U.S. orthodoxy on China is nonsense

Here’s the problem with the conventional American wisdom on China — it’s nonsense. Honestly, it doesn’t compute even within the terms of its own logic, much less those of the real world.

Just look at a few reports and editorials from the past couple of days. Yesterday (Monday), the New York Times reported that "China has waged its harshest crackdown on liberal speech in years: hundreds of Chinese have been detained, imprisoned, beaten, interrogated or put under house arrest." It further reported that 60 activities organized by the U.S. Embassy in Beijing have been canceled because of interference by the Chinese authorities.

Now, check recent U.S. trade statistics and you will find that the $250 billion U.S. trade deficit with China is rising again after falling in the wake of the recent economic crisis. To be fair, the Chinese have a point when they say this deficit is overstated by the fact that South Korean, Japanese, and other components shipped to China for assembly all get counted as exports only from China. Nevertheless, China accounts for a substantial portion of it, and the fact that it is rising is one reason that U.S. unemployment is not falling.

Now check out yesterday’s Washington Post editorial on the U.S.-China Strategic and Economic Dialogue currently under way in Washington. It complains that China is restricting investment in China by U.S. companies. Further, it says that: "Beijing has increasingly used government procurement rules, technical standards and tax laws to force foreign companies to transfer their technology to state-owned Chinese firms in return for access to the Chinese market."

It urges the administration to "push back" on this, but also warns that Washington should do nothing "to ban job-creating Chinese investment in the United States." However, it goes on to say that the administration should not open up the new areas for Chinese investment that Beijing is requesting until Beijing begins to act less beastly toward U.S. companies. Similarly, Sunday’s New York Times editorial urged on the one hand that the administration respond firmly to China but cautioned on the other hand that nothing should be done that might precipitate protectionism.

What to make of this gobbledygook? Let’s try to connect the dots. If China is becoming more overtly and harshly repressive and shutting down run-of-the-mill U.S. Embassy activity in Beijing, why do the Times and the Post insist that the Obama administration try to make it easier for U.S. companies to invest there? Wouldn’t such investment only prove to the Chinese that Americans don’t care about repression even of their own embassy as long as their companies can put a few more factories in China?

Similarly, why do the media mavens want U.S. companies to invest in China when the rising U.S. trade deficit is contributing to rising unemployment? Wouldn’t it be better if they invested in America? The Post says that such offshore investment creates demand in China for exports of U.S. parts and supplies to feed the U.S. company factories in China. But recent studies by the Council on Foreign Relations demonstrate that this is no longer true. And even if it were true, why would U.S. pundits and policymakers want U.S. companies to put more factories and products in China so that they can transfer technology, much of which has been developed with U.S. taxpayer money, to China faster? For that matter, why do the companies want to do this? I mean, the tenure of CEOs must be getting really short.

Finally, the Post and Times (I use them as proxies for the conventional wisdom) both say they object to China’s practices and want Washington to do something to stop them. But at the same time they warn against any measures that might trigger a protectionist reaction. Of course, anything that might get China’s attention will inevitably be interpreted by the same editorialists as dangerously protectionist. They also warn against restricting the flow of Chinese investment into the United States. In fact, the best part is where the Post says we shouldn’t stop any job-creating Chinese investment from flowing into the United States, but then also says that we shouldn’t open up any new avenues for Chinese investment until China starts to behave better. But wait a minute. If the Chinese investment we presently receive is really creating jobs, why wouldn’t we want to open up the new avenues (except for national security exceptions) and create even more jobs regardless of how the Chinese are behaving toward U.S. companies in China?

To conclude where we started, it’s just nonsense. If you can figure it out you’ll probably never be invited to become a member of the Council on Foreign Relations. But you should call Hillary Clinton and Tim Geithner immediately. They badly need your help with this silly dialogue.