Thursday, 21 June 2018

"Made in China 2025"

Free Trade With China is an Oxymoron

Trump's looming trade war with China begs an interesting question: is it possible for a Communist government to enter into a meaningful and genuine free trade agreement?  It's arguable that no communist government, such as China, can meaningfully participate in free trade when the economy is at the command and control of the state.

This is the argument being pushed now by the Trump administration and it is one which demands careful thought.  Much of the Chinese economy represents command and control: the price of money is set by the state; mass production of favoured goods is heavily subsidised by the state; the state controls the demand for goods and services; and the state substantially controls the labour market.  When a non-statist government enters into a free trade agreement with a communist state, the price signals of goods and services are inevitably distorted and of little use.  There is nothing "fair" about them.  They are certainly not "free".  Therefore, free trade with a communist state (or a strongly fabian socialist state) is an oxymoron, a contradiction in terms from the outset.

Western nations by-and-large understand that state subsidies and state picked "winners" are an immediate contradiction against free trade.  However, the recent push by Western nations to enter into global and regional multi-national talks in an attempt to secure global free trade agreements is both short sighted and contradictory.  When it involves agreements with communist command-and-control economies it is even more the case. 
President Donald Trump announced on June 15 that he would go ahead with the proposed tariffs on $50 billion worth of Chinese goods, doubling down on his promise to level the playing field and defend against improper intellectual property theft by China.

China retaliated hours later by announcing its own 25-percent tariffs on $50 billion worth of U.S. products. The implementation timeline largely mirrors the United States,’ with tariffs focusing on agricultural imports.  The Trump administration vowed that the United States would pursue additional tariffs once China retaliates in kind.  The Office of the U.S. Trade Representative (USTR) described the goods subject to the 25 percent tariffs as “Chinese imports containing industrially significant technologies, including those related to China’s ‘Made in China 2025’ industrial policy.”

The new tariffs will be implemented in two stages. The first list contains 818 products worth $34 billion which will go into effect on July 6, with another round of goods worth $16 billion to be implemented after a period of public consultation. . . . [Epoch Times]
The "Made in China 2025" policy is a deliberate attempt by the Chinese Communist state to become technologically self-sufficient.
  The key strategy is to steal by fair means or foul technology from the West and incorporate it into the Chinese economy.  It's long term goal is to become autarkic--self sufficient and not dependent upon any other nation for anything.  Because the Middle Kingdom, don't you know, is superior to all, and will eventually rule the world.  Participating in "free trade" is merely the means to that end.  From the Chinese government's perspective, the rest of the world is as dumb as a sackful of hammers, but that's its problem.  If the world wants to trade freely with China, it must give up its intellectual property to the Chinese state.  If other nations are prepared to do that, more fool them. 

Somewhat lost in the prevailing narrative—which misguidedly has focused on free trade vs. protectionism—is Trump’s real concerns over technology theft.

The latest tariffs were framed specifically in response to theft of U.S. intellectual property (IP) by the Chinese Communist regime. According to an IP Commission report released earlier this year by the National Bureau of Asian Research, the annual cost of IP theft to the U.S. economy could be as high as $600 billion. The IP Commission estimated China as the top infringer, responsible for 50 to 80 percent of the damage.  And outside of terse denials or calling the allegations “groundless,” the Chinese regime hasn’t produced ample evidence to mitigate such concerns.

China’s “Made In China 2025” program has been cited by the USTR as a driving force behind increasing investment and acquisition of foreign technology companies, and subsequent forced IP transfers, according to a recent investigative report by the USTR.

U.S. companies have been raising concerns for years, mostly through private channels with U.S. government agencies for fear of retaliation by Beijing. This is a key reason why Trump’s broader trade dispute with China has taken on increased importance. It hasn’t been about trade; it’s a fight to protect the nation’s status as a technology leader.
To the Chinese Communist regime, the West's conception of free-trade is more fool them.  It is something to be exploited to the Communist regime's advantage.  The West's ideological bent and triumphalism and sense of overweening superiority has led it to view China through a think myopic lens of condescension.  China, however, bears the insult.  Its time is coming (or so the regime believes.)  Until, that is, Trump came along.

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