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Our So-Called Foreign Policy: Brazen U.S. Corporate Collusion with China

25 Monday Oct 2021

Posted by Alan Tonelson in Our So-Called Foreign Policy

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aerospace, Belt and Road, China, globalization, Honeywell, human rights, manufacturing, multinational companies, multinationals, national security, Our So-Called Foreign Policy, steel, tech, tech transfer, The Wall Street Journal, Uighurs, Xinjiang

Usually, it’s not a terrific idea to begin a piece of writing with a phrase like, “If you want to see something that’ll make you sick to your stomach….” But I think you’ll agree that this recent article from The Wall Street Journal justifies an exception. For its portrayal of the China operations of U.S.-owned multinational manufacturer Honeywell depicts a big company actively helping the dangerous thug dictatorship in Beijing endanger often-intertwined American security and economic interests, and evidently doing so without even a peep of protest from Washington – including during the Trump years.

Journal reporter Trefor Moss’ piece dealt with the question, “How can an American company thrive in China at a time when tensions between the two countries are running high?” His answer: Under Honeywell’s long-time head of China operations, it pursued a strategy of fully immersing “the company in Chinese business and culture—and [not shying] away from helping Chinese companies achieve strategic goals set by Beijing.”

This approach was worrisome enough when this executive, Shane Tedjarati, launched Honeywell China down this path in 2004. By that time, Beijing was not only gutting America’s domestic manufacturing base with a wide range of predatory trade and broader economic practices. But it had also compiled a record of challenging American national security interests through policies like supplying countries like Iran and North Korea with technologies vital to developing weapons of mass destruction and the missiles needed to deliver them.

Now that the People’s Republic has since at least early 2018 been seen as a threat to critical American interests in the Indo-Pacific region requiring a “whole-of-government” response, and that President Biden has declared that “We’re in competition with China and other countries to win the 21st Century. We’re at a great inflection point in history” and that “we’ll maintain a strong military presence in the Indo-Pacific…not to start a conflict, but to prevent one,” activities like Honeywell’s in China look alarmingly like colluding with an enemy.

What else can be made of Tedjarati’s position as “a visiting professor at Shanghai’s China Executive Leadership Academy, an elite school that provides leadership training to the Communist Party’s rising stars.”

Or of Honeywell’s sale of industrial automation equipment to one of the state-owned Chinese steel companies that for years been glutting global markets with dumped and artificially cheap product that’s hammered America’s own sector?

Or of its “open” support for the Belt and Road Initiative, the Chinese global infrastructure plan widely seen as a way for Beijing to expand its worldwide influence, and that’s got the Biden administration concerned enough to be mounting a U.S. response?

Or of these Honeywell actions (which didn’t make the Journal piece) “[T]he company repeatedly, between 2011 and 2018, sent drawings of parts of US military aircraft to suppliers in foreign countries, including China, asking for price quotes, according to a Department of State charging letter. The manufacturer voluntarily disclosed the violations.

“The engineering prints showed layouts, dimensions and geometries for manufacturing castings and finished parts for military aircraft and engines, as well as other hardware and weaponry. Drawings for parts within the Lockheed Martin F-35 and F-22 stealth fighters, Boeing B-1B supersonic bomber and Pratt & Whitney F135 turboshaft engine were included.”

For good measure, Honeywell has also supplied protective equipment to Chinese security forces operating in western Xinjiang province, where Beijing has been harshly persecuting the Muslim Uighur minority group.

Honeywell did pay a (tiny) fine for its seven years of sharing those drawings. But overall, according to Moss, Tedjarati told him that “No U.S. or Chinese officials have ever told him the company should do, or should avoid doing, specific things in China.”

Honeywell has by no means been the only U.S. multinational to enrich China and strengthen it militarily and technologically for decades. (See, e.g., here and here.) But it may have just won the award for the most brazen. And until these kinds of operations are halted completely, it’ll be hard to describe America’s China policy with the word “serious.”

Full disclosure:  I have no financial positions whatever in Honeywell, other than possibly through index funds or exchange-traded funds, and other such vehicles, and have no plans to acquire any.

