The High Cost of Our Addiction to China

Thu, 05/03/2012

CNBC.COM

The High Cost of Our Addiction to China

By Scott Paul

May 3, 2012

Ten years after the United States officially ended its yearly review of China's trade status, no one can credibly argue that China is any freer or more attentive to human rights, nor can they claim the United States is better off economically as a result of our bilateral trade and investment relationship with the People's Republic.

Just ask Chen Guangcheng if he is better off -- as he now faces a modern version of Sophie's choice. Tibetans are certainly not better off -- they are self-immolating at an alarming rate in the face of cultural genocide. Here in the U.S., manufacturing workers are not better off, either; they are among the estimated 2.8 million Americans who have lost their jobs as a result of unbalanced trade with China since 2001. Chinese workers still toil in abysmal working conditions -- with multinational companies only deigning to raise standards when exposed by scandal. China's pollution has not abated either, and an estimated 750,000 Chinese prematurely die each year because of it. American security is not better off -- we have allowed China to purchase 9 percent of our public debt while we attempt to contain Beijing's capabilities in outer space, on the Pacific Ocean and in cyberspace.

Yet granting China permanent normal trade relations was presented as some sort of a magic potion, with each new prediction growing more outlandish. Not only would we get more jobs, we might speed the rise of Chinese democracy! And if Congress didn't grant this wish? Isolation! Shame! Lost jobs!

So I won't be faulting Treasury Secretary Geithner and Secretary of State Hillary Clinton, who are in Beijing for the latest round of talks on strategic and economic concern, for falling short of expectations. That's because there is a lot of blame to go around. It's easy to target former President Bill Clinton, who, over the course of his career tacked from condemning the "butchers of Beijing" to becoming the foremost cheerleader for China trade. Or former President George W. Bush, who haplessly stood by as Chinese imports began to flood the American market at impossibly low prices, driving tens of thousands of American factories out of business and millions of Americans out of work.

But most of the blame, I'm afraid, lies with all of us. Too many Americans are addicted to cheap credit and to artificially cheap Chinese imports at big box stores. If we gazed beyond our computer screens for a minute or two, we'd notice America crumbling around us. Our infrastructure is falling apart. Our politics are in disarray. Our finances are shaky. And we've lost our long-term, strategic focus.

Meanwhile, China has pushed ahead with high-speed rail and clean energy, and we've sat on the sidelines. China has aggressively sought every kind of manufacturing niche, and in some cases our leaders have said "Let those jobs go -- we'll be better off without them." China regularly launches cyber-attacks, arrests dissidents, and cheats on its trade obligations. We simply smile and shake hands.

That's why the fanfare of the Geithner-Clinton visit will be closely managed and impeccably staged. In fact, China is already playing its part, having temporarily raised the value of its currency (and ironically, proving the point that it manipulates the Yuan) so that the Administration can avoid naming it a currency manipulator, despite an Obama campaign promise to do so. There will also be recycled agreements on protecting intellectual property and U.S. investment in China. Any astute observer will note how this is an annual ritual, but most media accounts will proclaim these as "new" and significant advances. And, Beijing will throw U.S. industry a bone or two by inking a few commercial deals.

But left unaddressed amidst the hoopla: Our record $295 billion trade deficit with China, the growing strength of China's state-owned enterprises, and Beijing's ongoing failure to adhere to its international trade obligations.

Here are four ways in which we can change this dynamic, at least as far as the economic issues are concerned:

1. The House of Representatives should pass bipartisan legislation to deter China's currency manipulation. The only thing standing between business-as-usual and a real shot across the bow to Beijing is House Speaker John Boehner. Half of his caucus supports the bill, along with an overwhelming number of Democrats. Currency legislation was one of the few items passed by the Senate last year that overcame a threatened filibuster.

2. The Obama Administration should declare that reducing our $295 billion trade deficit with China involves not only increasing exports but also decreasing imports. If reshoring is ever to become a real trend, we must reduce the flood of imports coming in from China.

3. The Obama Administration should file a slew of trade cases at the World Trade Organization (WTO), and should self-initiate cases domestically to provide relief for battered industries such as clean energy and auto parts, as well as to establish just how little Beijing has done to honor its end of the bargain.

4. The Obama Administration (and various states) should bar procurement from China until Beijing provides 100 percent reciprocity based on the value of these government contracts. There should be no settling for empty promises or a signed agreement that is unenforceable.

As for Chen Guangcheng and the thousands of others in China fighting for a more open society, I think they would be better served by a more honest approach from the United States. We can pretend that our relationship with Beijing is producing results. It is not. At least not good ones.

 

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