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  April 4th, 2017 | Written by

Trump Is Right That China Poses Economic Threat

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  • Report proposes alliance-backed confrontation to tackle trade issues with China.
  • Engaging in dialogue with the Chinese government has not worked
  • Slapping a tariff on Chinese goods will make it harder for the US to compete globally.

President Trump is right that China is flouting global trade rules to the detriment of the United States, says the Information Technology and Innovation Foundation (ITIF). But economic nationalism is not the right response, the tech-policy think tank argues in a new report.

Instead, ITIF contends that the United States must pursue a new doctrine of constructive, alliance-backed confrontation, where policymakers put America First—as the leader of an international coalition that pressures China to stop rigging markets and start competing on fair terms.

“China’s systematic mercantilism represents a threat not just to the US economy, but also to the very soul of the global trading system,” said Robert D. Atkinson, ITIF’s president and the report’s lead author. “The US response can’t be more flaccid appeasement, because the status quo is untenable. And it can’t be a retreat toward economic nationalism, because that would cede the global playing field. We need a new doctrine of constructive, alliance-backed confrontation—a version of America First where America stands at the vanguard of an international coalition defending the norms of democratic, market-led capitalism against the mercantilist tactics of the top-down, state-led model.”

The ITIF report explains that China has positioned itself as the main economic rival of the United States through a mercantilist economic approach of both defensive protectionism and offensive efforts to achieve global dominance across a wide array of advanced-technology industries that are key to US economic and national security interests. Its tactics include stealing competitors’ intellectual property, making market access contingent on handing over proprietary technologies, lavishly subsidizing Chinese enterprises, and more.

“We should refuse to accept empty ministerial dialogues while China flouts trade rules,” said Atkinson. “We have to insist on concrete results, and we have to be prepared to apply real pressure if China doesn’t change its behavior.”

The US government has tried for more than two decades to counter China’s pattern of flouting global rules and norms by engaging in regular diplomatic dialogues, but China has only accelerated its efforts to overtake US leadership in advanced industries. Absent a change in US policies toward China, America will likely lose even more US jobs in advanced industries over the next 20 years. So ITIF argues it is time for a new approach—but economic nationalism won’t do.

“Engaging in dialogue in the hope that the Chinese government will listen and change its ways has not worked,” said Atkinson. “But simply slapping a tariff on Chinese goods will only make it harder for the United States to compete globally, because so much of what America exports involves pieces and parts originally imported from China. Economic nationalism would leave the global playing field wide open for China to shape a trading system to its own interests and pressure other nations who would have no choice but to cut flawed deals with the world’s new economic superpower.”

To enact a doctrine of constructive, alliance-backed confrontation, ITIF urges the Trump administration to assemble an international coalition of market-based, rule-of-law economies that together move beyond legalistic, “meeting-by-meeting” engagement with China toward a more results-oriented approach. This should entail holding China to specific goals, such as reducing its forced technology transfer and IP theft, as well as procedural goals, such as demonstrating a shift from predominantly export-led growth to growth generated chiefly by raising productivity in the country’s non-traded sectors. And if China does not comply, this coalition must hold China responsible, says the think tank. The report lists an array of specific actions the administration can take if needed, including ceasing scientific cooperation with China until its use of innovation-mercantilist practices dramatically declines and establishing a zero-tolerance policy for Chinese imports that are counterfeit or otherwise illegal.

The report warns that the Chinese government has demonstrated a willingness to fight back against legitimate efforts to stop it from manipulating the global trade system. As such, ITIF says the Trump administration needs to make it clear that it is not trying to hold China down; any punitive actions should be temporary and only kept in place until the Chinese government makes needed reforms to restore rules-based trade.

“When countries compete on equitable terms—according to global rules for market-based trade—it is a win-win for everyone,” said Atkinson. “We have to unite around this goal, because a system predicated on innovation-mercantilist tactics is untenable for the US economy and the global economy.”