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(What’s Left of) Our Economy: Why the Multinationals Still Should be Ignored on China

27 Monday May 2019

Posted by Alan Tonelson in (What's Left of) Our Economy

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Bloomberg.com, China, multinational companies, multinationals, offshoring, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

Is China mainly valued by American multinational businesses as a super-cheap production site for serving U.S. customers, or as a huge and potentially huge-er consumer market? The question has mattered decisively since the beginning of the nation’s controversial and dramatic trade expansion with China because of the impact on domestic U.S. jobs and production.

So it’s important to report that a new poll of the multinationals that operate in the People’s Republic strongly supports the views of trade policy critics (like me) who have charged that the nation’s pre-Trump approach to China’s economic rise has produced America Last results for the United States, and have urged a fundamentally new strategy.

If the multinationals were using China mainly to supply the U.S. market, as the critics have long insisted, then the trade and investment patterns that have emerged with China would inevitably be undercutting America’s economy. For their investment in the People’s Republic would be mainly replacing factories and similar facilities in the United States, and even exports to China would mainly be replacing shipments between plants within the United States.

If, however, these global giants (and the economists they employ to make their case to politicians, the press, and the public) were right in claiming that their activities were mainly focused on satisfying demand in China, and especially final demand, then the U.S. domestic economy would benefit. For their new Chinese customers would be supplementing their existing American customers, and overall markets for products Made in the USA would grow. (See here and here for arguments from multinationals-funded think tanks studies purporting to document that this win-win scenario has been the case for years.)

But a survey conducted by no less than the American Chamber of Commerce in China and by its Shanghai branch makes clear the great extent to which U.S.-owned businesses operating in China are oriented towards customers back home. One of the biggest hints? More (40 percent) of the 239 firms contacted said that (in the words of a Bloomberg.com summary) “the hike of U.S. tariffs announced on May 10 would have a strong negative impact on their business” than said that they would be hurt by a retaliatory Chinese increase in its duties (33 percent). Clearly, the American levies’ increase would damage those companies because of all that they produce in China for export to the United States. And this despite the robust growth of a Chinese consuming class that is said to be the main reason for concentrating on Chinese customer.

Two other big clues: Fully 35 percent of the companies responding said that “their main strategy for dealing with the tension was to restructure so their operations were more heavily ‘in China for China.’” In other words, many of their China operations are still structured to be “in China for somewhere else.” And 53 percent of the businesses reported that they faced no non-tariff retaliatory measures from Beijing since July, 2018 – when the first Trump China tariffs were announced. Why would they if much of their focus was exporting, and thereby helping China earn valuable foreign exchange revenue?

Nonetheless, the American Chamber survey did turn up two semi-surprises. First, only one of the companies responding complained that a curb on China’s forced technology transfer practices “was the most important outcome” for President Trump to achieve in any trade agreement. For decades, reports of this practice have been too numerous to list.

Second, 42 percent of the companies stated that “a return to the status quo before the tariffs was most important for them” – even though mounting corporate complaints about harassment from and discrimination by the Chinese government and its agents in the Chinese “business” sector are mains reason for strong (stated, anyway) bipartisan American support for ramping up the pressure on China. At the same time, this result could be yet another sign of how much U.S. corporate activity in China continues using the country mainly as an export platform.

Even the most charitable interpretation of this survey would conclude that American businesses simply have no coherent idea of what they want U.S. China trade diplomacy to produce. On the one hand, many of them plainly remain unhappy with the Chinese environment in which they operate. On the other, many plainly oppose the only American measures – tariffs – with any hope of improving this environment.

All of which tells me that, although there may be many grounds for criticizing President Trump’s trade war with China, opposition from an American business community that is at best utterly clueless and at worst hopelessly conflicted on the issues isn’t one of them.

(What’s Left of) Our Economy: The Republican Tax Plans’ Biggest Flaw

06 Wednesday Dec 2017

Posted by Alan Tonelson in (What's Left of) Our Economy

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Alan Greenspan, Barack Obama, Bill Clinton, budget deficits, business spending, capital gains, corporate taxes, dividends, Federal Reserve, fiscal policy, George W. Bush, House, income taxes, monetary policy, multinationals, non-residential fixed investment, Paul Volcker, repatriation, Republican tax bills, Ronald Reagan, Senate, tax cuts, taxes, {What's Left of) Our Economy

The tax bills passed by the Republican-controlled House and Senate and strongly supported by President Trump (despite some important differences between them) can be fairly criticized for any number of big reasons: the mess of a drafting process in the Senate, the impact on already bloated federal budget deficits and the national debt, the cavalier treatment of healthcare reform, the seemingly cruel hits to graduate students and to teachers who buy some of their students’ school supplies.

