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The U.S. Battle Over China Continues

Can the U.S. government find a unified policy in order to deal with a growing China?

November 30, 2005

Can the U.S. government find a unified policy in order to deal with a growing China?

The U.S. debate over how to deal with China continues. In its 2005 report to the U.S. Congress, the U.S.-China Economic and Security Review Commission finds that, while China is clearly focused on its own national interest, the U.S. government has no unified policy to deal with China. In this Globalist Document, we take a look at the Commission’s recommendations.

China's leadership has a coordinated national strategy for dealing with the United States.

It knows what it wants to obtain from the United States — most significantly, a market for its exports, investment, technology and management skill — and it tailors its economic and diplomatic policies to achieve these goals.

China is willing to achieve its goals through means that threaten many U.S. interests. It continues to proliferate components for weapons of mass destruction and ballistic missiles to countries of concern.

It refuses to support many U.S. initiatives in the United Nations and other international bodies and is seeking to reduce U.S. presence and influence in the Asian region.

In short, China is focused on the most effective ways to develop its comprehensive national power and further promote its position in the world.

Unfortunately, the United States has no coordinated, national strategy for dealing with China. We need one that specifies and prioritizes what we want to accomplish, what outcomes are and are not acceptable — and how to reach those goals.

But China's dependence on the U.S. marketplace for the sale of its products and as a source of investment and technology is so large as to make China's economic growth, to a substantial extent, dependent on the U.S. economy.

This provides the United States with enormous leverage to demand that China adopt greater reforms and abandon its mercantilist practices.

Unfortunately, the United States has pursued a policy of economic engagement with China that has not yielded results, while China has actively pursued its own interests.

The result is that our corporate sector is increasingly looking to China as a source of profits, either in terms of offshoring or outsourcing, and it is becoming more and more an export platform for products.

The transfer of manufacturing capacity to China has been joined by the creation of numerous and substantial research and development (R&D) centers and capabilities, capabilities which affect the competitiveness of the U.S. economy.

As production and R&D move to China, the resulting pressure on remaining U.S. operations and the downward pressure on U.S. wages intensify.

In the absence of well-defined and effective public policies, corporate interests have been able to set the course of our economic relationship.

The cycle intensifies as investments in and trading relationships with China increase. More companies are concerned that they will face retaliation by Chinese authorities and/or their related businesses.

And, as the sourcing patterns of these companies change, their vested interests in protecting their investments increase, to the detriment of the U.S. standard of living.

Elected officials must reclaim control of the policy agenda. Addressing the problems posed by China and the impact of globalization demands that the United States initiate new efforts and programs to advance our own national competitiveness.

The nation needs a self-renewal on the scale of the post-Sputnik era, with major new educational programs to create new generations of scientists and engineers. We can remain competitive only if we address education, health care, community, transportation and industrial infrastructure, job training and other issues.

We must learn the importance of balancing consuming, saving and investing. To become competitive again, the United States must take responsibility for its future.

The debate about trade and globalization is framed by discussions about trade theories that do not adequately account for mobile factors of production, such as technology and capital.

The theory is intended to apply to free markets, a condition that does not exist with China, which is by definition and in reality a non-market, command economy.

China can, and does through government actions, alter the trade equation and its outcomes on a daily basis.

The challenge is to bring China into the international order as a responsible actor, rather than — by inaction or acquiescence — condone its behavior within an international order it manipulates for its own accumulation of economic, political and military power.

We must carefully craft and articulate a U.S.-China policy based squarely on the national and economic security interests of the United States.

Adapted from the November 2005 Report to Congress of the U.S.-China Economic and Security Review Commission. For the full-length report, click here.