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Selling Out to China

It is going to be difficult for Washington to overcome China’s unfair trade practices, espionage, and intellectual property theft when portions of the private sector and the Democratic Party refuse to acknowledge that the problem even exists.

In a recent Democratic Presidential debate, Andrew Yang clearly represented the dilemma. Both an entrepreneur and a candidate, he soft pedaled the issue, stating “There are aspects of Chinese behavior that are deeply problematic…They have taken advantage of frameworks to their own benefit and we haven’t had some of the same benefits…But China is in the midst of a historic increase in prosperity and that is something America should not be threatened by at all.”

Despite the overwhelming evidence of Beijing’s malicious practices, key members of both the political and tech establishment have allowed the potential of personal and corporate profit to overcome their responsibility to the nation. One of the latest examples of China’s dangerous practices was recently noted by the Washington Free Beacon, which reported that China’s Huawei Technologies Ltd. Provided “ secret access points” for Chinese intelligence to conduct cyberoperations through the equipment. 55 percent of of the companies devices contained at least one backdoor access.

U.S. companies continue to engage in deals which strengthen Beijing’s military capabilities. The Wall Street Journal described how Advanced Micro Devices (AMD) cut a deal with China that “transformed itself from a financially struggling company to an investor’s dream in just three years, a turnaround that began with a decision to help Chinese partners develop advanced computer-chip technology.”

The problem is that was a boon to Beijing’s military-related supercomputing industry and its bid to produce high technology that could threaten the United States.

The prospects for profit dealing with China are high for U.S. companies, and so are the costs. The U.S.-China Economic and Security Commission has noted “Foreign companies hoping to participate n China’s market must pay a high price for admission, transfer technology, and suffer regulations that tilt the playing field in favor of their Chinese competitors. U.S. companies, inventors, and workers have witnessed the damaging impact of China’s trade-distorting policies in curtailed exports, stolen intellectual property, and dumped products flooding the U.S. market. The U.S. goods trade deficit with China continues to climb to new heights, reaching a record $375 billion in 2017 and on track to exceed that in 2018.”

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U.S. elected officials frequently look the other way for reasons of personal profit.   Peter Schweitzer, writing in the New York Post notes that Democratic primary contender and former Vice President Joe Biden’s bizarre denial of China’s danger to the U.S. is the result of his family’s business contacts. “In 2013, then-Vice President Joe Biden and his son Hunter Biden flew aboard Air Force Two to China. Less than two weeks later, Hunter Biden’s firm inked a $1 billion private equity deal with a subsidiary of the Chinese government’s Bank of China. The deal was later expanded to $1.5 billion. In short, the Chinese government funded a business that it co-owned along with the son of a sitting vice president. If it sounds shocking that a vice president would shape US-China policy as his son — who has scant experience in private equity — clinched a coveted billion-dollar deal with an arm of the Chinese government, that’s because it is.”

In the 1990’s, President Clinton permitted the sale to the Chinese government of a Cray “supercomputer” which allowed Beijing’s military to make extraordinary strides forward. Several years later, the Chinese Army attempted to funnel campaign contributions to Clinton’s re-election campaign through an intermediary, Johnny Chung.  As his administration drew to a close, Clinton signed legislation giving China full and permanent trading privileges in the U.S. Millions of U.S. jobs were subsequently lost.

Illustration: Pixabay

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China’s Trade Practices Harm U.S. But Support for Trump’s Response Remains Limited, Part 2

China has engaged in trade and intellectual property theft practices that substantially harm the U.S. economy. However, President Trump’s attempts to address the problem have met with limited support. We conclude our report on the problem.