My main concern is different, though. I could see an argument for the main thrust of the bills – even taking into account most of the above flaws – if they boasted the potential to achieve its most important stated aim. In Mr. Trump’s words, “We’re going to lower our tax rate to the very competitive number of 20 percent, as I said. And we’re going to create jobs and factories will be pouring into this country….” Put less Trump-ishly and more precisely, the idea is that by slashing tax rates for corporations and so-called pass-though entities, along with full-expensing of various types of capital investment, American businesses will build more factories, labs, and other productive facilities; buy more equipment, materials and software; hire more workers and increase their pay (since the demand for labor will soar).

Actually, since automation will surely keep steadily reducing the direct hiring generated by all this promised productive investment, let’s focus less on the jobs promise (keeping in mind that manufacturing in particular generates lots of indirect jobs per each direct hire), and more on the business spending that will boost output – since faster growth is the ultimate key to robust employment and wage levels going forward.

Unfortunately, after spending the last few days crunching some relevant numbers, I can’t see the GOP tax plans living up to their billing – which makes their flaws all the more damning.

What I’ve done, essentially, is look at inflation-adjusted business spending during American economic recoveries (to ensure apples-to-apples data by comparing similar stages of the business cycle) going back to the Reagan years of the 1980s, and examine whether or not individual and especially business tax cuts have set off a factory etc building spree. And I didn’t see anything of the kind, except possibly over the very short term. Moreover, even these increases may have had less to do with the tax cuts than with other influences on such investments – like the overall state of the economy and the monetary policies carried out by the Federal Reserve (which help determine the cost of credit).

Let’s start with the expansion that dominated former President Ronald Reagan’s two terms in office – lasting officially from the fourth quarter of 1982 through the second quarter of 1990 (by which time he had been succeeded by George H.W. Bush). The signature Reagan tax cuts, which focused on individuals, went into effect in August, 1981 – when a deep recession was still underway.

Interestingly, business investment kept falling dramatically through the middle of 1983 – when an even stronger rebound kicked in through the end of 1984. Indeed, that year, corporate spending (known officially as private non-residential fixed investment surged by 16.66 percent. But this growth rate then began slowing dramatically – and through 1987 actually dropped in absolute terms.

A major tax reform act was signed into law by the president in October, 1986, and individuals were its focus as well. Two provisions did affect business, but appeared to be at least somewhat offsetting in their effects, in line with the law’s overall aim of eliminating incentives and disincentives for specific kinds of economic activity. They were a reduction in the corporate rate and a repeal of the investment tax credit – whose objective was precisely to foster capital spending. Other provisions had major effects on business but principally by encouraging more companies to change over to so-called pass-through entities, not (at least directly) on investment levels. Business spending recovered, but its peak for the rest of the decade (5.67 percent of real GDP in 1989) never approached the earlier highs.

Arguably, fiscal and monetary policy were much more influential determinants of business spending, along with the recovery’s dynamics. The depth of the early 1980s recession practically ensured that the rebound would be strong, as did the massive swelling of federal budget deficits, which strengthened the economy’s overall demand levels, and their subsequent reduction.

Perhaps most important of all, the Federal Reserve under Chairman Paul Volcker cut interest rates dramatically from the stratospheric levels to which he drove them in order to tame double-digit inflation. And yet for most of 1984, when business spending soared, the federal funds rate (FFR) was rising steeply. Capex also strengthened between 1987 and mid-1989, which also witnessed a scary stock market crash (in October, 1987).

The story of the long 1990s expansion, which mainly unfolded during Bill Clinton’s presidency, was simultaneously simpler and more mysterious from the standpoint of business taxes – and macroeconomic policy. Following a shallow recession, Clinton raised both personal and corporate tax rates while government spending was so restrained that the big budget deficits he inherited actually turned into surpluses by the late-1990s. For good measure, the FFR began rising in late 1993, from 2.86 percent, and between early 1995 and mid-2000, stayed between just under six percent and just under 6.5 percent.

