Tag: China

Wall Street Journal: Romney Should Be a Neocon, but Hide It in Debate

Would you buy a foreign policy from this man?

Imagine a world in which the Iraq War had gone exactly as marketed. The United States invaded in March 2003. The Iraqis, with the help of Ahmed Chalabi, rapidly transitioned to become a stable, liberal democracy allied with the United States against Iran. The marvelous and smooth transformation had ripple effects throughout the region: a handful of Arab states followed suit, and the United States had drawn down to under 30,000 troops in country by September 2003, setting up a basing agreement with the new Iraqi government to stay indefinitely. Few American lives were lost, the swamp of terrorism was drained, and an oil pipeline has just been completed running from Iraq to the Israeli port city of Haifa.

Imagine, at the same time, that opponents of the war, despite having gotten every major judgment about the prudence and consequences of the war comically wrong, had been vaulted to positions of power and prestige in foreign affairs commentary. Meanwhile, the war’s proponents, despite their support for a strategy that yielded huge strategic dividends for the United States at a low cost, were banished to the wilderness, heard from sporadically on a few blogs and at a think tank or two.

It would be strange, wouldn’t it?

And yet that situation is roughly analogous to the one in which we find ourselves today, except in real life the war was an enormous disaster, just as its opponents predicted, and the proponents of the war are the ones in denial about its implications. Foremost among the salespeople for war who have yet to come to grips with the facts are the members of the Wall Street Journal’s editorial board.

But hey, let’s let bygones be bygones: they’ve got some advice for Mitt Romney in his upcoming foreign policy debate.

First, the good news: Even the editorial board of the Journal seems to understand that speaking openly about their plans for more wars would be bad politics. Accordingly, the Journal doesn’t “expect Mr. Romney to offer an explicit defense of the Bush Doctrine” and they worry about the implications of Obama charging Romney with wanting to get the United States into a third (and fourth) Middle East war. This is in keeping with the previous assurance of Bret Stephens (pictured above) that Romney wouldn’t start any new wars. Romney should deny wanting any more wars while doing a number of things that make them inevitable.

Second, the bad news: Instead of suggesting that Romney actually trim the neocon sail a bit, the article suggests Romney continue his strategy of wheeling out a fog machine and saying “leadership” and “strength” instead of discussing details. The American people who tune in Monday night deserve to hear some specifics. Not the level of specifics that would satisfy the people who think about international politics for a living, sure, but some specifics. Instead, while suggesting that Romney “offer[] a serious critique of Mr. Obama’s foreign policy that doesn’t descend to clichés,” the article suggests clichés but not seriousness.

This blends with the ugly news: like an insular clique of Bourbon royalty, the neocons at the Journal appear to have learned nothing and forgotten nothing about strategy over the last 10 years. To the extent their suggestions do go beyond clichés, they are a reminder that Bush-era neoconservatism still lies at the center of their world view, and the world view of the Republican establishment. A few examples:

  • The war in Iraq, we are informed, had “already been won when Mr. Obama became president.” Mission accomplished? Come again?
  • Obama turned that win into a loss by failing to secure “a viable alliance with Baghdad and a bulwark against Tehran.” When you have allocated yourselves 1,608 words, you may want to show your work about how this could have happened.
  • Another Obama failure is that he allowed Israel to have a partially independent defense strategy. He should have “provide[d] Israel with reassurances that it needn’t consider its own military options” on Iran. If Israelis should just rely on the United States to defend them from the most important threats facing their country, why does Israel have such a powerful military in the first place?
  • Obama’s “policies of premature military withdrawals [in Iraq and Afghanistan] have increased rather than diminished the chances that we will be at war in the Middle East again.” How? In which countries?

One could go on. But more broadly the piece suffers from the flaw that has characterized the whole foreign-policy discussion in the election: the idea that the outside world begins at Algeria and ends at Afghanistan. The sprawling essay says exactly nothing useful when it comes to the most important foreign policy challenges facing the United States: the prospect of a European implosion, the wreckage of our war on drugs in Mexico, and preventing American entanglement in a prospective World War III in Asia.

