Global markets have been roiled by increasing tensions between the United States and China. To no surprise, president Donald Trump is getting a lot of flack for potentially igniting a trade war with China. While I am critical of President Trump on many issues, we have to be clear on one thing: Trump may have fired-off the most recent salvo, but unfair Chinese practices are the cause for the looming trade war.
China’s markets are vast, and the massive amounts of cheap labor in combination with good infrastructure and a stable government have made the country attractive for foreign companies. However, the Chinese government leverages access to its markets in order to force many concessions.
In many sectors, any foreign company wishing to sell with China’s domestic partners must first partner with a local company. Then, the foreign company must transfer technologies to their Chinese partners and allow them to use the intellectual property. Beyond forced transfers, many Chinese firms have simply stolen American IP and used it. In theory, American companies have legal recourse, but in practice, their complaints often fall upon deaf ears.
China’s market represents a roughly 600 billion dollar opportunity for American companies. Yet at the same time, experts have argued that China’s theft of American technology is costing the USA $600 billion or more. Costs are only likely to rise. China has also been forcing foreign companies to conduct R&D in China and has recently used national security laws to force companies to disclose more of their IP.
This past March, China pledged to put an end to technology transfers in the manufacturing sector. If the government actually acts, it’s a good step in the right direction. At the same time, if hundreds of billions of dollars have already been leeched out of the USA, it’s fair to wonder if it’s too little, too late.
Back in February, the United States, Japan, and the European Union announced plans to pursue China through the World Trade Organization. A united front was always the best way to confront China, although Trump has endangered potential alliances with his recent tariff and anti-trade measures. Instead of focusing on China, Trump also lashed out at some of America’s potential allies.
Could the global economy be sent into a tailspin? It can’t be ruled out. The most recent batch of economic indicators have been overwhelmingly positive, but the economy fluctuates in cycles. Another downturn is out there, somewhere. A global trade war might just be the spark that could fuel the fire.
Yet perhaps the most interesting question, one that few people are asking, is how did we get here? The Chinese have been using unfair tactics for years. Neither the Republican Bush administration nor Democratic Obama administration went out of their way to clamp down on China’s practices. Beyond the occasional batch of strong words and symbolic measures, both administrations accomplished little.
China’s unfair tactics should have been addressed years ago when they were first rolled out. Yet companies were too busy pursuing short-term profits even as they sold-out their long-term position, and politicians were too busy worrying about anything but. All the while, Chinese-fueled market distortions cost America and other nations jobs, tax revenues, business opportunities, and all the rest.
Maybe the current bickering will break out into a trade war. Yet one must wonder: if America backs down now, is it simply going to lose more ground and eventually put itself in an unwinnable position? Is it better to make a stand now, or to simply wait for the inevitable? While America stands divided, China is united and aggressively pursuing its own interests.