And what happened to capital spending? In late 1993, right after the tax-hiking, spending- cutting, deficit-shrinking Omnibus Budget Reconciliation Act was passed, and the Fed was tightening, businesses went on a capex spending spree began that saw such investment reach annual double-digit growth rates in 1997 and stay in that elevated neighborhood for the next three years.

It’s true that Clinton and the Republican-controlled Congress passed tax cut legislation in August, 1997, that among other measures lowered the capital gains rate. But the acceleration of business spending began years before that. And although we now know that much of this capital spending went to internet-centered technology hardware for which hardly any demand existed then at all, from a tax policy perspective, the key point is that this category of spending rose strongly – not whether the funds were spent wisely or not.

The expansion of the previous decade casts major doubt on whether any policy moves can significantly juice business spending. Just look at all the stimulative measures put into effect, tax-related and otherwise. The recovery lasted from the end of 2001 to the end of 2007, and during this period, on the tax front, former President George W. Bush in June, 2001 signed a bill featuring big cuts for individuals, and in May, 2003 legislation that sped up the phase-in of those personal cuts and added reductions in capital gains and dividends levies. For good measure, in October, 2004, the “Homeland Investment Act” became law. It aimed to use a tax “holiday” (i.e., a one-time dramatically slashed corporate rate) to bring back (i.e., “repatriate“) to the U.S. economy for productive investment hundreds of billions of dollars in profits earned by American companies from their overseas operations.

In addition, under Bush, the federal budget balance experienced its biggest peacetime deterioration on record, and starting in the fall of 2000, the Federal Reserve under Alan Greenspan cut the FFR to multi-decade peacetime lows, and didn’t begin raising until mid-2004.

The business investment results underwhelmed, to put it mildly. Such expenditures fell significantly throughout 2001 and 2002, and grew in real terms by only 1.88 percent the following year. Thereafter, their growth rate did quicken – to 5.20 percent rate in 2004, 6.98 percent in 2005, and 7.12 percent in 2006. But they never achieved the increases of the 1990s and by 2007, that expansion’s final year, business investment growth had slowed to 5.91 percent.

There’s no doubt that something needs to be done to boost business spending nowadays, which has lagged for most of the current recovery and turned negative last year – even though the federal funds rate remained near zero for most of that time and the Federal Reserve’s resort to unconventional stimulus measures like quantitative easing as well, despite unprecedented budget deficits (though they began shrinking dramatically in 2013), and despite the continuation of all the Bush tax cuts (except the repatriation holiday, and the imposition of a small surcharge on all investment income to help pay for Obamacare). Business investment’s record during the current recovery has been even less impressive considering a Great Recession collapse that was the worst in U.S. history going back to the early 1940s, and that should have generated a robust bounceback.

But if history seems to teach that tax cuts and even other macroeconomic stimulus policies haven’t been the answer, what is? Two possibilities seem well worth exploring. First, place productive investment conditions on any tax cuts and repatriation (the 2004 tax holiday act did contain them) and then actually monitor and enforce them (an imperative the Bush administration neglected). And second, put into effect some measures that can boost incomes in some sustainable way – and thus convince business that new, financially healthy customers will emerge for the new output from their new facilities. To me, that means focusing less on ideas like raising the national minimum wage to $15 per hour (though the rate should, at long last, be linked to inflation), and more on ideas like trade policies that require business to make their products in the United States if they want to sell to Americans, and immigration policies that tighten labor markets and force companies to start competing more vigorously for available workers by offering higher pay.

In that latter vein, the 20 percent excise tax on multinational supply chains contained until recently in the House Republican tax plan could have made a big, positive difference. Sadly, it looks like it’s been watered down to the point of uselessness, and the original has little support in the Senate. The House Republican tax plan also had included a border adjustment tax that would have amounted to an across-the-board tariff on U.S. imports (and a comparable subsidy for American exports), but the provision was removed from the legislation partly due to (puzzling) Trump administration opposition.

Mr. Trump clearly has acted more forcefully to relieve immigration-related wage pressures on the U.S. workforce, but it’s unclear how quickly they’ll translate into faster growing pay.  If such results don’t appear soon, and barring Trump trade breakthroughs, expect opponents of the Republican tax plan to keep insisting that it’s simply a budget-busting giveaway to the rich, and expect these attacks to keep resonating as the off-year 2018 elections approach.   

