What should be the goal of America’s trade policy with China? The simple answer would be mutually beneficial exchange of goods, services and payments. However, the Chinese government’s recent actions in many areas have muddied the waters. Unfortunately, the American response has made a bad situation worse. A major rethink is required.
The charges laid at China are serious. There are instances of forced technology transfer, fraud and incentives seemingly aimed at destroying American manufacturing capacity, among other things. America’s response, now under two presidents of different parties, has been to attempt to restrict trade unilaterally through tariffs and other measures. President Biden has gone so far as to call the trade dispute “a battle between the utility of democracies in the 21st century and autocracies.” The goal seems now to be “decoupling” — reducing the mutual dependence on trade between the countries.
If Biden is right in his characterization, then we have to ask what would help democracy win and autocracy lose? A free and prosperous China should be an ally, not a threat. Decoupling from China will not accomplish this goal. As we have seen, tariffs and other barrier-style measures have not encouraged Beijing to make needed reforms. In fact, there is no silver bullet policy that Congress or the president can pursue, or that pundits can shout soundbites about on cable news. The current policy isn’t working and seems more likely to turn China into a vast, militarily powerful North Korea, rather than a friend.
What will ultimately change China is complicated. It is bottom-up, not top-down. It is a cultural change. This is a long-term, multifaceted process that will get few headlines but do much good. Moving China in a more liberal direction requires long-term diplomatic, economic and cultural engagement. Just as blue jeans and rock music were a major factor in winning the Cold War, so could today’s cultural exports move China in a freer direction.
Fortunately, momentum and demographics are on our side. The largest mass migration in human history happened within living memory — and is still going on. Over the past 30 years, hundreds of millions of people have left China’s farms for the cities. Leslie Chang’s book, “Factory Girls,” is an eye-opener about this mass movement. China’s new generation of city dwellers could not be more different from their rural parents. They want change and opportunity. They are more individualist, and eager to adopt new fashions and ways of thinking. Where the old generation is closed, they appear to be open. We Americans have generation gaps. In China, they have generational chasms.
This is to our advantage. The rising generation is our target audience for cultural shifts, not Xi Jinping and the Chinese Communist Party (CCP) elders. He and the rest of his cadre are dug in. Ordinary people, not so much — and increasingly so over time. This means exporting more entertainment, getting Chinese students in American schools immersed into American culture and institutions, and making American friends. Rock and roll and the fax machine won the Cold War as much as Trident missiles or Pope John Paul II’s solidarity diplomacy. Xi knows this, and thus you and I witness a radical turn toward Maoism in the government, though not necessarily in the Chinese people.
That doesn’t mean ignoring Beijing’s elder statesman, who still wields great power. We are past due to fix a fundamental policy mistake from a generation ago. America backed China’s entry into the World Trade Organization (WTO) but allowed China to retain its status as a developing nation indefinitely, which allows them to dodge rules and maintain high barriers.
We shouldn’t throw the WTO overboard; we should start taking it seriously. We should strip China’s developing nation status so they play by the same rules as everyone else, and work with our European and other allies to make sure they do. The EU has had success in getting China to drop its problematic requirements for foreign firms to form joint ventures with Chinese companies in its bilateral negotiations with China.
Similarly, the U.S. needs to rejoin the Trans-Pacific Partnership (TPP), whose 11 members are continuing on without U.S. involvement. The logic of TPP is to establish a free-trade area along China’s periphery that is committed to the American model of trade, law and commerce. It presents a choice to emerging actors within China, nearly impossible to see from American shores. They can choose between isolation and the Chinese state-run model, or engagement according to the American model.
WTO and TPP revival won’t happen without serious American engagement. It benefits us to do so, though in 2015 and 2016 both Hillary Clinton and Donald Trump poisoned that well politically. Biden has been too feckless to make a turn from Trump’s worst impulses. It is up to us to make this politically possible, soon. It is not a perfect tool, but engagement and rules-based trade are the only effective ways to address China’s human rights abuses, national security threats, and unfair trade practices.
We also ought to set an example with our agenda of liberalization. The worst that would happen is that America would grow faster, innovate faster, and become stronger and more resilient against any threats. The real utility of democracy is in unleashing the capacity of all citizens for mutual benefit. We cannot defeat autocracy by constraining that capacity. Reducing barriers to creating businesses and hiring people is the answer to any disruption in middle America caused by trade or technological innovation. We should stop handicapping our own economy while encouraging China to do the same.
Decoupling from China is an unserious political slogan, not based in reality unless political leaders are willing to impose large and visible costs on Americans. Consider the multilateral web of supply chains. The manufacturing of an iPhone crosses an international boundary some 600 times. Components are manufactured in Taiwan, Vietnam and Malaysia, put together in China, further processed in Japan, packaged somewhere else, and so on. We could decouple from China only by decoupling from the world. What we have to do is impose real penalties when they cheat and create a sphere of influence that offers both information and incentives for China to move our way.
The China Question is the biggest foreign policy problem facing us. If we get the answer wrong, the results could be tragic not just for Chinese people but for Americans.
Kent Lassman is president of the Competitive Enterprise Institute, where Iain Murray is a senior fellow. CEI is a free-market public policy organization based in Washington.