i3 - September/October 2020 - 25

By Peter Allgeier

G U E ST B LO G

Dealing with China
The following article is the second of a three-part series. Ambassador Peter F.
Allgeier served as Deputy U.S. Trade Representative from 2001-2009 and U.S.
Ambassador to the World Trade Organization from 2005-2009.

Dilok Klaisataporn/Getty Images

or every complex problem, there is a solution that is
clear, simple and wrong"...H.L. Mencken. This quote
could serve as the epitaph for the Trump administration's China trade policy. While the administration has correctly
identified China's trade policies as a serious challenge for the
U.S. and the global trading system, its "solutions" have been
"clear, simple and wrong."
What is the China problem? It is an
enormous, state-controlled, non-market
economy that discriminates against foreign businesses, engages in industrial
espionage and imposes forced technology transfer requirements for valuable
intellectual property. In its effort to
develop global superiority across a wide
array of sectors, it provides enormous
subsidies to non-economic enterprises.
The administration has attempted to
address the China problem more aggressively than its predecessors. But it has
done so through a misguided strategy.
Simply put, the administration has acted
to "correct" a merchandise trade deficit
with China by imposing tariffs on its
goods to pressure China to purchase
more American industrial and agricultural products. Of course, it's Americans,
not Chinese, who pay the tariffs.
This amounts to adopting the Chinese
model of managed trade rather than
seeking genuine change in Chinese
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behavior. For example, the "Phase One"
trade deal is basically a Chinese purchase agreement aimed at boosting U.S.
exports. Even if it succeeds, it doesn't
alter Chinese behavior in any significant
way. It actually reinforces China's statedriven command economy.

What Can Be Done to Achieve
Behavioral Change?

First, we should capitalize on the concerns of other trading countries. The
EU, Japan, Australia and others share
our concerns and have criticized China
for unfair trade practices, especially
industrial subsidies and forced technology transfer. They also seek to address
non-market-oriented practices that
lead to global overcapacity in commodities such as steel. The U.S. should
mobilize like-minded countries to
develop stronger World Trade
Organization (WTO) rules to prohibit
these practices.

Policy

Second, we should abandon the
administration's evisceration of the
WTO dispute settlement process. We
had a pretty good record of winning
cases against China (e.g., intellectual
property protection, Value Added Tax
refunds, electronic payment services)
but because we repeatedly lost cases
over arcane anti-dumping regulations,
we threw the entire dispute settlement
mechanism overboard. Crippling the
entire system is short-sighted. When we
win, China has to comply with the rules,
otherwise we can retaliate and use tariffs
or other punitive measures legally.
Instead, the administration imposes illegal unilateral tariffs on China which
makes the U.S. the violator.
Third, we should take steps, preferably
in parallel with the EU, Japan and others,
to protect critical technological and security assets from takeovers by Chinese
state-supported actors. The Europeans
are contemplating new rules and procedures to protect their national champions
from Chinese takeovers during a period
of low stock prices. In 2018, we tightened
Committee on Foreign Investment in the
United States (CFIUS) scrutiny of sensitive foreign investments. A coordinated
approach with others would be even
more effective.
Finally, we should work closely with
our allies to develop joint international
standards in new technologies to counter
China's efforts to impose their own standards. China has increased its activity in
international organizations, notably the
International Telecommunications
Union and the International
Organization for Standards. The EU has
proposed cooperation with the U.S. in
setting new technology standards (e.g.,
5G, robotics and AI) as a counter to
Chinese efforts to set global standards.
Our trading partners would willingly
work with us if we made the effort.
As many of our trading partners say,
"The only thing worse than U.S. leadership is the absence of U.S. leadership."
We need to correct that absence with
smart leadership and allies.
Peter Allgeier is president of Nauset
Global LLC: Allgeier@nausetglobal.com.
SEPTEMBER/OCTOBER 2020

9/1/20 10:31 AM

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i3 - September/October 2020

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