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Trade deal with China is impossible

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President Trump has bipartisan support for his new tariffs and sanctions on Huawei to obtain an enforceable trade agreement with China. The latter simply is not possible, and Americans should gird for a commercial cold war. The Chinese development strategy flaunts the Western rules for international competition that it agreed to abide by when it joined the World Trade Organization. Those require China, like other governments including the United States, to shape domestic law in order to comply.

Huawei is the poster child for renegade behavior. Beijing limits market access for foreign competitors of its network of backbone technology products, showers it with subsidies, and turns a blind eye to its industrial espionage apparatus noteworthy for its militaristic discipline. With those, Huawei can offer Western telecommunications services higher quality components at 30 percent lower prices than Western suppliers. For less dominant Chinese competitors, Beijing pressures foreign companies that are seeking market access to form joint ventures and transfer proprietary technology, and engages in brazen state sponsored industrial espionage.

The accession agreement China signed when it joined the World Trade Organization in 2001 was supposed to deal with most of those practices, but President Xi Jinping has cultivated regulatory and business cultures that make an enforceable agreement virtually impossible. Compliance with the World Trade Organization rules would have required Communist Party leaders to encourage young members, state owned enterprises, and private entrepreneurs to embrace Western norms of honesty and integrity when dealing with foreigners and show respect for intellectual property. 

Instead, thanks to the internationally distributed nature of networking, artificial intelligence, and other new cutting edge technologies, along with the challenges of firewalling Western product and software designs, the Chinese kleptocracy poses a major existential threat to democratic capitalism. Given its capabilities in artificial intelligence and market size, if everything China invents is respected by Western law and businesses but what Western firms invent is stolen with impunity, the United States could indeed fall to China much as Greece did to Rome.

Contempt for foreign property rights is so deeply imbedded in Chinese political and business cultures that the real negotiating partners are not at the table and President Xi cannot deliver them. These are Chinese senior bureaucrats, state owned enterprises, and military and private business chieftains. China signed an agreement in 2015 to end state sponsored industrial espionage. Chinese pirates simply redirected their energies toward more vulnerable targets across Europe and Asia. As the Obama administration wound down, the Chinese turned their sights on American targets again. The Justice Department indicted employees of the Chinese cybersecurity firm Boyusec for hacking a number of American companies. However, too many Chinese businesses, their executives, and their state sponsors remain beyond the effective jurisdiction of American courts.

The real competition is in super computing, space exploration, and artificial intelligence that will deliver military dominance in the several decades and offer possibilities for explosive growth akin to electricity and automation in the 20th century. The same kinds of artificial intelligence that drives market analytics and facial recognition to track web surfing and personal movements to generate targeted advertisements and for police to anticipate criminal acts could enable the Chinese and Russian militaries to anticipate the tactics and neutralize the effectiveness of the United States Navy and Air Force, and ultimately destroy Americn civic institutions and markets if our country allows either vault into the lead. 

President Xi has proven quite adroit at running out the clock on the presumption that President Trump well may be in office for one term. Former Vice President Joe Biden, the leading Democratic hopeful, seems to believe China poses few threats. President Xi managed to burn the first year and a half of the Trump administration with the diplomatic agenda and then brought Ambassador Robert Lighthizer to the brink of a trade deal earlier this year only to once again balk at changing Chinese law to make its system nominally compatible with international commitments.

It is time to join the commercial cold war on China. The United States must fully implement the sanctions against Huawei and other technology pirates, implement a system of auction quotas that limit imports from China to the value of exports to China, and develop aggressive national strategies within advanced computing, space exploration, and artificial intelligence that ensure national survival. The real danger lies not from Beijing but rather in pressures from members of Congress who are not willing to accept higher prices for clothing and gadgets and lost farm exports and pass up the opportunity to make those an issue for 2020.

Peter Morici is an economist and professor at the University of Maryland.

Tags Business China Donald Trump Economics Government International Trade

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