Trade with China—Time to Change Strategy?

It’s obvious that trade with China is essential to the US economy.  The trade imbalance, tariffs, intellectual property rights, investments in one country by the other, or required partnerships are all cited one way or another as major barriers to commercial peace, fairness, and justification for sanctions.  Does all this make sense?

 

A September 16, 2021 commentary article in the Carnagie Endowmant for International Peace argues that all these factors are not necessarily etched in stone and can be negotiated.  In fact, the author notes Europe, with an economy similar in size to the US, has done a better job of dealing with China.  Bottom line is it’s in our interest to make strategic changes in how we deal with this most important country.

 

We need to remember that we are linked with China and dependent on them for critical things like medical supplies, rare earths, and many manufacturing areas no longer a US stronghold.  Adding Europe to the analysis, the article notes “the United States, Europe, and China have different comparative advantages, which are reflected in the composition of their exports.  Europe specializes in high-end consumer goods and machinery; the United States in agricultural products, high-tech components, and services; and China in basic manufactured consumer goods and inputs”.   

 

These comparative advantages are not likely to disappear in the near future.  So the appropriate trade policy would be to recognize the relative strengths and weaknesses and deal with them.

 

Of particular interest are the author’s notes on intellectual property safeguards and protectionist policy improvements.

 

Apparently China’s patent courts have matured when dealing with intellectual property complaints from foreigners.  Patent courts “are now more likely to win their cases than domestic firms.  In addition, theft is becoming less of a concern as payments for royalties and licenses by Chinese firms…have grown almost by a factor of four in the past ten years, making China the second largest payer of such royalties globally.”

 

The author also notes China’s protectionist tendencies, including the requirement that foreign firms form joint ventures with domestic Chinese firms, may be lessening.  The joint venture requirement is often cited as a means of forced technology transfer, a significant concern for businesses involved in cutting edge work.  The good news is several major companies, such as BASF, Tesla, and BlackRock have been allowed to enter key sectors without a Chinese partner.

 

The conclusion of this article makes thought provoking reading: 

 

“If the United States wants to preserve its technological and moral authority, it must first deal with economic and political weaknesses at home. Bemoaning China’s unfair policies and its authoritarian regime will not solve this problem. Instead, the United States should focus on strengthening its own economic competitiveness, forging internal political cohesion, and working with European and Asian partners to build enduring international institutions.”

 

This appears to us to be a message not heard in today’s reporting.  Accurate or pro-China happy talk?  We don’t know.  The article can be seen here: 

https://carnegieendowment.org/2021/09/16/u.s.-china-trade-war-has-become-cold-war-pub-85352

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