Weak U.S. Policy Has Bankrolled China's Rise

Weak U.S. Policy Has Bankrolled China's Rise

By Scott N. Paul - June 2, 2013

China’s newly installed president, Xi Jinping, will visit California in early June for direct talks with President Obama over how best, the White House says, to “enhance cooperation, while constructively managing our differences.”

There’s certainly a lot to talk about. America’s goods and services trade deficit with China has skyrocketed since 2001, reaching $315 billion in 2012. We’ve lost tremendous manufacturing capacity to China in that time. And most recently comes news that China has hacked into some of our top weapons systems.

Sadly, our ballooning trade deficit and the loss of 5.5 million manufacturing jobs over the last decade hasn’t been enough to rouse the concern of America’s policymakers. But maybe the news that some of our key defense industrial supply chains run through China will make them finally take notice.

According to a new study, we now rely on Chinese companies for some key military hardware, including both the rare earth metal needed for night-vision technology and Hellfire missile propellant (one of our military’s most effective and widely used weapons). We also rely almost entirely on China for the high-tech magnets needed to construct jet fighters, submarines, and satellite systems.

But just as China has happily become an exclusive source for many of our critical defense materials, it has ramped up a sophisticated cyber-espionage campaign to steal American economic data and military secrets. It was only last week that we learned the details of a confidential list of advanced weapons system designs compromised by China-based hackers.

We can add that bombshell to the mounting pile of evidence of institutionalized Chinese cyber-espionage. But while that nation’s aggressive hacking strategy is alarming, our government’s trade policy toward Beijing remains puzzling. In essence, we are bankrolling China’s ability to spy on us and expand its military capabilities, thanks to the huge trade deficits we continue to run.

The Obama administration has responded to the hacking scandal by stepping up its rhetoric, including after a February report tied the People’s Liberation Army to a string of computer attacks on American businesses. National Security Adviser Tom Donilon publicly criticized China for its cyber-espionage in a March speech, and also raised the issue again in a recent meeting with his Chinese counterpart.

Not surprisingly, none of this finger-pointing has halted the hacking. And it hasn’t drawn much more than shrugs from Chinese leaders and mechanical accusations of American hypocrisy from their party media organs. Notably, however, few of our official protestations have acknowledged that our economic and national security interests regarding China are inextricably intertwined.

It all begs a simple question: When will the administration make that connection?

President Obama has an opportunity to do so this week. China’s economic and cyber-policies are designed to promote its own success while disregarding, if not clearly undermining, our own. And our current complaints have done little to alter this course. So if we really want to get Beijing’s attention, why not change our trading terms?

When he sits down with President Xi at the Sunnylands estate in Rancho Mirage, Obama should demand China stop directing, sponsoring, or supporting online intrusions into American assets, both public and private. What’s more, he should also make clear that Beijing’s continued anti-competitive trade practices (everything from dumping and illegal subsidization to technology transfers forced upon American companies operating within its borders) will be challenged at the WTO. And he should demand a halt to China’s ongoing practice of currency manipulation.

Doing so would be less apocalyptic than many suggest. In the instances where the U.S. has threatened to unilaterally address the undervalued Chinese yuan -- whether by a simple procedural Senate vote on currency in 2005 or by mustering international pressure against Chinese policy ahead of a G-20 meeting in 2010 -- Beijing has responded not with an all-out trade war but by modestly correcting its exchange rate.

And regarding our stolen weapons-systems designs, that’s part of a larger problem that American policymakers have failed to address: China is not acting as a responsible power, and our hands-off approach to its thefts and violations of trade law have done little to dissuade from the present course.

In California, Obama must make clear to Xi that there will be consequences for these actions that go beyond our stern disapproval. He must make clear that continued economic and national security theft will significantly lighten China’s pocketbook. 


Scott Paul is president of the Alliance for American Manufacturing (AAM).

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