The essay closes by invoking Robert Gates’s invocation of Ronald Reagan, who said that he had lived through many wars but none of them began because the United States was too strong. Gates and the WSJ’s editorial board probably ought to think a little harder about whether the United States blundered into any costly quagmires as a function of its overweening strength and insulation from the costs of its strategic choices. The answer is obvious.

Washington Post Sees Solar Panel Duties for What They Are: Self-Flagellation

The Washington Post was channeling the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies in this morning’s succinct and insightful editorial about the foolishness of taxing imports of Chinese solar panels.

The editorial picks up a few of the themes and draws very similar policy conclusions to those we have been advocating for many years and, without stating it explicitly, presents a compelling case for major reform, if not repeal, of the trade remedies laws.

For context, last week the U.S. Commerce Department published the final rates of duty calculated in both antidumping and countervailing duty (anti-subsidy) investigations of imports of Chinese solar panels, which were initiated in October 2011. (Here are some earlier thoughts on the matter.)

Formal antidumping and countervailing duty orders will take effect, probably, next month following a final determination by the U.S. International Trade Commission that the U.S. solar panel industry has been materially injured by these Chinese imports.

The thrust of the editorial is that the antidumping and countervailing duties, which are “calculated” by Commerce using an absurdly inaccurate, punitive methodology, will hurt other U.S. companies that are downstream and upstream of the solar panel producers in the production supply chain.

Noting the transnational nature of solar panel production, the editorial states:

U.S. firms that export polysilicon, a key material in the panels’ manufacture, or machinery to Chinese solar-panel makers could lose – if not because of the direct influence of the tariffs themselves, then because of the Chinese government’s likely reaction. Analysts worry that the Chinese will retaliate by slapping duties on U.S. polysilicon. Also at risk is the U.S. solar installation business, which has thrived during this period of low-cost panels.

This is one of the critical defects of the AD/CVD regime. It focuses like a laser on assisting industries seeking protection from competition while systematically—indeed statutorily—ignoring the adverse impacts of that “assistance” on downstream U.S. industries. (Bastiat points out that people tend to err by focusing on what is immediately seen, while failing to consider the ripple effects of actions that are less readily observed; U.S. trade remedy law demands that we commit that error!)

Much more often than not (80% of AD measures in the last decade), the foreign product subject to duties is an intermediate good required by downstream U.S. industries. And these downstream firms—the overwhelming victims of AD/CVD duties—have no legal standing in the proceedings that lead to the imposition of duties that raise their costs of production and drive them offshore or out of business. Under the statutes, the U.S. International Trade Commission is forbidden from considering the likely impact on downstream firms. In this age of globalized production and transnational supply chains, nothing could be more absurd.

About the so-called non-market economy methodology used to calculate margins of dumping and, ultimately, duty rates in Chinese (and Vietnamese) antidumping cases, the editorial asks:

But how much should a Chinese-made solar panel cost? The answer isn’t obvious. Commerce’s estimating methods—using Thailand’s economy as a surrogate for China’s—don’t inspire confidence.

These Cato papers (here and here) provide the dirty details of the capriciousness inherent in NME antidumping methodology. This brand new Cato analysis from Scott Lincicome, which documents—among other things—the global green energy subsidies race, explains how the U.S. countervailing duty law does not redress foreign subsidization, but rather punishes U.S. consuming industries and end-users. Getting tough on China means America’s wealth and jobs creators take it on the chin.

In closing, the editorial states:

And if the Chinese want to subsidize U.S. solar-panel buyers for the time being, there’s a good case to let them.

This is just another example of the administration’s policies working at cross purposes. To the fanfare of the Sierra Club and other environmental groups, President Obama has rhetorically championed the idea of greening our energy consumption profile. Of course, one of the biggest obstacles to that goal has been that the costs don’t justify the benefits. Hasn’t Chinese dumping and subsidization helped to reduce that obstacle? And aren’t duties on Chinese solar panels anathema to that goal?

Duties on solar panels, wind towers, and presidential interventions to block foreign investments in U.S. wind farms suggest that industrial policy—and not environmental policy—explains the president’s interest in green energy.

