Here’s a development in U.S.-China economic relations that’s potentially game-changing, and that yours truly finds particularly satisfying: The Securities and Exchange Commission (SEC), the federal agency largely responsible for regulating U.S. financial markets require companies publicly traded in America to open their books wide on their ties with and reliance on China.
It’s potentially game-changing because ever since the early 1990s, Washington stepped on the gas to encourage the expansion of trade and investment with China (including massive factory and manufacturing job offshoring), but permitted the multinational companies that by far benefited most from these practices to control the release of most of the information capable of gauging the impact on the broader economy.
The result: When the American political system set its China economic policy priorities, it was forced to rely on the offshoring companies themselves for crucial information on the employment and production fall-out at home. And naturally, these firms – along with the sympathetic economists and think tank hacks they funded – presented Members of Congress and journalists with only cherry-picked facts and figures suggesting that the domestic winners far outnumbered the losers.
But this playing field may be in for major leveling thanks to the work of Steve Milloy of the Energy and Environmental Legal Institute. Milloy, a former SEC attorney, has persuaded the Commission to approve his proposal for a “Communist China Audit,” that would ask “companies to disclose to shareholders the extent to which their business relies on China.”
Milloy’s rationale, as explained in a Wall Street Journal op-ed earlier this week? A Chinese invasion of Taiwan would thoroughly disrupt the extensive commercial ties many public companies maintain with China (which include crucial supply chain dependencies of all kinds), and threaten their bottom lines – and the portfolios of their shareholders – with massive losses. In turn, the entire national economy would take a staggering hit. He rightly adds, moreover, that China’s hostility now extends nearly across the board of major U.S. interests.
Multinational and other public companies are already required to tell shareholders about the various risks they run. But everyone who has looked through their quarterly and annual financial statements knows that politics and geopolitics risk disclosures are invariably vague and scanty, and details on their China-related operations almost non-existent.
Indeed, the author reports that the SEC is already pushing public companies to reveal how significantly Russia’s invasion of Ukraine is affecting their businesses. Since China’s impact on American companies, their shareholders, and the entire American economy is so much greater, he rightly argues that full transparency on this front is all the more important.
I was thrilled to learn about Milloy’s ideas and successes because for many years, I’ve been advocating something very similar. As I wrote in this 2017 post, Congress should pass and a President should sign what I called a “Truth in Testimony Act.” The measure would require any multinationals representatives appearing before Congress on an international trade or investment or technology-related issue
“to specify their job and production offshoring, the wages of their U.S. and overseas workers, their foreign and domestic procurement, the foreign and domestic content of their products, and similar statistics.”
I also recommended that time series be provided, in order to identify long-term patterns. In addition, I pointed out, comparable information has been required of auto-makers selling in the United States since the 1990s, so major precedent exists. And I urged similar requirements for a full range of businesses and their representatives when testifying before the House and Senate, and called for their think tank and academic spokespersons to come clean on all relevant sources of their funding.
Businesses have long protested that such requirements would deprive them of valuable trade secrets and other prime sources of competitive advantage. I countered that (a) if full disclosure is a must for everyone, then no one wins or loses on net; and (b) companies unconvinced by this argument would remain free to opt out of telling Congress their stories.
Milloy’s proposal, however, matters much more, because it would apply to the entire universe of public companies whether they appear before lawmakers or not.
So I’ll be trying to get in touch with him to see if I can help his China audit campaign in any way, and report back on the results, and on any further progress he’s made. As I wrote five years ago, for far too long, the U.S. government has been flying blind on China and other international economic issues and relying on unreliable, incomplete information. Milloy is right in emphasizing that the China threat in every dimension has metastasized. Nothing less than full corporate China-related transparency can be acceptable.
RealityChek 