 

(What’s Left of) Our Economy: Another Comforting China Trade Myth Looks More Mythical

19 Wednesday Nov 2014

Posted by Alan Tonelson in (What's Left of) Our Economy

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Apple, China, domestic content, Germany, investment, Japan, Jobs, Korea, manufacturing, multinationals, supply chains, Trade, Trade Deficits, value added, {What's Left of) Our Economy

If the United States could produce real goods and services as abundantly as it produces outright falsehoods and hopelessly obsolete arguments about its trade with China, today’s recovery wouldn’t be so feeble and debt-led. One of the biggest such urban trade legends took a major hit yesterday. Let’s see if other Mainstream Media other than the Financial Times report these new findings – much less if American leaders will permit them to intrude on the China trade fantasies in which they keep floating.

Since bilateral trade between the two countries began exploding in the 1990s (mostly on U.S. imports), apologists for the policies responsible have insisted that the U.S. economy as a whole, including its workers, would ultimately benefit because freed up commerce would generate all the benefits that trade expansion is in theory supposed to create. (My book, The Race to the Bottom, documents many examples.)  Principally, China would concentrate on turning out low-value, labor-intensive goods, and enable American companies and their employees to produce much more advanced, and lucrative, goods as well as services.

Abundant evidence of rapid changes in these patterns of specialization has evoked an equally confident reply: Data indicating that China’s exports of higher value goods are surging – mainly because U.S. and other foreign multinational companies keep investing more in higher value China production – has been seriously misleading.

The reason? Those exports overwhelmingly consisted of U.S.- and other foreign-produced parts and components that the Chinese simply assembled. Thus the overwhelming share of the value of Chinese exports, including Chinese exports to the United States, was Made in America – or Germany or Japan or Korea. And therefore these Americans and other foreigners reaped the lion’s share of the benefits of these items’ manufacture and sale.

I wrote last year that the main specific form these arguments were taking were of scant comfort to Americans, because in the main examples used (various Apple products), most of the manufacturing content that was not Chinese wasn’t American, but Asian or German.

I’ve also noted there’s a more fundamental point that the panda-huggers were missing. They seemed to assume that Chinese exports would always contain very low levels of Chinese content. In fact, they ignored abundant direct evidence that China was moving rapidly up the value and technology chain – mainly in the form of China’s exports (including all those outside electronics) consisting of ever higher shares of advanced manufactures.

Here’s where that Financial Times piece comes in. It reports on new World Bank and IMF research contending that Chinese content levels of Chinese exports was in fact rising robustly – from less than 40 percent on average in 1993 (not so coincidentally, just as the United States was deciding to grant China normal trade status each year despite its systemic human rights violations) to 65 percent nowadays.

I’m not saying that these findings are dispositive. In the first place, they rely largely on always-questionable Chinese government data. But even if Beijing could always be trusted, its ability to track independently the humongous flows of various levels of intermediate inputs of final products will always be limited – just like the ability of any government to meet this challenge, which has grown exponentially as the output of manufactured goods has become fragmented and internationalized.

So even though these reports of rising Chinese content levels track well with everything else of value known about manufacturing in China and its evolution, they underscore the urgent need for better data. And the main problem here, especially regarding the China and other foreign operations of U.S.-owned multinational companies, is not lack of wallet (to borrow a well-worn cliché) but lack of will.

These companies have a very precise handle on the content levels of their products – they couldn’t be so successful without this supply chain knowledge. But they keep it very closely held, and indeed only release it selectively and self-servingly. It’s high time to end their monopoly on such knowledge, meaning that Washington should require any company above a certain size doing business in the United States to report regularly on the foreign and U.S. content levels of its output.

Even better, the U.S. government has already set a terrific precedent with the content stickers that foreign and domestic auto companies are obliged to slap on the vehicles they sell. These stickers aren’t perfect; their main problem is their failure to distinguish between U.S. and Canadian content. But they go a long way toward telling consumers where their purchases come from.  Even more important, they go a long way toward telling citizens and their elected leaders who the winners and losers from international trade in this key industry, at least, really are, and the requirement should be expanded to cover other crucial manufacturing sectors as well.

