Being Wrong about China Then Matters Less Than Being Right about China Now

DANIEL J. IKENSON, CATO INSTITUTE

Ever since the George H.W. Bush administration weighed its diplomatic options in those months of intense policy introspection following Tiananmen Square in 1989, I have supported the deepest possible engagement with China. Throughout the 1990s, along with many others working on trade issues, I participated in the perennial push to persuade Congress to grant China “Normal Trade Relations” status and, ultimately, to secure “Permanent Normal Trade Relations” designation, the last major hurdle to China’s joining the World Trade Organization.

Throughout the two decades following China’s 2001 WTO accession, I wrote dozens of articles and papers and gave scores of lectures and interviews arguing that U.S.-China engagement was a positive development for the United States, China, and the rest of the world. In response to concerns that China wasn’t fulfilling its obligations, I assured that frictions in the process were inevitable and manageable, and that the massive reform already undertaken was a down payment—evidence of Beijing’s commitment to full participation in the rules-based, liberal international order. A little more time and latitude were needed for Beijing to fully implement its WTO commitments and, in the process, become that more “responsible stakeholder.”

I asserted that frustrations and mounting tensions in the relationship would be tempered through the maturation of the rule of law in China, deepening commercial engagement, and the shock-absorbing properties of the Bush administration’s “Strategic Economic Dialogue,” the Obama administration’s “Strategic and Economic Dialogue,” other high-level engagements, the WTO dispute resolution process, and the negotiation of more comprehensive trade and investment agreements.

opposed calls for an across-the-board 27.5 percent tariff on imports from China, prolongation of textile and apparel quotas, punitive treatment of Chinese exporters and U.S. importers under the “trade remedies” laws, and all other protectionist demands that materialized over the past few decades.

I argued that concerns about the effect of the value of China’s currency on the U.S. trade deficit were misplaced and that proposed measures to redress currency misalignment were cures worse than the disease. I reminded that the U.S. trade deficit is not a scoreboard and that bilateral trade deficits in a globalized economy are especially meaningless.

When the implications of the Great Recession were weighing heavily on American psyches, I warned that growing concerns about China’s intentions were outdated Cold War tropes, and that provocative media portrayals of a triumphalist, rising China were only feeding a hawkish, zero-sum narrative in the United States that could lead to a trade war or worse. I disagreed with the chorus of voices warning that China had abandoned meaningful reforms earlier in the decade and that what we were witnessing was the Chinese government’s unapologetic return to prominence in shaping the course of China’s economy.

I countered with certainty that if Beijing wanted to subsidize factory production, we Americans should be sure to thank them for their beneficence. Trade with China, I insisted, would foster the rise of a middle-class that would dilute the power of the central government and successfully assert its demands for political and civil liberties.

As my colleague Scott Lincicome meticulously documents in his comprehensive study rebutting the argument that it was a mistake to allow China into the global trading system, engagement with China made the U.S. economy more productive and Americans better off. Indeed, the benefits of the West’s welcoming and facilitation of China’s entry into the global system are legion. No other geopolitical unfolding including, especially, the putative dividends of decades of international development efforts, did more to reduce poverty and enable human flourishing (in China and across the developing world). Hundreds of millions more people would be living, today, in poverty, unable to harness their talents and have the impact they have had on their own lives and on global economic well-being had the United States turned its back on China after Tiananmen. That’s no small thing.

But I was wrong about a few things, too.

Believing that global liberalism was irrepressible, irresistible, and inevitable, I paid too little regard to the evidence: liberalism was defying inevitability in China, as Beijing emphatically resisted it. In the gleeful optimism surrounding China’s WTO accession process in the late 1990s and early 2000s, I allowed concerns about the risks of China using the infrastructure of the international order to fuel its rise without ever really committing to liberalism to be marginalized by the magnitude of the commercial and economic possibilities: the world’s largest market; the world’s largest factory floor; the human capital freed from subsistence; the endless opportunities.

I was wrong to downplay the concerns of those who worried about China’s commitment to rules. I was foolish not to expect China’s rule-breaking with impunity to encourage more rule-breaking, and that the pent-up frustration in the United States would boil over and nourish a populist revolt against trade agreements and the trading system. I was mistaken to believe that there was only one path for China to follow if it were to become a great power again. I erred in my belief that bilateral frictions would dissipate, rather than intensify, as China became richer and more deeply vested in the global economy.

And I was wrong to assure myself and others that China’s rise would happen only if Beijing hewed to the prescriptions of what was then still called the “Washington Consensus.” Unless and until Beijing stopped meddling in the affairs of industry, privatized its state-owned enterprises, allowed a real market economy to flourish, and opened the door to greater political and civil liberties, China’s rise would be short-lived. It was all formulaic.

