China Begs, Borrows, Steals American Know-How: Peter Navarro
China’s fourth-largest steel producer, government-owned Anshan Iron & Steel Group, wants to buy a stake in the U.S. Steel Development Co. The plan is to build five new mills, with the first adding 120 jobs to one of America’s most economically depressed states, Mississippi. What could be wrong with that?
Plenty, says a bipartisan group of 50 members of Congress. They are demanding an investigation by the Obama administration on economic and national-security grounds.
The Anshan deal, far from an isolated event, is part of a larger go-abroad strategy of Chinese industrial policy. The goals: protect and subsidize China’s state-owned “national champions,” acquire foreign companies and/or their technologies, then further penetrate foreign markets while often bypassing trade barriers such as anti-dumping duties.
At the heart of the Anshan matter is an ideological struggle between an America committed to free trade and private enterprise, and a socialist China using a potent array of mercantilist and protectionist weapons to breed national champions in key strategic industries -- autos, computers, electronics, paper, textiles and, yes, steel.
The grim reality is that American companies will continue to lose that struggle -- and the U.S. will run huge trade deficits and suffer from high unemployment rates -- until we adopt this Fair Trade Commandment: Do unto China as China does to us.
What is China doing?
Unfair Boost
In direct violation of free-trade rules, government-owned companies like Anshan benefit from massive, illegal export subsidies ranging from highly subsidized land, energy and capital to lucrative tax breaks. No wonder America has lost a third of its manufacturing jobs over the last decade.
China’s great wall of protectionism also features a wide array of tariffs and other barriers that shield its national champions from competition in its domestic market.
These companies also fight behind the shield of a grossly undervalued currency. The artificially cheap yuan heavily subsidizes the exports of companies like Anshan even as it imposes a hefty tax on American imports into China. Ignoring this obvious free-trade violation, the Obama administration, with its talk-softly, carry-a-little-stick diplomacy, refuses to brand China a currency manipulator.
China is on a quest to beg, borrow, steal, or, in the case of Anshan, buy into the American market and American technology. China’s well-documented industrial espionage network is used to hack into Pentagon computers to steal military technologies. China also forces any American corporation wishing to produce on Chinese soil to transfer its technology.
Hands On
The acquisition of U.S. companies by state-owned enterprises is the most direct way for China to get its hands on American technology -- and then turn around and use it against American industry.
Once this technology and managerial expertise is transferred back to the Chinese mainland, it will be shared by China’s steel companies and used to further penetrate the U.S. and global steel markets. The perverse result: Over time, the Anshan deal will destroy far more American jobs than the 120 it supposedly will create.
Yet another reason to reject the Anshan deal relates back to the inherent contradiction between American capitalism and Chinese socialism. While America’s private corporations seek to maximize profits, deploying resources by the laws of economics, Chinese state-owned enterprises seek primarily to create jobs, to ease political pressures on the ruling Communist Party.
Beggar Thy Neighbor
While job creation is a salutary goal, the perverse result in China has been a beggar-thy-neighbor cycle: China invests in a glut of over-capacity, then dumps its excess production into world markets at prices well below cost. While China booms, unemployment rates and trade deficits soar for trading partners like the U.S. and Europe.
China’s steel industry is a poster child for this problem. Over the last decade, it has grown at warp speed and now commands more than 50 percent of world production. Because of a massive capacity overhang, Chinese steel producers have engaged in the wholesale dumping of steel products worldwide. In self- defense, both the U.S. and Europe have slapped tariffs and countervailing duties on Chinese steel imports.
Anshan and China charge the U.S. Congress with politicizing the planned investment in Mississippi. Yet the investment is, by its very nature, political.
Evading Barriers
As an Anshan executive revealed in an interview on CCTV, China’s English-language, state-owned TV network, one of the goals of the Mississippi deal is to evade trade barriers. If China wants to de-politicize the investment, it should remove all government influence from its state-owned enterprises (or, better yet, privatize them).
It should be clear, however, that if our government approves the deal, this will reduce any pressure on the Chinese government to end its mercantilist practices.
China would never permit an American company to make the kind of strategic acquisition proposed by Anshan. Why should we?
(Peter Navarro is a business professor at the University of California-Irvine and author of “Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington.” The opinions expressed are his own.)
To contact the writer of this column: Peter Navarro at pn@peternavarro.com
Rate this Page