So much excitement (of both kinds) over the last 24 hours about President Obama’s predominantly symbolic announcement yesterday that full diplomatic relations would be restored with Cuba. And so little about a development that actually threatens America’s prosperity and national security, not to mention mountains of dollars in corporate profits: Bloomberg.com’s report that China is systematically moving to end its reliance on foreign technology products and services and replace them with domestic supplies.
No one who’s been reading RealityChek or following my previous writings will be surprised. I’ve long maintained that China’s leaders completely reject the foundational ideas of global free trade and commerce. Whereas Americans and so many others continually preach the virtues – and indeed the inescapability – of comparative advantage and specialization, Beijing therefore quite reasonably sees no need for China to rely on foreign inputs of anything that its homegrown enterprises can provide themselves. Once this domestic capability is developed — typically by extorting technology — foreign competitors get shown the door.
Indeed, China’s reasoning is something that I’ve urged Americans to take seriously: With the world’s first or second-biggest economy (depending on how you measure it), and a huge chunk of the globe’s population, China potentially is large and diverse enough to create a critical mass of the benefits of competition within its own borders. Beijing places a heavy burden of proof on those insisting that the further advantages of buying imported goods and services outweigh the costs and risks (including the perils of using high tech hardware and software from the United States that could be bugged).
But whether the Chinese (or yours truly) are indeed right or wrong on this matters much less than their government’s determination to act on these convictions, and the Bloomberg article makes clear that Beijing’s policy of maximizing self-sufficiency is entering a new phase. The state-owned sector from which foreign technology products and services are to be barred by 2020 represents a market that reportedly was in the $180 billion neighborhood last year, and in China, the so-called private sector surely won’t be far behind. Nor is there any reason to believe that Beijing will limit its drive for self- sufficiency to information technology sectors.
The Obama administration is definitely aware of China’s techno-protectionism. Its responses? First, bring Beijing in to a global trade regime that prohibits discrimination against imports in government procurement, and second, conclude another global agreement to abolish tariffs on a wide range of high tech goods. But these approaches continue to wish away China’s long record of ignoring similar treaty obligations, and Washington’s equally long record of making only the weakest monitoring and enforcement efforts. Add to this the news that Beijing has just decided that it didn’t want to stop protecting certain key info-tech goods, thereby scuttling the new tech trade deal for the time being.
Will U.S. leaders reading the Bloomberg report recognize it as the equivalent of a two-by-four blow to Washington’s China trade delusions? Or will they be too busy obsessing about trifles like Cuba?