Making News: Podcast of Yesterday’s John Batchelor Show Appearance

05 Friday Sep 2014

Posted by Alan Tonelson in Making News

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China, John Batchelor Show, Making News, multinationals, national security, protectionism, rule of law, Trade

As promised, here’s the podcast of my appearance last night on John Batchelor’s nationally syndicated radio show. The conversation covered not only China’s harassment of foreign multinationals and what it means for U.S. and world trade, but how it relates to a relentless, mercantilist Chinese drive for economic power that threatens U.S. national security. The segment starts at the top of the hour.

Making News: Back on “The John Batchelor Show” Tonight!

03 Wednesday Sep 2014

Posted by Alan Tonelson in Making News

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China, Making News, multinationals, offshoring, The John Batchelor Show

I’m pleased as always to announce another live appearance on John Batchelor’s nationally syndicated radio show. This new segment is scheduled for 10 PM EST tonight and will focus on China’s campaign of harrassment against foreign-owned businesses — the subject of my August 21 post.

Listen live on-line here or here! And as usual, I’ll post a link to the podcast once it’s available.

(What’s Left of) Our Economy: The Real and Surprising Lessons of China’s Bullying of Foreign Firms

01 Monday Sep 2014

Posted by Alan Tonelson in (What's Left of) Our Economy

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China, comparative advantage, crackdown, economic nationalism, free trade, globalization, multinationals, protectionism, rule of law, {What's Left of) Our Economy

It was tempting to dismiss a recent Financial Times op-ed by a China-based international lawyer with a few (appropriately) cynical tweets. The author, after all, was urging the Chinese government to heed Premier Li Keqiang’s call for more rule of law in the People’s Republic, and wrote that abundant evidence indicated that Beijing authorities are picking exclusively on foreign firms in their investigations of corporate wrongdoing. What else can you reasonably say but “Too funny” and “Duh”, respectively?

Worthier of serious comment was author Tao Jingzhou’s observation that “none of the foreign companies singled out by” China’s National Development and Reform Commissin for price rigging “has mounted a defence. All admitted wrongdoing even before a price investigation began.”

Yet what’s important about the foreign firms’ behavior is not the apparent cravenness it reveals. These companies have meekly endured corruption and legal and regulatory discrimination for decades. Their reasoning? Access to China’ big and potentially gargantuan market would eventually more than offset their tribulations. What’s important instead is what the multinationals’ assumptions show about an ignorance of China’s development philosophy that far transcends the corporate sector, and that explains why continued economic integration with the current Chinese regime can only be a loser for America, and for the entire world economy.

For China’s behavior, and especially its clearly ramped up campaign against foreign investors, should make clear that Beijing emphatically rejects the doctrine of comparative advantage that has justified global trade liberalization literally for centuries and U.S. trade policy in particular for decades. This theory, of course, holds that the freer global trade flows become, the better able national economies will be to focus on the goods and services production at which they’re most proficient, the more efficient the entire world economy will become, and the more prosperous all countries and their people will grow. In other words, freer trade will enable the power of specialization to create an optimal global division of labor.

In particular by encouraging foreign firms to bring their capital and technology to China, and by reducing many trade barriers and introducing numerous other free market reforms, Chinese leaders have long indicated that they buy into comparative advantage and all of its implications. But as revealed by their ever rougher treatment of foreign investors, and by other signs of resurgent protectionism, helping to create the most efficient possible global division of labor and the most prosperity for all was never part of China’s game plan.

Rather, the aim was always maximizing China’s wealth and capabilities, whatever the international impact. As long as foreign capital and technology have been needed to achieve this goal, they’ve been welcome. Now, however, China evidently views foreign contributions to its economy as ever less important. And having chewed up these non-Chinese enterprises, it now looks like it’s starting to spit them out.

Comparative advantage, of course, portrays this behavior as perverse not only from a global standpoint, but from China’s standpoint. But before reflexively endorsing this view, think of the situation as China’s leaders undoubtedly do (unless you believe they’re completely stupid): China is already an immense economy and keeps growing. Its population, though stabilizing, is even bigger. Therefore, the country is already a gigantic store of actual and potential talent, knowledge, and resources. Which means that China already possesses, or can realistically hope to develop on its own, all of the main assets and capabilities that comparative advantage theory and its corollaries claim can only be accessed by extensively integrating with the global economy. That is, Chinese leaders view their own country as a reasonably close approximation of the international economic system as a whole in crucial respects, and believe that by focusing exclusively on China’s own development, it can reap all of the advantages of such integration while paying none of the costs.