Pew Research reports that “Since the turn of the 21st century, U.S. average tariff rates have consistently been at or near their lowest levels in the nation’s history; today, they’re also among the lowest in the world. In 2016, according to the World Bank, the average applied U.S. tariff across all products was 1.61%…China’s was 3.54%…Though the general trend globally has been toward lower tariffs, some nations still impose relatively high import taxes – particularly countries in Africa, South Asia and the Caribbean. The nation with the highest weighted-average applied tariff in 2016, according to the World Bank, is the Bahamas, at 18.6% (which was still 10 percentage points lower than the average rate in 1999). Gabon’s average applied rate was 16.9%, just above Chad’s average tariff of 16.4%.

“Today’s low U.S. tariff levels are the product of a (mostly) bipartisan consensus in favor of progressively freer trade that dates back to the post-World War II era.”

There has been a climate of unreality about this problem. The U.S.-China Economic and Security Review Commission   notes that “For several decades, U.S. policy toward China was rooted in hopes that economic, diplomatic, and security engagement would lay the foundation for a more open, liberal, and responsible China. Those hopes have, so far, proven futile… As a new approach takes shape, U.S. policy makers have difficult decisions to make, but one choice is easy: reality, not hope, should drive U.S. policy toward China.”

It is erroneous to consider competition between American and Chinese companies as battles between private entities. The U.S.-China Economic and Security Review Commission describes why: “China’s state-led, market-distorting economic model presents a challenge to U.S. economic and national security interests. The Chinese government, directed by the Chinese Communist Party (CCP) leadership, continues to exercise direct and indirect control over key sectors of the economy and allocate resources based on the perceived strategic value of a given firm or industry. This puts U.S. and other foreign firms at a disadvantage—both in China and globally—when competing against Chinese companies with the financial and political backing of the state… The Chinese government continues to resist—and in some cases reverse progress on—many promised reforms of China’s stateled economic model. Repeated pledges to permit greater market access for private domestic and foreign firms remain unfulfilled, while the CCP instead enhances state control over the economy and utilizes mercantilist policies to strategically develop domestic industries. Chinese policymakers have stated their intent to, but been largely unsuccessful in, fighting three “battles” to achieve high-quality development in the next three years: cutting corporate and local government debt, controlling pollution, and reducing poverty. Chinese President and General Secretary of the CCP Xi Jinping has prioritized efforts to consolidate control over economic policymaking. However, this strategy may have unintended consequences for China’s economic growth. Increased state control over both public and private Do you have the resources to blog? Blogging is a order levitra canada significant time commitment. The physicians suggest ED patients some safety guidelines to avoid suffering from the associated side effects. cialis uk However, individuals who have heart problems or take drugs containing nitrates should consult a qualified doctor is necessary in such a situation to purchase cialis online http://raindogscine.com/nuevo-premio-para-anina/ avoid experiencing undesired effects when taking the medication. Never sex for physical gratification, you will be ashamed and guilty at one point of your life. buy viagra in bulk Chinese companies may ultimately reduce productivity and profits across a range of industries, with firms pursuing CCP— rather than commercial—objectives.”

Much of the damage came during the Bill Clinton Administration.  His sale of Cray supercomputers to China, and his subsequent signing of legislation bringing that nation into the World Trade Organization were dramatic leaps forward for Beijing. There are deep suspicions that China’s moves to financially support his presidential campaign were motivations for those actions.

But Clinton isn’t alone.  In an exclusive interview, former top Clinton advisor and current Republican-oriented commentator Dick Morris stated to us his belief that a number of key leaders in both parties have ties to private interests that profit from dealings with China, making them reluctant to support necessary corrections.

While opposition from Democrats, particularly those with ties to the Clintons, would not have been unexpected, opposition from Republicans surprised some. Some GOP opposition comes from those who purport to oppose tariffs based on free trade principles. But the concept of free trade depends on both trading partners playing fair.  When one side places extraordinary restrictions while the other refrains from such actions, that could hardly be called free trade.

Some elected officials, particularly Republicans, are concerned that a trade war will cause some temporary economic dislocation. Aware of the general media bias, they correctly assume that the press will criticize them for any pain, however brief, caused by it. Ignored, of course, is the extraordinary long-term gains American workers would make if China’s ongoing unfair practices were stopped.

