Wednesday, October 17, 2012


Americans just got an invaluable lesson in the wrong and right ways to meet the often-intertwined economic and military challenges posed by China. Learning it will greatly boost the odds of regaining real national economic health and safeguarding security.

The wrong way of handling China tragically has been the reigning approach under the past four presidents. Its latest expression — the Obama administration’s decision that tariffs previously approved to reduce imports of massively subsidized solar panels from China will not cover such products if they contain key non-Chinese components.

This approach has produced far more than yet another instance of U.S. policymakers tying themselves up in tight, transparently ludicrous legalistic knots; of the law itself proving to be an idiot; or of Washington practically inviting Chinese tariff circumvention that could well finish off America’s remaining solar-panel firms.

It has created a government hard-pressed even to identify the vital interests of its wealth-creating domestic industries — and the national prosperity they support — much less defend them. For America’s economic policies too often require U.S. officials literally to ignore the long-term industrial, technological and security considerations that typically motivate Chinese (and other) economic predation to begin with.

As a result, Washington keeps fighting determined foreign drives for economic pre-eminence reactively and piecemeal. It keeps relying overwhelmingly on its system of trade law — and thus ultimately on tools originally developed to handle medieval crimes and property disputes, not global power struggles. And it will likely stay this course until it stops mindlessly defining China as an ordinary, indeed practically commercial, competitor country, committed to capitalism, the rule of law and transparency (at least to a growing extent), and thus representing merely an episodic violator of free-market norms.

The right way of dealing with multidimensional, systemic China challenges — based on a view of Beijing as realistic as it is overdue — was revealed Oct. 6 by the House Permanent Select Committee on Intelligence. In a report endorsed by its Democratic and Republican members, the panel rocked U.S.-China relations by describing Chinese telecommunications giants Huawei and ZTE as serious enough threats to national security to justify excluding them from all U.S. government tech systems, blocking any acquisitions of their proposed corporate acquisitions, and even urging private U.S. telecoms to use other vendors.

The usual American and Chinese critics predictably slammed the report’s failure to cite specific acts of high-tech spying or sabotage. But the committee’s case was anything but predictable, and decisively trumped the shortage of evidence and clearly identifiable threats.

As the panel made clear, the China imagined by most American policies is pathetically mythical. In fact, precisely because the Chinese system itself is so secretive and effectively shielded from outside monitoring; because unlike many other foreign companies, Chinese firms have no significant record of working in good faith with the U.S. security agencies; because Beijing has frequently undermined American interests overseas; and because U.S. national security is involved to begin with, the usual practices and standards of evidence simply can’t apply.

Indeed, because China is so thoroughly different and troublesome, handling it conventionally could amount to waiting for potential intelligence or security debacles to become actual. So the only responsible approach is precautionary placing a heavy burden on China’s state capitalist system to prove its innocence.

Some American security-related economic policies already do recognize China’s distinctiveness — e.g., U.S. controls on defense-related exports. But others still ignore it — e.g., military-contracting lapses that have permitted counterfeit Chinese-made electronics parts to permeate U.S. military systems. The House intelligence panel’s report underscores the urgency of closing this security-policy gap. But it also demonstrates the need to inject a new realism toward China and other cutthroat competitors into economic policy — where naivete can bring disaster, too.

Alan Tonelson is a research fellow at the U.S. Business and Industry Council, a national business organization whose nearly 2,000 members are mainly small- and medium-sized domestic manufacturers. Author of “The Race to the Bottom,” Mr. Tonelson also is a contributor to the council’s website, www.AmericanEconomicAlert.org, and Tweets at @AlanTonelson.

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