The Magazine

Our Predatory Trading Partners

How Russia and China take advantage.

Aug 9, 2010, Vol. 15, No. 44 • By IRWIN M. STELZER
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America runs large and persistent trade deficits. Our partners figure out how to make lots of things we want, and we can’t figure out how to produce an equal amount of stuff they want—or are permitted by their governments to buy. 

Our Predatory Trading Partners

So it is good news that at last American industry has something the Chinese want to buy. Well, not buy exactly. “Extract,” or “appropriate” would be better words, “steal” being a bit harsh. Their Russian counterparts also want a piece of this particular action. It seems that U.S. technology is something that neither of these trading partners can duplicate without the help of our government—which has to issue export licenses for militarily sensitive items—or of our CEOs in Silicon Valley.

The American business community has long been in the forefront of the lobbying effort to prevent retaliation against China for its currency manipulation and its subtle and not-so-subtle barriers to imports. In return for access to China, big business was expected to plead the regime’s case whenever an issue arose that might put a strain on U.S.-Chinese relations. In a sense, big U.S. firms became lobbyists for the Chinese government, their fee being access to China’s markets and its low-paid workforce.

After all, a huge market beckoned as China’s masses got richer. Take General Motors, the car company owned by the U.S. government, and not exactly a roaring success in its home market. Sales to China’s cash-rich consumers increased by almost 50 percent in the first half of this year, compared with the same period in 2009, and now account for a quarter of the company’s global sales. Surely, that points the way for other companies.

Well, not exactly. It seems that China, its vaults overflowing with dollars, has no need for investment from the United States unless it brings something more than mere dollars. And with its membership in the World Trade Organization secured in 2001 by a spate of market liberalization policies, China has no further need to pander to the free trade inclinations of the West with still more liberalization. So bare-knuckled protectionism is now the order of the day. 

China’s $500 billion government procurement market has been all but closed to foreign suppliers, despite its promise to sign on to the WTO’s Government Procurement Agreement “as soon as possible” when it joined the WTO almost ten years ago. China now thinks another five years, and the opening of one-fifth of its procurement market might be reasonable. Meanwhile, government agencies and state-owned enterprises buy only products that incorporate indigenous Chinese technology.

But that’s the least of the problems America’s executives and former spokesmen for China’s interests face. It seems that they are not being allowed to build plants in China unless they turn over the associated technology. Worse still, the regime is subsidizing the construction of plants by domestic companies intent on capturing market share from the Americans. General Electric, which once predicted that its sales in China would hit $10 billion this year, is having to settle for $6 billion, as heavily subsidized Chinese companies wrest not only domestic customers from it, but customers throughout Asia, especially in the manufacture and sale of wind power equipment—the stuff that President Obama says is so crucial to the new age of American green manufacturing.

Foreign manufacturers’ share of China’s wind turbine market has fallen from 71 percent to 14 percent in just five years, according to Bloomberg Businessweek. Jeffrey Immelt, the CEO of GE, regards the issue as so serious that he has moved from friend to private critic of China, if reports of his dinner conversation are to be believed. Too little and too late: He has to protect his investment in that country, can’t tell his restive shareholders (who continue to mourn the retirement of Jack Welch) that he has misread the market, and China anyhow has moved from attracting foreign investment to developing national champions.

Then there is the question of intellectual property rights, which the Chinese authorities are not inclined to respect. They want American technology, especially “core software,” and if they cannot bludgeon U.S. firms into making it available, they will simply take it. Which is easy enough. As the Financial Times points out, “Even when paper commitments exist, such as China’s pledge to respect intellectual property rights, the country frequently lacks mechanisms—such as informed, neutral courts—needed to implement them.” Confident in his country’s rising economic power, vice premier Wang Qishan told a group of European businessmen after hearing their complaints, “You are going to invest [in China] anyway.” 

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