(What’s Left of Our Economy) Why Obama’s Trade Policies Need a Leash, not a Fast Track Blank Check

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Congress, environmental standards, fast track, labor standards, Obama, state capitalism, state-owned enterprises, TPA, TPP, Trade, trade law, Trade Promotion Authority, Trans-Pacific Partnership, World Trade Organization, {What's Left of) Our Economy

In his weekly radio address this past Saturday, President Obama finally made his first pitch to the general public since his State of the Union for his planned new trade deals and for new fast track authority to pursue them. Ironically, though, his remarks further weaken the case for Congress granting him sweeping powers to conduct the nation’s trade policy.

As in the State of the Union, Mr. Obama clearly hoped to burnish his trade policy credentials by acknowledging that “past trade deals haven’t always lived up to the hype.” But his insistence that “we’ve successfully gone after countries that break the rules at our workers’ expense” is simply inexcusable hype about the possibilities of the nation’s trade system, and about the World Trade Organization’s potential as an effective trade referee. And the claim that his trade diplomacy would “level the playing field for American workers” by holding “all countries to the same high labor and environmental standards to which we hold ourselves” betrays an alarming ignorance about the prospects of enforcing the most distinctive terms of his proposed agreements.

As I’ve previously documented, the Obama administration’s trade enforcement moves are pathetically dwarfed by the scale of foreign subsidies at which they’re aimed – not to mention other trade-distorting policies, like discriminatory value-added taxes, that are beyond the reach of world trade law and are ignored in the president’s trade initiatives. Trade law actions, however, can also be dismissed as meaningful correctives for poorly negotiated agreements because of their intrinsic limitations.

Like all legalistic measures, they are inevitably reactive and piecemeal. As a result, they are utterly incapable of effectively addressing the challenge of foreign economies that are nothing less than national systems of protection – and especially those run by bureaucracies whose secretiveness makes it painfully difficult even to identify trade transgression conclusively, much less combat them.

Just as fanciful is the idea that provisions in trade deals can produce higher labor and environmental standards abroad. Believers in this contention, for example, still need to explain how many U.S. government bureaucrats will be needed to monitor the industrial complexes of current Trans-Pacific Partnership (TPP) countries like Mexico and Vietnam and Malaysia, much less of likely future signatories like China.

Even sillier is the notion that significant disciplines will be imposed on state-owned enterprises, as the administration is seeking for the TPP. After all, in Asia in particular, the line between public and private sector is typically blurred at very best. And the pervasiveness of deeply mixed economies in the region ensures that any cases against these entities brought by Washington before the TPP’s dispute resolution system will be quickly swatted down – whatever the agreement’s text says.

In fact, this dispute-resolution problem ensures that none of the specifics in the president’s trade agreements has a prayer of defending or promoting America’s interests. For legal systems require broad and deep consensus on acceptable behavior to be effective. They codify realities rather than creating them. Until the president recognizes the fundamental differences on economic policy norms that continue to divide the United States from most of it main trade rivals in Asia and other regions, and their implications for America’s international economic strategy, he needs a leash from Congress on trade policy, not a blank check.

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Our So-Called Foreign Policy: A Call for More Idiocy on China

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China, cyber-security, espionage, Huawei, legalism, Michael Hiltzik, national security, Our So-Called Foreign Policy, precautionary principle, rule of law, state capitalism, The Economist, transparency

Anyone still harboring doubts that China’s government and its allies in the American offshoring lobby have snookered otherwise smart reporters about the nature of the PRC’s economic system and how best to cope with it? If so, look no further than Michael Hiltzik’s new Los Angeles Times column about Huawei.

According to Hiltzik, the telecommunications giant has been largely shut out of the U.S. market by “commercial xenophobia.” The U.S. government, he writes, has not officially banned the sale of Huawei products.  But it’s accomplished this aim for all intents and purposes “through bureaucratic winks and hints” that are based on a Congressional committee report that was “long on innuendo and short on hard information.” As a result, Huawei has been unfairly forced to prove a negative – that it is not assisting Chinese government espionage efforts.

Here of course is the problem. Hiltzik – and other apologists for China, like The Economist magazine he seems to consider gospel on such matters – apparently believe that Chinese companies like Huawei are as transparent as private sector companies everywhere. In their view, non-Chinese authorities have ready access to corporate records at Huawei and other Chinese companies, and face no difficulties in determining these firms’ ties to Beijing, and even any spying they may be carrying out. So it’s manifestly unjust to base policy on observation’s like the Congressional report’s conclusion that “China has the means, opportunity, and motive to use telecommunications companies for malicious purposes.”