Photo: Shanghai skyline (Pixabay)

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China’s Trade Practices Harm U.S. But Support for Trump’s Response Remains Limited

The latest trade statistics indicate that the United States is suffering more than ever from China’s unfair practices. Some are beginning to question the motives behind some elected officials’ lackluster support for the Trump Administration’s move to address the problem. 

Using the latest reported statistics from October, Trading Economics found that The goods deficit with China jumped to a record high of USD 43.1 billion from USD 40.2 billion.

Beijing’s corporations, which are heavily connected to government, undercut American businesses using financial tactics such as selling items below market value, then taking over complete control of specific markets when American counterparts go out of business. They also steal (using sophisticated cyber practices, reverse engineering, and old-fashioned espionage) technology developed at significant expense by U.S. enterprises.

More than merely inhibiting the sale of U.S. products in China, Beijing’s practices amount to forced transfer of intellectual property rights. According to the Office of the United States Trade Representative, “On August 18, 2017, the Office of the U.S. Trade Representative (USTR) initiated an investigation of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. On the date of initiation, USTR requested consultations with the Government of China concerning the issues under investigation. Instead of accepting the request, China’s Ministry of Commerce expressed “strong dissatisfaction” with the United States and decried the investigation as “irresponsible” and “not objective. On March 22, 2018, USTR issued the Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation under Section 301 of the Trade Act of 1974.

“Based on this report, USTR determined the following Chinese actions are unreasonable or discriminatory and burden or restrict U.S. commerce:

1. China uses foreign ownership restrictions, such as joint venture (JV) requirements and foreign equity limitations, and various administrative review and licensing processes, to require or pressure technology transfer from U.S. companies.

 2. China’s regime of technology regulations forces U.S. companies seeking to license technologies to Chinese entities to do so on non-market based terms that favor Chinese recipients

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3. China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate the transfer of technology to Chinese companies.

 4. China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies to access their sensitive commercial information and trade secrets.”

The USTR concluded that “China fundamentally has not altered its acts, policies, and practices related to technology transfer, intellectual property, and innovation, and indeed appears to have taken further unreasonable actions …”

President Trump has made correcting China’s unfair trading practices a major focus of his administration. Despite the clear challenge to the U.S. economy, his Administration has not received the level of support expected from both Republican and Democrat leaders, as well as major media outlets.

Pew Research found that “Overall, nearly half (49%) of U.S. adults say increased tariffs between the U.S. and its trading partners will be bad for the country. A smaller share (40%) say the tariffs will be good for the U.S., while 11% say they don’t know how the tariffs will affect the country…The survey, conducted July 11-15 among 1,007 adults, finds that attitudes toward the tariffs are deeply polarized. About seven-in-ten (73%) Republicans and Republican-leaning independents say increased tariffs between the U.S. and its trading partners will be a good thing for the country. Roughly the same share of Democrats and Democratic leaners (77%) say the increased tariffs will be a bad thing for the U.S.

The Report Concludes Tomorrow

Chart: U.S. tariffs compared to global norms (Pew Research)

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Reviving U.S. Manufacturing

An 18 year decline in American manufacturing may be drawing to a close, a result of tougher trade stances by the Trump Administration and its domestic tax policy.

Echoing a campaign theme, The President recently told reporters that “China has taken hundreds of billions of dollars a year from the United States…I explained to President Xi we can’t do that anymore…” The administration has consistently stated that Beijing reduce its $375 billion merchandise trade surplus by least $200 billion within the next two years, and has threatened to impose $150 billion in tariffs if an agreement is not reached.

 Within two months of President Trump’s inauguration, AFL-CIO President Richard Trumka noted: “America’s working families welcome the Department of Commerce’s examination of China’s economy. A thorough assessment is necessary to ensure American workers are competing on a level playing field. Any fair analysis of the facts will reaffirm that China’s extensive government involvement merits “nonmarket economy” treatment so that the U.S. can properly address dumped, underpriced goods and services that hurt U.S. workers and producers.”

