In 2009, most international observers expect China to grow at an 8% rate while their imports from the United States decline. How does China accomplish this prodigious feat of protectionism?
An article by Dean Takahashi, posted on the Digital Review website, tells a small part of the story. It discusses the non-tariff barriers that China puts in the way of American computer games.
Recently, the Chinese government temporarily suspended its import license for a very popular American digital game produced by Activision Blizzard (ATVI) called World of Warcraft, interrupting the play of 4 million paying users at Internet Cafes in China. This action was just their latest impediment to American digital games. The article discusses some of those impediments:
Chinese game industry regulatory policy is fairly cumbersome, particularly for foreign companies... any foreign game company in a legal dispute with a domestic game company will have the content approval of their games suspended until the dispute is resolved.... Another policy states that a foreign company may not operate an online game on its own in China; it has to have a Chinese partner and share its revenues with that partner, Cosmas Hanson said. Chinese game companies that operate in the U.S. have no such restriction....
Some industry observers wonder whether the Chinese government was blocking a foreign game in order to limit the leading games to those that are domestically developed, thereby restricting trade of online games....
The Chinese use a different technique to prevent their country from paying for imports of American PC games. The same article reports:
It still takes six to 12 months to obtain a permit to sell a foreign-packaged PC game title in China. That means that pirated copies of the game will saturate the Chinese market before the legitimate copy becomes available for retail purchase. That makes the market very unattractive for foreign game makers.
Those who think China would start letting American products into their country if the dollar falls in value, relative to the yuan, are deluding themselves. China is practicing mercantilism, the strategy of maximizing exports and minimizing imports in order to steal market share and jobs from their trading partners. It is no accident that they only import 25¢ from us for every $1 we import from them.
England and France's successful practice of mercantilism during the 1500s destroyed the industry and power of their chief political rival Spain. The Chinese government is using the same strategy today to destroy the economic and political power of their chief political rival, the United States, the country which advocates the democratic philosophy that threatens China's rulers.
The only solution for the United States is to insist on balanced trade. Then if China reduces their imports from us, they would be reducing our imports from them. My father, son and I urged the following in our 2008 book, Trading Away Our Future:
We would announce to all the countries that have been accumulating dollar reserves in order to run a trade deficit with the United States, that effective the following year their deficit on goods and services would have to be reduced twenty percent. They may respond to this challenge by planning to increase their imports from us, reduce their exports to us, or some combination of both. Failure to meet this annual goal would result in our imposition of a requirement that all imports from the offending country would require an Import Certificate (IC) purchased from the US Treasury Department or other designated agency of the federal government. (The US Treasury Department has experience in auctioning off its own obligations; much the same process would be involved in auctioning off import certificates.)
Prospective importers from countries that fail to reduce their deficits in timely fashion would have to apply for an IC and follow the Treasury’s instructions. Over a period of five years, the US Treasury Department would steadily reduce the amount of available import certificates so that the targeted country’s trade exports to the United States would be no higher than 5% above their imports from the United States. The Treasury would publish the amount of ICs issued and available and the date of each auction. Each certificate would have to be utilized within a specified period.
We recommend that the proceeds from selling the Import Certificates be placed in an off-budget fund that the US Treasury would use to buy foreign currencies and foreign financial assets, putting money into the hands of foreign consumers, especially the consumers of the dollar mercantilist nations. These currency reserves could also be sold by the US Treasury whenever the dollar is declining too rapidly in foreign exchange markets.
When President Obama enacted temporary tariffs on Chinese tires, almost all American commentators complained. According to the rules of trade endorsed by America's elite, China is allowed to restrict their imports of American goods, but the United States must practice unilateral free trade so that we can hold the high moral ground. Pretty soon the high moral ground is the only thing we'll have left. It's time that we started insisting on balanced trade with China.
Disclosure: No Positions