Even if China didn’t have a scary record of government-sponsored cyber-hacking, these views might be reasonable – if China had anything remotely like a free market economy where reasonably bright lines separate the public and private sectors, or if China’s legal and corporate governance systems were based on anything remotely like the free flow of knowledge and rule of law. But who possessing a working brain really believes any of those propositions?

In fact, because China (and many other countries run by opaque bureaucracies and lacking rule of law traditions) are so fundamentally different from the United States, dealing with it with American legal principles that are justly revered in U.S. domestic affairs too often turns policy into an idiot.

As I wrote shortly after the Congress’ Huawei report came out, “because China is so thoroughly different and troublesome, handling it conventionally could amount to waiting for potential intelligence or security debacles to become actual. So the only responsible approach is precautionary — placing a heavy burden on China’s state capitalist system to prove its innocence.” Two years later, a major problem with America’s China policy is that Washington’s approach to Huawei remains an all-too-exceptional example of rejecting policy idiocy and embracing common sense.

Following Up: Intel’s New Moves Boost Odds of China/Asia Blowback

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blowback, China, exports, Following Up, free trade, Intel, Jobs, Middle East, national security, Obama, pivot, recovery, state capitalism, technology

Critics of President Obama’s decision to escalate America’s military involvement in the Middle East often bring up the danger of “blowback”: the repeated instances of advanced U.S. weapons transferred to allied forces winding up with enemy forces, from the Taliban in Afghanistan to ISIS in Iraq. I wish they’d train some of their fire on an even bigger, more worrisome example of at least potential blowback: the continuing transfer of militarily-relevant technology to a Chinese government whose growing aggressiveness in East Asia the president has resolved to counter with his decision to “pivot” more U.S. military forces to the region.

I’ve already detailed numerous cases of American high tech companies sharing with Chinese partners – including the Chinese government – the knowhow to develop hardware and software that can easily be used to develop better capabilities on both physical and cyber battlefields. But this rope-selling (to use Lenin’s vivid metaphor) continues apace – most recently with Intel’s decision to invest in and help Chinese companies produce better semiconductors.

At first glance, Intel’s move seems to pose no threat to U.S. national security, and to be vital for Intel’s own success going forward. The company has been lagging in producing semiconductors for smartphones and equally mobile tablets. China is the world’s largest smartphone market and leading manufacturing site. And Intel’s cooperation with Tsinghua Group will focus on developing chips for the cheapo but technologically advanced phones selling so well in low-income countries like China. The Tsinghua investment, moreover, builds on Intel’s establishment earlier this year of a Smart Device Innovation Center and $100 million venture fund in the same field, and tie-up with a Chinese fabless chip-maker. What not to like?

Certainly, however, Intel’s China strategy, raises important economic issues. Apparently, the company sees no prospect of supplying huge third world markets for mobile devices with equally impressive growth credentials from the United States. That would sure be a nice new source of American export growth – as well as GDP growth and hiring. But because so much of U.S and world production (including assembly) of electronics and infotech products has been offshored to China, China is now the natural choice for producing new components for these devices.

Intel’s new investments are also problematic from a free trade standpoint. After all, its newest China partner is an arm of the Chinese government. And in its own announcement of the Intel deal, that government issued a reminder that “It has become a national priority of China to grow its semiconductor industry” and predicted that the team-up “will accelerate the technology development and further strengthen the competitiveness and market position of Chinese semiconductor companies.”

In other words, from China’s standpoint, it’s not just about semiconductors for consumer products. It’s about China’s officially supported and subsidized drive to become an even bigger player in global technology markets. How does enabling such Chinese government industrial policy increase the global economic efficiency that’s a fundamental stated rationale for freer global trade and investment? And how does strengthening China’s tech sector help the U.S. economy?

But China’s ambitions also threaten the Obama pivot. And because the pivot increases U.S. exposure to conflict in East Asia, they threaten American security as well. Technological capability is a foundation of national military strength, and even if the new Intel China operations simply improved Chinese prowess in telecommunications, sending and processing massive amounts of information accurately and quickly is a major component of the military edge America holds over China and other rivals. By further strengthening China’s technology base, Intel (and all the other American companies that have bolstered China’s capabilities) is helping to reduce that margin of U.S. superiority.

As a result, the President’s pivot and his apparent “What, me worry?” approach to U.S. corporate moves that strengthen the Chinese military keep raising the odds of the United States fighting an enemy it keeps helping to arm. It’s hard to imagine a worse and more unnecessary lose-lose proposition for America’s military and the nation’s overall security.