Largely absent at the time was any serious consideration of the question confronting us today: what to do if a rich and capable rival with very different conceptions of liberty, human rights, social order, justice, and the role of government in society emerged and was fully committed to a course of action that threatens U.S. security. That China would come to abandon the spirit and disregard the rules of the international order when they no longer served its interests was a thought too antithetical to the times. It was, after all, the end of history.

Defiantly, history marched on and today Beijing challenges U.S. leadership and many of the institutions and norms established under that leadership. That challenge would be less unsettling if it came from a China that had followed a path of democracy, freedom, and the rule of law, but the reality of Beijing’s illiberal, repressive, and often repugnant practices makes that challenge all the more serious and urgent. People can debate whether, to what extent, and under what circumstances it is the province of U.S. policymakers to aim to change the Chinese government’s behavior on matters Beijing considers “domestic” or on matters that do not impact U.S. interests directly or significantly.

But, to my mind, it is beyond debate that China’s technological capabilities are clear and direct matters of U.S. national security. After all, technological know-how is essential to national defense and, in the wrong hands, could be used against Americans—to spy, extort, sabotage, and conduct warfare. There’s a reason Lockheed Martin is prohibited from selling F-35 fighter jets to China. Primacy over certain technologies confers all sorts of strategic advantages, making the issue a bona fide matter of national security.

Beijing has been contesting U.S. technological preeminence by funneling hundreds of billions of dollars per year into research, development, and production. It has been underwriting efforts to conduct technology theft on a grand scale. And, it has been extorting technology and other assets from U.S. businesses, as the price of entry into the Chinese market.

Among the tools Washington has deployed to counter Beijing’s efforts are export controls, investment restrictions, blacklisting of Chinese technology companies, and—more recently—tax credits and other subsidies for domestic semiconductor development. To many—including myself—the case for prudence is obvious. That’s not to say the U.S. measures being taken are optimal. Surely, they can be made more surgical, less distortionary, and more effective. They can be designed and implemented to minimize collateral damage and to encourage the support and cooperation of allies.

Some of the ideas I am fleshing out and hope to share with policymakers relate to the need for greater transparency, efficacy, and cost accountability in U.S. technology security measures. That includes protecting specific technologies in a more circumscribed fashion; declassifying unnecessarily classified information; making public more of the analyses that lead to technology trade restrictions so that the security concerns and the propriety of the proposed measures are better understood; and, robust cost benefit analyses so that we can avoid restrictions that cost more than the security they are estimated to purchase.

Obviously, not everyone shares my concerns about how China pursues its technological ambitions. Some chalk up the bilateral discord to Donald Trump’s mistakes and assume his departure is the solution. But that’s just wrong. Relations have been on a downward trajectory since China’s incriminating “indigenous innovation” plans were discovered in 2006.

Others don’t regard China’s techno-mercantilism as a threat that warrants a U.S. policy response. Some seem to view the U.S. government with more distrust than they reserve for Beijing. Still more appear to be unconcerned or unconvinced that the technological decoupling triggered by this battle for preeminence will hasten a broader economic, financial, and cultural decoupling. They assume the battle over technology can be contained, while the broader trade and investment relationship continues as before.

But how? How can a cooperative, win-win economic relationship exist—much less flourish—alongside a zero-sum framework of distrust, subversion, and confrontation? It is more likely the trade and economic relationship cannot sustain a long, drawn-out technological battle of attrition and that decoupling will lead to the onset of what is most aptly described as a cold war—a characterization that sounds like fingernails on a chalkboard to those who regard the term as self-fulfilling, consider the historical parallels inapt, worry it offers a new excuse for endless defense spending, or fear that adopting type-casted terminology will inhibit the creative thinking needed to find a durable solution.

Well, it’s a conclusion I reach with neither joy nor certainty, but with the hope that those who are skeptical that a problem or solution exists will take a closer look and, if persuaded, offer some realistic policy alternatives that could mitigate the problem in a way that keeps the door open for eventual rapprochement.


Daniel J. Ikenson is director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, where he coordinates and conducts research on all manner of international trade and investment policy. Since joining Cato in 2000, Ikenson has authored dozens of papers on various aspects of trade policy, focusing his research on U.S.-China trade relations; bilateral and multilateral trade agreements and institutions; globalization; U.S. manufacturing issues; trade politics; and trade remedies, such as the antidumping regime. Mr. Ikenson holds a MA in economics from George Washington University. Read Ikenson’s full bio here.


Used with the permission of the Cato Institute CC BY-NC-SA 4.0


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