Recognizing in an editorial that duties imposed to benefit one industry or one firm (as is often the case with trade remedies measures) cause collateral damage to other industries is a laudable development for the Washington Post.  We look forward to the follow-up editorial calling for explicit repeal of the self-flagellating U.S. antidumping law.

Romney’s Misplaced Obsession with Chinese Currency Manipulation

More than anything else, Mitt Romney’s zealous determination to pin a scarlett “CM” on the Chinese government’s lapel has defined his trade platform.  And that draws an unfavorable contrast for Romney, since President Obama’s repeated decisions not to label China a currency manipulator make him look the more cautious, circumspect, risk-averse business executive that Romney portrays himself to be.

In any event, the currency issue is very much last decade’s battle.  By continuously harping about it, Governor Romney evokes tales of old Japanese soldiers, left behind on South Pacific islands, still fighting WWII well into the 1960s.

As I noted in this piece on Forbes yesterday, if Romney is elected he will  have to renege on this silly commitment (substantively, at least), and change focus:

If Mitt Romney believes in “free trade,” his focus with respect to China should be on correcting that government’s failures to honor all of its commitments to liberalize and on the misguided efforts by U.S. policymakers to thwart legitimate commerce between Chinese exporters and American consumers.

21st Century U.S. Trade Policy Should be Pro-Market, not Pro-Business, Pro-Labor, or Pro-Lobbyist

The difference between the trade policy we have today and the trade policy we should have is like the difference between crony capitalism and free-market capitalism. The sausage grinder that is U.S. trade policy serves politicians and rewards lobbyists and gate-keeper bureaucrats, who have the gall to presume entitlement to limiting Americans’ options and picking winners and losers.

In a country that exalts freedom, the default trade policy should be free trade. But it’s not. Why?

The public has been trained to accept that special interests—companies seeking exemptions from competition; unions demanding that citizens ”Buy American”; investors and intellectual property holders demanding the U.S. public assume part of its business risks; enviros insisting on measures that punish developing countries for being poor—are rightly entitled to negotiate, abridge, impair, or sacrifice those freedoms in the name of Team USA.

So how are we free if decisions about how, with whom, and how much we transact with foreigners are decided by parties in Washington, who profit from denying us that freedom?

Trade policy should be about maximizing the freedom of Americans to choose, and distinctly not about bestowing certain advantages on particular companies, industries, or special interests. Trade policy should be about maximizing opportunities for Americans as consumers, workers, and investors, and not about impeding those opportunities.

In a globalized world where businesses are mobile and, ultimately, untethered to a homeland, what is the point of policymakers going to bat for U.S. producers? Usually, policies adopted to assist particular companies or industries handicap or subvert companies and industries upstream or downstream in the supply chain, or in other sectors. What even defines a U.S. producer anymore? GM builds more vehicles in China than it does in the United States.  Should Washington and Beijing both claim GM as national treasures and craft policy to serve its needs?

No. Policy should be neutral with respect to the goals of particular companies and industries, and designed to attract investment and human capital, and to maximize opportunities for Americans to partake of the global economy. Trade policy should be about ensuring certainty and eliminating policy-induced frictions in supply chains. As I wrote in this article (21st Century Economy Deserves Better Than 16th Century Trade Policies), which expounds upon the thoughts in this post:

This 21st century economic reality demands better than trade policies rooted in 16th century mercantilist dogma. It demands policies that are welcoming of imports and foreign investment, and that minimise regulations or administrative frictions that are based on misconceptions about some vague or ill-defined “national interest”.

Obama, Romney Avoiding a Serious Discussion on China

Mitt Romney attempted to refine his foreign policy platform in a speech at the Virginia Military Institute on Monday, but he was again long on rhetoric and short on strategy. What passed for substance in the speech was largely focused on the Middle East. Predictably, most of the reactions to the speech also focused on the Middle East, mainly President Obama’s policy toward Iran’s nuclear program and his response to the attack on the U.S. consulate in Benghazi, Libya, last month.

Notably absent from the media coverage and the speech itself was China. In fact, Romney mentioned China only once. This is discouraging since the U.S.-China relationship will likely be the most important foreign policy issue over the next few decades.

