U.S.-China Relations: The Future Is Becoming Clear

by: Howard Richman

On January 29, nineteen trade groups including the U.S. Chamber of Commerce and the National Association of Manufacturers, sent a letter to U.S. government officials about China's new requirement that they move their research and development centers to China as a condition for doing business with the Chinese government.

Here is a selection:

Of most immediate concern are new rules issued by the Chinese government in November to establish a national catalogue of products to receive significant preferences for government procurement. Among the criteria for eligibility for the catalogue is that the products contain intellectual property that is developed and owned in China and that any associated trademarks are originally registered in China. This represents an unprecedented use of domestic intellectual property as a market-access condition and makes it nearly impossible for the products of American companies to qualify unless they are prepared to establish Chinese brands and transfer their research and development of new products to China.

These organizations concluded their letter with the following request:

We respectfully request that your agencies make this issue in particular a strategic priority in your bilateral economic engagement with China; develop, in consultation with the business community and like-minded foreign governments, a strong, fully coordinated response to the Chinese government; and raise this issue with your Chinese counterparts in all appropriate unilateral and bilateral settings and forums.

The Wall Street Journal reported on February 16 (U.S. Expected to Press China on Yuan) that, in response, Obama administration officials are contacting the Chinese government:

In an unusually broad response, U.S. officials from several government agencies have approached the Chinese to relay concern over the proposed rules, according to people familiar with the situation. "We are expressing our serious concerns with all appropriate counterparts in the Chinese government," said Carol Guthrie, a spokeswoman for the U.S. Trade Representative's office.

The future is becoming clear. First we lose our good-paying blue collar manufacturing jobs to China, because of our unwillingness to require balanced trade. Next we lose our good-paying white collar research and development jobs to China, because of our unwillingness to require balanced trade. Eventually, we will have nothing left but agriculture, service industries, and scrap yards, all because we were unwilling to invoke the WTO rule which lets trade deficit countries require balanced trade.

The solution is simple: Impose a tariff on Chinese products in proportion to the trade deficit. When the U.S. trade deficit with China goes up, the tariff rate goes up, when the trade deficit goes down, the tariff rate goes down. When trade reaches approximate balance, the tariff disappears. If the Chinese government continues to exclude American products from its markets, it would be excluding Chinese products from American markets.

Disclosure: I own Chinese yuan through CYB