists to pocket a quick buck, such transactions are not even remotely in our national interest.
And let’s be crystal clear about this: China would never allow a Western company to buy any Chinese firm in a “strategic industry” — which includes aircraft, autos, energy, finance, technology, natural resources, and just about anything more sophisticated than peddling burgers or fried chicken.
Because of the strategic threat from foreign governments gaining control of American private industries, the U.S. Congress should pass legislation preventing domestic private firms from entertaining offers from state-owned enterprises, whether they are Chinese, Russian, or otherwise.
#9: We Need a President with Both Brains and a Backbone
Much of the blame for the destruction of the American manufacturing base through a massive wave of offshoring can be laid directly at the White House doorstep. From 2001 to 2008, President George W. Bush certainly had the backbone to stand up to China. Unfortunately, his ideological blinders didn’t allow him to understand the difference between free versus fair trade. As a result, the fiddling Bush administration did nothing but fixate upon the war on terror while a mercantilist and protectionist China systematically took apart our economy job by job and company by company.
In sharp contrast, President Barack Obama certainly has the intellect to understand the problem — he campaigned on a platform of cracking down on Chinese mercantilism and certainly knows the issue. Obama’s problem, however, is that he doesn’t appear to have the backbone to take the actions necessary.
Forgive our bluntness here, but what we really need now is a leader with both brains and a backbone — a Winston Churchill, not a Neville Chamberlain. Barack Obama could fit the bill if he got the message — but if he doesn’t, the 2012 election will certainly provide America with another opportunity to find a president who will lead us out of the post-industrial wasteland that America is becoming under the onslaught of China’s weapons of job destruction.
The above is an excerpt from the book Death by China: Confronting the Dragon — A Global Call to Action by Peter Navarro and Greg Autry. The above excerpt is a digitally scanned reproduction of text from print. Although this excerpt has been proofread, occasional errors may appear due to the scanning process. Please refer to the finished book for accuracy.
Copyright © 2011 Peter Navarro and Greg Autry, authors of Death by China: Confronting the Dragon — A Global Call to Action
Peter Navarro, co-author of Death by China: Confronting the Dragon — A Global Call to Action, is a business professor at University of California-Irvine, is author of the best-selling The Coming China Wars. His work has appeared in BusinessWeek, The Los Angeles Times, The New York Times, The Wall Street Journal, Harvard Business Review, and MIT Sloan Management Review. A gifted public speaker, Navarro has been featured on 60 Minutes and has appeared on Bloomberg, CNN, NPR, and all three major network news shows. He is a regular CNBC contributor and has testified before Congress and the U.S. — China Commission. His recent books include Seeds of Destruction (with Glenn Hubbard) and Always a Winner. His free weekly newsletter is available at www.peternavarro.com.
Greg Autry, co-author of Death by China: Confronting the Dragon — A Global Call to Action, has founded several technology firms. He has taught entrepreneurship, strategy, and macroeconomics at the Paul Merage School of Business, University of California-Irvine, where he received his MBA and is currently completing a PhD in the area of Public Policy and Economics. He has written extensively and speaks regularly on China, economics, technology, and the new private space industry.