In today’s Cato Podcast, Justin Logan, director of foreign policy studies, discusses America’s China policy and the presidential candidates’ lack of focus on the issue. Obama and Romney have each spent time demagoguing China on their currency and other trade issues. But this political rhetoric has been at the expense of any serious effort to discuss at length how the candidates disagree when it comes to the U.S.-China relationship. Instead, the foreign-policy debate has centered on the greater Middle East, where U.S. interests are much smaller. The candidates exemplify a bipartisan obsession with the Middle East when in large part the consequential issues that the United States will face in the years to come will be much further to the east.

Huawei, ZTE, and the Slippery Slope of Excusing Protectionism on National Security Grounds

Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety. —Benjamin Franklin

Chinese telecommunications companies Huawei and ZTE long have been in the crosshairs of U.S. policymakers. Rumors that the telecoms are or could become conduits for Chinese government-sponsored cyber espionage or cyber attacks on so-called critical infrastructure in the United States have been swirling around Washington for a few years. Concerns about Huawei’s alleged ties to the People’s Liberation Army were plausible enough to cause the U.S. Committee on Foreign Investment in the United States (CFIUS) to recommend that President Bush block a proposed acquisition by Huawei of 3Com in 2008. Subsequent attempts by Huawei to expand in the United States have also failed for similar reasons, and because of Huawei’s ham-fisted, amateurish public relations efforts.

So it’s not at all surprising that yesterday the House Permanent Select Committee on Intelligence, yesterday, following a nearly year-long investigation, issued its “Investigative Report on the U.S. National Security Issues Posed by Chinese Telecommunications Companies Huawei and ZTE,” along with recommendations that U.S. companies avoid doing business with these firms.

But there is no smoking gun in the report, only innuendo sold as something more definitive. The most damning evidence against Huawei and ZTE is that the companies were evasive or incomplete when it came to providing answers to questions that would have revealed strategic information that the companies understandably might not want to share with U.S. policymakers, who may have the interests of their own favored U.S. telecoms in mind.

Again, what I see revealed here is inexperience and lack of political sophistication on the part of the Chinese telecoms. It was Huawei—seeking to repair its sullied name and overcome the numerous obstacles it continues to face in its efforts to expand its business in the United States—that requested the full investigation of its operations and ties, not anticipating adequately that the inquiries would put them on the spot. What they got from the investigation was an ultimatum: share strategic information about the company and its plans with U.S. policymakers or be deemed a threat to U.S. national security.

Now we have the House report—publicly fortified by a severely unbalanced 60 Minutes segment this past Sunday—to ratchet up the pressure for a more comprehensive solution. We’ve seen this pattern before: zealous lawmakers identifying imminent threats or gathering storms and then convincing the public that there are no alternatives to their excessive solutions. The public should note that fear imperils our freedoms and bestows greater powers on policymakers with their own agendas.

Granted, I’m no expert in cyber espionage or cyber security and one or both of these Chinese companies may be bad actors. But the House report falls well short of convincing me that either possesses or will deploy cyber weapons of mass destruction against critical U.S. infrastructure or that they are any more hazardous than Western companies utilizing the same or similar supply chains that traverse China or any other country for that matter. And the previous CFIUS recommendtions to the president to block Huawei acquisitions are classified.

Vulnerabilities in communications networks are ever-present and susceptible to insidious code, back doors, and malicious spyware regardless of where the components are manufactured. At best, shunning these two companies will provide a false sense of security.

What should raise red flags is that none of the findings in the House report have anything to do with specific cyber threats or cyber security, but merely reinforce what we already know about China: that its economy operates under a system of state-sponsored capitalism and that intellectual property theft is a larger problem there than it is in the United States.

And the report’s recommendations reveal more of a trade protectionist agenda than a critical infrastructure protection agenda. It states that CFIUS “must block acquisitions, takeovers, or mergers involving Huawei and ZTE given the threat to U.S. national security interests.” (Emphasis added.) What threat? It is not documented in the report.

