U.S. Should Not Confront China On Trade Issues

In recent weeks, the U.S. government has been expressing strong displeasure with two critical issues in contemporary U.S.-China Relations: The currency valuation of China’s Renminbi (RMB) and China’s alleged use of cyber espionage to gain illegal access to intellectual property from the U.S. 

Recently, the Senate passed a bill that would impose tariffs on certain Chinese goods that the Treasury Department deems to have been given an unfair advantage through currency manipulation. At the same time, in the House, Rep. Mike Rogers of Michigan, the top GOP member of the Intelligence Committee called for recognition of “the 800-pound gorilla in the room … that is Chinese industrial espionage” via methods that most experts would term as cyber espionage.

In retrospect, these actions have been a long time coming, as U.S. officials and the public have long suspected China of pursuing a policy of currency manipulation that gives its economy an unfair advantage in the global marketplace as well as utilizing cyber espionage to gain access to high technology from the U.S. When the facts of these matters are analyzed, it becomes clear that these developments are part of major sources of tension in U.S.-China relations. The accusations represent a potent menagerie of challenges to a relatively peaceful relationship between the two states that has been denoted by the civil, though sometimes conflicting, communication between the respective governments and the rest of the world, and unnecessarily so; investigation of both matters would likely lead one to believe that the ramifications may not favor what the U.S. proponents want to happen.

During a hearing for the House Committee on Intelligence and a subsequent interview on CNN with John King, Rogers openly accused the Chinese of stealing U.S. trade secrets through the internet at an “intolerable level.” If anyone has been doing research on China’s cyber espionage activities over the last few years, they wouldn’t be surprised at the accusation lodged by Rogers, though they would be notably staggered at the candor of the congressman. Rogers wanted to speak frankly since he felt that U.S. intelligence services keep “details of cyber espionage secret, instead of using the information to help corporate targets defend themselves” and because he doesn’t “believe that there is precedent in history for such a massive and sustained intelligence effort by a government to blatantly steal commercial data and intellectual property.”

On October 11, the Senate passed the “Currency Oversight Reform Act.” This bill would enable the U.S. to impose tariffs on any of its trading partners that the Treasury Department deemed to have a “misaligned currency” – which gives that state an unfair economic advantage and refuses to “adopt appropriate policies” to correct this institutional defect. Interestingly, the law does not target China specifically or individually, as it was a broad piece of legislation, though dealing with Chinese currency manipulation has been widely reported as being the aim of the bill. The consensus among its sponsors is that the bill will prod China into following international practice on currency management.

The current facts on these two issues warrant a serious reconsideration of the weight and potential benefit of pursuing a hard line with China. First, cyber espionage is difficult to prove in a legal setting due to the complexity of the web and the anonymity that it grants to state actors that will likely remain undefined until international legal scholars clarify norms and standards. The only thing that the U.S. probably could do is to work to better secure its networks against future cyber exploits conducted by China. Second, China’s trade surplus is shrinking – a fact that deflates the pressure to pass measures not “specifically” targeting it – and this measure’s value lies in electoral politics. China can retaliate and the U.S. cannot afford to fight an economic conflict it doesn’t have the resources to fight. Third, what can the U.S. pull off in either case? U.S.-China relations are not like that of U.S.-Japan relations. America no longer has the power to push through another Plaza Accord, based on a survey of the recommendations of U.S.-China Economic and Security Review Commission’s 2010 Annual Report to Congress. The effects of "calling out" China on our trade disagreements are unlikely to match their proponent's expectations.

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