In response to Trump’s demands, China has agreed to purchase more American products and services, although total amounts and other details have not been agreed upon, and many difficulties remain.

The history of American concessions to China that substantially harmed American businesses and workers has substantial tie-ins to the Clinton Administration, which was enmeshed in serious related scandals, largely underreported by the press.  The (Bill) Clinton campaign was illegally the recipient of funds from China, and the Clinton Administration provided highly questionable technological and economic benefits to Beijing, (including the sale of Cray supercomputers despite significant protests from U.S. security personnel) and legislation normalizing trade relations, prompting significant protests from labor unions.

Those objecting to the Clinton concessions have been proven correct. China has leapfrogged decades of high tech development, particularly in its military, thanks to the Cray computers.

Rense.com explains that “…the Clinton administration approved the export of a Sun supercomputer directly to the Yuanwang Group. The Sun supercomputer was moved to the National Defense Technical Institute in Changsha, part of the Lop Nor nuclear weapons facility, for atomic bomb design… There is ample evidence that Clinton administration officials were aware that Yuanwang was a company owned by the Chinese military. According to the Commerce Department’s own documents, official meetings with Chinese army owned companies took place before documented computer transfer to Yuanwang Corp.” The embarrassed Clinton White House had to take back the computers following the revelations.
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Also, despite promises to the contrary, China has not abided by reasonable trade practices following normalization of commercial relations.  Its resulting domination of several industries have resulted in decimating American industrial production and the loss of vast numbers of manufacturing jobs. U.S. News reports that within the first 13 years since normalization, 3.2 million American factory jobs were lost.

During the 2016 presidential campaign, Slate’s Jordan Weissman,  noted:  “Things have not worked out quite as the 42nd president hoped. Normalizing trade with China set our rival on a path to becoming the industrial powerhouse the world knows today, decimating American factory towns in the process and upending old assumptions about how trade effects the economy. Thanks to a growing body of academic research, we’re only just now beginning to understand the extent of the economic fallout…”

The Huffington Post’s  Jane White explains that the major beneficiary of Clinton’s policy “were Wall Street, Chinese factory owners and U.S. banks and the biggest losers were blue collar workers. Mitt Romney may have run a company that outsourced jobs but Clinton ran a country that did…. As Richard McCormack pointed out in the American Prospect, in the beginning of this century American companies stopped making the products Americans continued to buy, from clothing to computers. Manufacturers never emerged from the 2001 recession, which coincided with China’s entry into the World Trade Organization. Between 2001 and 2009 the U.S. lost 42,400 factories and manufacturing employment dropped to 11.7 million, a loss of 32 percent of all manufacturing jobs. The last time fewer than 12 million people worked in the manufacturing sector was in 1941.”

The tide may be turning. According to the Federal Reserve, “Industrial production rose 0.7 percent in April for its third consecutive monthly increase…The indexes for mining and utilities moved up 1.1 percent and 1.9 percent, respectively. At 107.3 percent of its 2012 average, total industrial production in April was 3.5 percent higher than it was a year earlier.”

A CNBC report  found that the manufacturing industry has added roughly 293,000 jobs since President Trump’s election, according to the Department of Labor data.

Illustration: Pixabay

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Middle Class Jobs Continue to Lag

Nonfarm payroll employment gains were 160,000 in April according to the Bureau of Labor Statistics, a drop of 40,000 from the prior three month average. Job gains occurred in professional and business services, health care, and financial activities, while mining employment continued to decline.

The reason for the decline in the U.S. economy and the continuing problem in the American balance of trade can be gleaned from delving into the areas that continue to be the weakest. Manufacturing employment changed little in April (+4,000), after losing 45,000 jobs over the prior 2 months. Mining employment continued to decline in April (-7,000). The industry has lost 191,000 jobs since a recent peak in September 2014. More than three-fourths of the job losses over this period have been in support activities for mining.

