Rogue Nation: How Does the U.S. Deal With China? | OurFuture.org

Rogue Nation: How Does the U.S. Deal With China? | OurFuture.org

China has surpassed Germany as the world's largest exporter. It is the largest holder of American Treasury bonds, nearly $800 billion. America runs its largest trade deficit by far with China. The low-price flood of goods—the Wal-Mart trade—is pervasive. Now the U.S. even runs a growing deficit in advanced technology products.

China flouts the rules and the spirit of the "free trade" global economic order that the U.S. constructed and, under former president Bill Clinton, invited China to join, granting both permanent normal trading relations and membership in the World Trade Organization.

China is a mercantilist nation, largely copying the successful Asian model developed by the Japanese and the Asian tigers. Its communist dictators plan and guide an economy geared to develop through exports. The elements of its model are clear, evident to all who would see, and not often admitted. They include:

• An artificially undervalued currency, pegged to the dollar;
• An industrial policy that targets "pillar industries," using a broad range of subsidies and protections to capture of world markets;
• A complicated maze of trade barriers that allows systematic pressure on foreign multinationals to invest for export in China and to transfer their most advanced production techniques to China;
• Systematic efforts to pirate technology, trade secrets and copyrighted materials;
• A system of forced savings that funds investment.

In the global economy, China is a rogue nation—with success that breeds envy and imitation. Its system works very well for China, but not for the rest of the world, as respected commentators like Martin Wolf of the Financial Times have pointed out. As the IMF warned, the dramatic trade imbalances run by China as a mercantilist nation and the U.S. as the consumer of last resort are destabilizing and unsustainable—and contributed directly to the financial bubble and bust that drove the world into the Great Recession.

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That strategy includes export controls, procurement policy, and "a strategic approach to climate and energy."

China has made new energy a "pillar industry." It has deployed the entire range of its mercantilist strategies to make itself the leading manufacturing of solar panels.

If capturing a leading edge of these industries is vital to our nation's economic security, then shouldn't we get serious about an industrial policy that goes far beyond the Pentagon?