In order to build factories in China, GM had to accept a Chinese partner, a Chinese automaker named SAIC. But don't worry, the two share and share alike. A Bloomberg article notes:
GM and SAIC will share any technologies they jointly develop, including work on alternative-energy vehicles, he added.Then SAIC uses that technology to kick GM in the teeth. The article notes:
SAIC and other Chinese carmakers that work with overseas companies are introducing their own models to boost margins in a country set to become the world’s biggest auto market this year. Foreign automakers typically have no remedy because Chinese law forces them to work with a local partner.So why doesn't GM build their cars in the United States and send them to China? The reason is simple. If they produce in China, they have complete access to both China's and America's markets, but if they produce in America they only have access to America's markets.
“There’s nothing they can do,” said Scott Laprise, a Beijing-based CLSA analyst. “Your goal as a foreign automaker is just to stay ahead, come up with new technology, spend more money, and be one step ahead of your Chinese partner.”
China has 25% tariffs on US vehicles as well as currency manipulations that make US products 40% more expensive, not to mention a 15% VAT duty on all imports. And to top it all off, the Chinese government picks and chooses which products qualify for consumer subsidies. Foreign-made products need not apply.
There is a simple way to get China to change, recommended by my father, son and I in our 2008 book Trading Away Our Future. It will work so long as the United States is a significant market for Chinese goods.
All we would need to do is let the Chinese government know that the United States will balance trade through auctioned import certificates if they don't gradually balance trade on their own. Currently the Chinese government only lets their people import 25¢ for every $1 we import from them. The Chinese government could easily end export subsidies, let the yuan rise, and take down their tariff and non-tariff barriers to American products.
Such action by the United States would even be sanctioned by WTO rules which state:
(NYSE:A)ny contracting party, in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported.The resulting policy would jumpstart our short-term and long-term economic growth through increased exports and increased investment in American manufacturing.
But if we fail to act, the totalitarian government of China will soon come to dominate the world both economically and politically and, what is worse, we will have proven to the rest of the world that democratic governments can't solve their problems.
Disclosure: No Positions.