Middle income jobs are suffering. A jobs market that is based on health care, retail, and consulting services produces little that can be exported.

While the White House continues to tout an unemployment rate of 5%, the reality is far different.  The number is made artificially low by the declining number of Americans in the workforce (a four decade low) and it fails to reflect that a substantial number of jobs created are low-paying or part time positions that replace full time, lost middle income jobs. Additionally, a worrisome large number of the unemployed, 25.7%, have been unemployed for a prolonged period.

Among the employed, the number working part time for economic reasons, also referred to as involuntary part-time workers, was 6.0 million in April. This measure has shown little movement since November. (Involuntary part-time workers are those who would have preferred full-time employment but were working part time because their hours had been cut back or because they were unable to find full-time work.)

Reuters reports that “Manufacturing’s job problem undercuts hopeful forecasts that U.S. companies would bring significant numbers of jobs back from overseas. That’s simply not happening to a degree sufficient to offset the continuing exodus of work and suggest deeper problems roiling factory floors…The slowdown in oil and gas has radiated deep into the economy and huge cuts by heavy equipment and farm machinery manufacturers are battering thousands of smaller suppliers across the industrial belt….the downturn has spread gloom across the U.S. industrial heartland…many Midwest manufacturers say they are as disillusioned with Washington’s view of the economy as their hourly workers.”
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While manufacturing jobs had been declining for several decades, the dramatic downward slide can be traced to President Clinton’s allowing China off the hook from yearly reviews of its policies.

It is deeply frustrating that the current employment crisis in middle income jobs is not just  the temporary result of a cyclical downturn.  It is the direct result of the White House’s tax and environmental policies. Taxes for U.S. corporations are the highest in the developed world, which encourages companies to move their jobs overseas. The Obama Administration’s regulatory tidal wave, especially those designed to destroy the coal industry, have targeted not only a large number of jobs, but also some of the best paying middle income jobs in the economy.

CNS  notes that “Over the course of the 86 full months that President Barack Obama has completed serving in the White House—from February 2009 through March 2016–the U.S. Treasury has collected approximately $18,764,164,000,000 in tax revenues (in non-inflation-adjusted dollars), according to the Monthly Treasury Statements issued during that period…That equals approximately $124,003 for each of the 151,320,000 persons who, according to the Bureau of Labor Statistics, had either a full- or part-time job during March 2016. During the same 86-month stretch of the Obama presidency, the total debt of the federal government increased from $10,632,005,246,736.97 to $19,264,938,619,643.07, according to the Treasury. That is an increase in the debt of $8,632,933,372,906.10—or approximately $57,051 for each of the 151,320,000 people with jobs as of March.

HotAir reports that there is “visceral disgust” for Obama’s environmental policies in the Appalachian counties… West Virginia…energy costs are expected to go up 40 percent under Obama’s Clean Power Plan (CPP), which sets to cut greenhouse gas emissions by 32 percent by 2030 from 2005 levels. It’s a regulatory nightmare, a job killer, and a policy that Hillary Clinton plans to continue if she’s elected.”

Investors.com believes that Obama’s “policies have made it harder than ever for manufacturers to hire…New Environmental Protection Agency regulations to slash carbon emissions 30% by 2030 will have a devastating effect on factory jobs. A study by the Heritage Foundation found that this regulation by itself would cost each American $7,000 in income while killing 500,000 factory jobs and 45% of all coal-industry jobs. Then there’s the just-released ozone standards, also from the EPA’s job-killing policy shop. A study by NERA Economic Consulting for the National Association of Manufacturers (NAM) estimated a $140 billion hit to GDP and as many as 1.4 million jobs lost each year. Since Obama took office, thousands of new regulations have gone into effect. In 2012, regulation cost the U.S. economy about $2 trillion, or 12% of GDP. And manufacturers have been hit hardest. The average factory today spends $19,564 per worker to comply with regulations. For small manufacturers, it’s bigger: $34,671 per worker.”