The report recommends that government contractors “exclude ZTE or Huawei equipment in their systems.” U.S. network providers and systems developers are “strongly encouraged to seek other vendors for their projects.” And it recommends that Congress and the executive branch enforcement agencies “investigate the unfair trade practices of the Chinese telecommunications sector, paying particular attention to China’s continued financial support for key companies.” (Emphasis added.) Talk about the pot calling the kettle black!

Though not made explicit in the report, some U.S. telecom carriers allegedly were warned by U.S. policymakers that purchasing routers and other equipment for their networks from Huawei or ZTE would disqualify them from participating in the massive U.S. government procurement market for telecom services. If true, that is not only heavy-handed, but seemingly strong grounds for a Chinese WTO challenge on the grounds of discriminatory treatment.

Before taking protectionist, WTO-illegal actions—such as banning transactions with certain foreign companies or even “recommending” forgoing such transactions—that would likely cause U.S. companies to lose business in China, the onus is on policymakers, the intelligence committees, and those otherwise in the know to demonstrate that there is a real threat from these companies and that they—U.S. policymakers—are not simply trying to advance the fortunes of their own constituent companies through a particularly insidious brand of industrial policy.

Mitt Romney’s Contrived Trade War

The Obama administration filed a formal complaint with the World Trade Organization on Monday alleging that the Chinese government is bestowing various prohibited subsidies upon Chinese automobile and auto parts producers to the tune of $1 billion and that Beijing is, accordingly, in violation of its commitments under the WTO Agreement on Subsidies and Countervailing Measures.

There are reasons to shake one’s head at this move, including the apparent hypocrisy it reveals of an administration that spins the $85 billion of subsidies it heaped upon two U.S. car companies and the United Autoworkers union as its chief economic accomplishment. Of course that figure doesn’t even include the $12-$14 billion in unorthodox tax breaks granted to GM under the bankruptcy terms; $17 billion in funds committed from the TARP to GM’s former financial arm GMAC (which received taxpayer support to facilitate GM auto sales); GM’s portion of the $25 billion Energy Department slush fund to underwrite research and development in green auto technology; and the $7,500 tax credit granted for every new purchase of a Chevy Volt, and more. (Full story here.)

To complain about $1 billion of Chinese subsidies is – shall we say – a bit rich.

Moreover, the filing of the WTO case reveals some of the unseemly perquisites of incumbency. A large concentration of the beneficiaries of the GM bailout resides in Ohio, a state that has had the administration’s strategic attention since its reelection campaign began in November 2008. But in case that largesse wasn’t enough to secure their support in November 2012, a large concentration of the beneficiaries of a successful U.S. WTO complaint also resides in Ohio, which is where – by Jove – the president was speaking when word of the WTO complaint became public.

It is all exasperating, no doubt.

But the bigger and more disconcerting story in all of this is the apparent ascendancy of economic nationalism within the GOP. Romney’s persistence in trying to brand himself the “most protectionist” or “biggest China basher” in the presidential race sort of forced Obama to bring the WTO case – or at least expedited the timetable. Have you seen the Romney ads? Have you read the shrill RNC taunts that cite the widely-discredited, union-funded Economic Policy Institute’s figures on job losses caused by trade with China? Strange bedfellows, indeed!

It was once the case – not too long ago – that Republican candidates argued in support of trade and the freedom of Americans to partake of the opportunities afforded by the global economy. But things, apparently, have changed. The nationalistic strains within the Republican Party have strengthened since 2009. I explained why this was happening in this 2010 Cato paper, which is excerpted below:

Frictions in the U.S.-China relationship are nothing new, but they have intensified in recent months. Tensions that were managed adeptly in the past are multiplying, and the tenor of official dialogue and public discourse has become more strident. Lately, the media have spilled lots of ink over the proposition that China has thrived at U.S. expense for too long, and that China’s growing assertiveness signals an urgent need for aggressive U.S. policy changes. Once-respected demarcations between geopolitical and economic aspects of the relationship have been blurred. In fact, economic frictions are now more likely to be cast in the context of our geopolitical differences, which often serves to overstate the challenges and obscure the solutions.

