New York Times Flaunts Ignorance of China R&D Rules

In a story in the March 17 New York Times celebrating U.S. R&D moving to China (China Drawing High-Tech Research from U.S.), Keith Bradsher completely failed to mention the Chinese government’s new November and December rules requiring that American firms move their R&D and patents to China as a condition for doing business with the Chinese government.

Although the New York Times may have missed the story of these rules, the Wall Street Journal did not. On February 16 it reported that the Obama administration was responding with talk:

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.

Although Keith Bradsher was reporting from China, his sources may not include the U.S. Chamber of Commerce, the Business Roundtable, the Business Software Alliance, or any of the other 19 American trade groups, representing America's largest corporations in China, who wrote a January 26 2010 letter which explained the new rules and their threat to the American economy. Here is a key paragraph:

Of most immediate concern are new rules issued by the Chinese government in November to establish a national catealogue 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.

The letter also points out that in a government-dominated economy, such as China’s, the rules will affect procurement throughout the economy:

The November directive was followed in late December by the announcement that the government would develop a broader catalogue of indigenous innovation products and sectors to be afforded preferences beyond government procurement (i.e., including subsidies and other preferential treatment). The December announcement, which was issued by four Chinese agencies including the State Owned Assets Supervision and Administration Commission (SASAC), also raises the specter of China subtly encouraging its many state-owned enterprises to discriminate against foreign companies in the context of procurement, including for commercial purposes.

With the New York Times ignoring this story, columnist Paul Krugman may not have known about it when he put together his plan of a 25% tariff to encourage a Chinese currency revaluation. Krugman's goal was too limited. Chinese trade manipulations go way beyond just currency manipulations They are practicing the mercantilist policy of maximizing exports while minimizing imports in order to steal their trading partners' industries.

While their currency manipulations are hidden, the trade deficits are easily measured. The tariff rate should be announced as being proportional to U.S.-China trade deficits, not in proportion to the U.S. Treasury's determination of currency manipulations. Such tariffs are specifically permitted by a special WTO rule which lets trade deficit countries apply import duties in order to balance trade.

With this mechanism in place, if our trade deficit with China comes down, the tariff rate would come down; if our trade deficit with China goes up, the tariff rate would go up. If our trade with China reaches relative balance, the tariff would disappear.

It’s time that the New York Times stop hiding the truth from American policy makers. There is no reason why we should continue to let China steal our industries!

Disclosure: I own Chinese yuan through CYB