November 26, 2014    Volume 21, No. 17

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U.S.-China Commission Describes The Multiple Tactics Of A Rogue Nation Whose Policies Have Destroyed The U.S. Economy, And The U.S. Federal Government's Failed Response


By Richard A. McCormack
richard@manufacturingnews.com

For the past decade, U.S. government officials have been pleading with China to shift its economy from investment in manufacturing capacity and exports to domestic consumption. It has asked that China stop manipulating the value of its currency. It has asked that it open its markets to U.S. service providers in health care and finance.

Despite repeated promises from Chinese diplomats, it's not happening and doesn't look like it ever will, according to the U.S.- China Economic and Security Review Commission (USCC).

In fact, China remains a rogue nation, undeterred in its pursuit of creating hundreds of millions of jobs in whatever manner it deems appropriate, and at whatever cost to the U.S. economy.

According to the commission, China is shutting out foreign companies. It continues to invest in state-owned enterprises. Its cyber espionage programs continue to target U.S. businesses and national security agencies. It is cracking down on political activists, despite assurances made by former U.S. presidents, senators and diplomats that the Internet and liberalized trade with the United States would lead to a new wave of enduring freedoms for Chinese citizens.

"The central government in Beijing has continued to stifle dissent through use of internal security forces, legal and extralegal measures and media censorship," according to the U.S.-China Commission.

Within the commission's annual report to Congress, it is hard to find a single area in which China is adhering to international norms. "Unfortunately, the United States too often chooses dialogue with China over strong enforcement measures, and bilateral talks often fail to deliver much more than an expanding menu of follow-on discussions," writes the commission.

When the United States does "get tough" by initiating trade enforcement cases, China games the system by relying "on an array of loopholes for avoiding trade remedies," the commission adds.

The commission questions whether the official U.S.-China Joint Commission on Commerce and Trade (JCCT) and the Strategic Economic Dialogue have even worked, and calls on the Government Accountability Office to determine their effectiveness.

It directs Congress to hold hearings on the federal government's Interagency Trade Enforcement Center to find out what it is doing to combat unfair trade practices.

China has "continued their traditional ways" of borrowing heavily to stimulate the economy by building infrastructure and through subsidizing "favored industries," notes the commission. It continues to "maintain an artificially low value of the renminbi in order to boost exports and inhibit imports." This undervaluation should be considered to be a direct export subsidy, yet the Commerce Department "has refused to treat currency undervaluation as actionable under the law," the commission notes.

The central Chinese government is moving away from policies that promote open markets.

The results are predictable. Exports to the United States continue to skyrocket and trade imbalances with the U.S. are "headed toward another record figure for 2014, likely surpassing [the 2013] record $318.7 billion U.S. trade deficit in goods with China," notes the commission. The U.S. trade deficit with China is now the largest bilateral trade deficit in the history of humanity and it "is associated with declining U.S. economic competitiveness and job losses, which helps explain why 52 percent of Americans now believe that China poses a critical threat to vital future U.S. economic interests."

The commission says it is concerned that the United States has become dangerously dependent on China for its basic pharmaceutical ingredients, with China now accounting for 70.4 percent of the U.S. supply of antibiotics and 70 percent of ibuprofen. "These trends are worrying because China is also a manufacturer of fake and substandard drugs," it notes.

There are a few Americans benefiting from these Chinese policies: corporations that have relocated manufacturing to China. "As a result, the benefits of the U.S.-China trade relationship have accrued disproportionately to U.S. corporations, while most of the drawbacks have been borne by U.S. workers," the commission points out.

For smaller American manufacturing companies that are being put out of business by Chinese mercantilist policies, U.S. trade laws "are effectively useless," says the U.S.-China Commission. U.S. government trade remedies "fail to account for the interests of affected constituents, such as workers and communities."

The Chinese government continues to invest in industries with excess capacity such as steel, cement, glass, construction, solar panels and shipbuilding. This investment "has unfairly harmed international competitors," notes the commission in the first page of its annual report.

Government-owned Chinese companies are investing in the United States, at the behest of state governors and economic development officials. But those investments might backfire on the United States, the commission warns, by creating "impediments for domestic industries petitioning the federal government for trade enforcement assistance."

China is placing more regulatory burdens on foreign companies wanting to invest there in an effort to boost the prospects of China's "highly favored 'national champions,' " says the commission. "China's anti-monopoly laws, in particular, appear to be focused on disadvantaging foreign-invested companies rather than being applied equitably."

In the military arena, China continues to modernize its forces "creating additional challenges for the United States and its allies," writes the commission. "Most notably, China conducted its first test of a new hypersonic missile vehicle, which could enable China to conduct kinetic strikes anywhere in the world within minutes to hours, and performed its second flight test of a new road-mobile intercontinental missile that will be able to strike the entire continental United States and could carry up to 10 independently maneuverable warheads."

The country is making big investments in modern submarines, ships and combat aircraft. For the first time, its Navy began combat patrols in the Indian Ocean. Its first aircraft carrier has conducted a long-distance deployment, which suggests that "China is experimenting with multiple types of carrier formations, including those resembling U.S. combined expeditionary groups."

China is exerting force to control its claims in the East and South China Seas. "Perhaps of most concern is Beijing's apparent willingness to provoke incidents at sea and in the air that could lead to a major conflict as China's maritime and air forces expand their operations beyond China's immediate periphery."

Its actions in the region are "alienating many of its neighbors," notes the commission. Many countries are reconsidering their security strategies and relationships, "particularly those involving the United States. As the United States seeks to reaffirm its alliances and boost its security links with associates in East Asia, it must contend with China's competing vision of a China-led regional security architecture. This uncertain environment is further complicated by China's support for North Korea, which continues to pose the most dangerous threat to East Asian security."


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