A sign of the times is a recent commentary by Washington Post columnist Robert J. Samuelson, in which he declares: “China’s worldview threatens America’s geopolitical and economic interests.” That statement would seem to support a course of action very different from the course implied by the same columnist 18 months earlier, when he wrote, “Globalization means interdependence; major nations ignore that at their peril.” That change of heart appears to be contagious.

Understandably, there is angst among the U.S. public, who hear frequently that China will soon surpass the United States in one economic superlative after another. Some worry that China’s rise will impair America’s capacity to fulfill or pursue its traditional geopolitical objectives. And those concerns are magnified by a media that cannot resist tempting the impulses of U.S. nationalism. Woven into stories about China’s frantic pace of development are reminders that the Chinese have not forgotten their two-century slumber—a period of humiliation and exploitation by foreign powers.

A recent National Journal cover story describing areas of bilateral policy contention—which the article laments as “frustrating” the fact that U.S. experts see “few alternatives to continued engagement” —features three menacing photographs of Chinese military formations, one picture of North Korean leader Kim Jong Il flanked by members of the Chinese military, and one photo of the Chinese foreign minister shaking hands with Iranian President Mahmoud Ahmadinejad.

Subtly, and sometimes not, the media and politicians are brandishing the image of an adversarial China. In Chinese reluctance to oblige U.S. policy wishes, we are told that China selfishly follows a “China-First” policy. In the increasing willingness of Chinese officials to criticize U.S. policies, we are told of a new “triumphalism” in China. In the reportedly shabby treatment of President Obama by his Chinese hosts on his recent trip to Beijing, we are told that the “Chinese have an innate sense of superiority.” But indignation among media and politicians over China’s aversion to saying “How high?” when the U.S. government says “Jump!” is not a persuasive argument for a more provocative posture.

China is a sovereign nation. Its government, like the U.S. government, pursues policies that it believes to be in its own interests (although those policies—with respect to both governments—are not always in the best interests of their people). Realists understand that objectives of the U.S. and Chinese governments will not always be the same, thus U.S. and Chinese policies will not always be congruous. Accentuating and cultivating the areas of agreement, while resolving or minimizing the differences, is the essence of diplomacy and statecraft. These tactics must continue to underpin a U.S. policy of engagement with China.

In this campaign, the RNC seems to be fighting to position itself to the protectionist side of Obama, daring the president to take action – a dare the president has accepted, inflating his political credit in places like Ohio. In response to Governor Romney’s assertion that the president had been soft on China and that he, Romney, would label China a currency manipulator on his first day in office, Obama created the Interagency Trade Enforcement Center, which resonated politically with the target audience. While the challenger blathers about the president’s alleged fecklessness in dealing with China, the president responds by bringing new WTO cases against Beijing. The most recent complaint, relative to the strident tack Mitt Romney is advocating, is the more responsible, more pro-market course of action. If Romney is to be believed, his trade actions would have far worse consequences for the economy.

Instead of focusing on the real sources of economic stagnation in the United States – including the uncertain business climate inspired by the bailouts, the proliferation of costly and superfluous new environmental, health, and financial regulations, a tax code that is in constant flux, frivolous torts, an education monopoly that fails to produce enough talent backstopped by an immigration system that chases it away – Mitt Romney has chosen to blame America’s woes on China. THAT is the message the Republican presidential candidate, with the full backing of the RNC, brings to the voters in Ohio, whose fortunes are increasingly tied to America’s engagement in the global economy. As of July, Ohio’s unemployment rate was 7.2 percent, more than one full percentage point lower than the U.S. rate of 8.3%. Ohio’s economy is growing on account of trade – particularly with China, the state’s third largest market and destination of $2.7 billion worth of Ohio’s output in 2011. Just look at this bar chart that depicts the importance of China to Ohio, and conversely, the costs of a real bilateral trade war.

Governor Romney should ditch his trade warrior schtick pronto, and start explaining to the electorate how pro-trade policies – including the freedom of corporations to invest abroad (to offshore a la Bain Capital)– help enlarge the economic pie. Puffing out the chest to appear the biggest protectionist in the race is bad economics and bad politics.