And here’s an irony for you: The United States has always been, and remains in, a far better position to prosper without freer trade and greater global integration than China. For unlike China, the United States has always been diverse enough economically and socially to reap on its own at least most of the benefits of competition that free global trade alone supposedly can provide. A much greater degree of competition, moreover, could easily be created through greater anti-trust enforcement. Finally, whatever the United States does need to access from the international economy could readily be obtained, in principle, China-style – by capitalizing on the truly matchless lure of its domestic market, and strategically opening to trade and investment. Surely that’s why, for most of its history, free trade etc. had nothing to do with the strategy the United States actually pursued — and the unprecedented success it achieved.

China’s social and political systems are so noxious that it’s easy to understand why Americans reject the notion that the PRC’s bullying of foreign firms can teach them anything useful. Why Americans keep refusing to learn from their own economic history, especially given the mounting failures of their current approach to the world economy, is much harder to figure out.

(What’s Left of) Our Economy: China’s Tech Extortion Starts to Bite the Multinationals

28 Monday Jul 2014

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ 8 Comments

Tags

China, forced technology transfer, multinationals, technology, {What's Left of) Our Economy

Forced technology transfer is one of those U.S.-China economic issues that’s chronically neglected by the U.S. government and the mainstream media – primarily because the leading short-term victims fear the consequences of voicing major complaints. So for decades, American and other foreign multinational corporations generally have agreed to transfer critical knowhow to Chinese partners (almost always meaning “the Chinese government’). In return, Beijing has allowed them to do business in a China market they consider actually or potentially “TBTI” (too big to ignore).

Washington’s decision to follow the companies’ lead has created major longer-term risks for the future of America’s productive economy – due to the wholly unnecessary and non-market-related fostering of foreign rivals to key domestic industries. But with the multinationals and their half-a-loaf perspective calling the shots, American leaders have been content to secure Chinese promises to end the practice, and then blithely watch Beijing’s extortion continue. Other foreign governments have often turned blind eyes as well.

Now, however, it looks like the longer term is arriving for the companies themselves. An eye-opening new article in Japan’s Nikkei Asian Review describes how forced technology transfer – along with equally shortsighted genuinely voluntary transactions – is already starting to boomerang on U.S. and other foreign multinationals and their domestic economies.

For example, China’s State Nuclear Power Technology Corp. has used knowhow developed by Westinghouse to build state-of-the-art competitor reactors that are already being sold in China and that reportedly are being readied for foreign markets. China is also now selling small passenger jets to foreign customers, thanks to technology extorted from Boeing and Airbus. The current U.S.-Europe duopoly will surely control the immense global market for wide-body passenger jets for the foreseeable future, but China is planning to start delivering a larger, narrow-body jet in three years, and is working with Russia to enter the wide-body business. And although the Nikkei piece didn’t mention it, foreign automakers like General Motors have been victimized by forced technology transfers as well.

Literally for decades, America’s approach to China has pretended that serving corporate interests ipso facto serves the domestic economy’s interests. With these policies now backfiring on its offshoring multinationals as well, the case for staying the China course looks weaker than ever.

Making News: Link to My Bloomberg TV Segment This AM on Corporate Tax Dodging – & Trade Policy

17 Tuesday Jun 2014

Posted by Alan Tonelson in Uncategorized

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Making News, multinationals, offshoring, tax reform, trade policy

If you couldn’t tune into Bloomberg TV at 7:15 AM today to see my Bloomberg TV segment about multinational companies’ tax dodging, fear not!  Here’s the link to the streaming video:  http://www.bloomberg.com/video/why-corporate-tax-reform-is-not-the-answer-l6zPn_GvRxGYxaw~2zh_qw.html

And note the crucial link with US trade policy — which virtually no other commentators have made yet.  I’ll be returning to the tax-dodging question before too long, so stay tuned!

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Im-Politic

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Signs of the Apocalypse

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The Brighter Side

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Those Stubborn Facts

  • (What's Left of) Our Economy
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  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Snide World of Sports

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

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