The Case for a Chinese Trade War

Amid tax cuts and deregulation, business is booming—America’s GDP is growing rapidly and its unemployment is at an all-time low. Yet Trump’s long-simmering trade war threatens to erase these gains as tariffs continue to escalate, threatening higher prices and more market uncertainty. Amid these concerns, it’s easy to lose sight of an even more insidious threat—China’s effort to gain control over U.S. companies and citizens.

China’s one weapon in this battle is its control over the world’s third largest market, after the U.S. and the European Union. As American companies have seen slowing growth in existing markets, they’ve hoped to foster growth by embracing previously neglected regions. China, with its rapidly developing economy and billion-strong population, has been the main target. But for Western companies, business in China comes with strings attached; the Chinese government leverages its power to bend companies and even governments to its wishes.

Apple, for example, was only able to sell iPhones by censoring references to Taiwan, which China considers its territory. It was even forced to remove the island nation’s flag emoji from iPhone keyboards. Those concessions enforced China’s control over its citizens, who end up seeing that even foreign products are consistent with their government’s ideological positions.

Companies refusing to comply with Chinese censorship have been forced to cede ground to Chinese rivals. Google left the country in 2010 rather than censor its search engine to comply with the Chinese government. However, that allowed Chinese search engine rival Baidu to gain dominance to the point that most Chinese consumers were unaware of foreign competition. Facebook was similarly banned and lost dominance due to its failure to curb Xinjiang independence advocates’ discussions. On a broader scale, China has censored or blocked the majority of Western services through its “Great Firewall,” allowing it to control information but also encourage the growth of Chinese companies at the expense of American ones.

Despite Google’s and Facebook’s previous refusals to do business in China, both have since been trying to regain influence in the country in an effort to regain access to China’s rapidly growing economy. Google has been working on a censored version of its search engine and has opened a self-driving car subsidiary as well as an artificial intelligence research center in Beijing. Facebook also attempted to open a subsidiary, which Chinese officials briefly approved. But only an hour later, they rescinded that approval, a sign of the tight control the Chinese government is maintaining.

That control is only increasing as China attempts to grow its technology and advanced manufacturing industries. Currently, the bulk of Chinese manufacturing consists of consumer goods, including clothing and consumer electronics. But the design and production of more complex products have remained centered in Western countries. China has aimed to develop its own competition through traditional measures like protective tariffs and heavy subsidies for domestic companies.

However, it has also used its economic control to effectively force Western companies to give up technology and intellectual property at their own expense. In certain sectors, Western companies are forced to form International Joint Ventures (IJVs), in which they pair up with local companies in order to do business. For that arrangement to work effectively, the foreign company will often need to share trade secrets. In a country with weak copyright and patent protection, that leads foreign companies to risk losing control of their most valuable assets. In fact, U.S. Trade Representative Robert Lighthizer estimates that U.S. companies lost about $50 billion to China due to intellectual theft. And while the Chinese government is attempting to address some weaknesses in its enforcement of existing protections, the status quo still favors Chinese corporations.

Increasingly, China is also using its trading clout to increase its geopolitical control. China has used its economic pull to force Pacific Island nations to sever diplomatic ties with Taiwan. The nation of Palau benefited from heavy Chinese investment, but due to its continued backing of Taiwan, China banned all tourism to the island. That meant a loss of half of its tourists, and with them, a major revenue source. Through these hardline tactics, China aims to slowly erase Taiwan’s very existence.

In a similar vein, China banned most tourism to South Korea after it installed a U.S.-developed Terminal High Altitude Area Defense (THAAD) nuclear missile defense system. China considers such systems a threat to its geopolitical goals, as they weaken its nuclear capabilities. However, China’s tourism ban had such a harsh economic effect on South Korea that it was forced to agree that it will not deploy further missile defense systems, will not join a region-wide U.S. missile defense system, and will not form a joint military alliance with the U.S. and Japan. China has already weaponized its trade to the point where it can neuter other countries’ abilities to defend themselves and counter China’s growing military power.

In its race to supplant the U.S. as the world superpower, China has been weaponizing its growing economic power to gain control. While the U.S. has remained committed to offering freedom to foreign corporations and has maintained a level playing field between foreign and domestic companies, China has tilted it to benefit its own domestic companies. Trump’s trade war attempts to turn China’s own weapon around back on China. With a booming American economy less dependent on China than China is on America, the Trump administration has chosen a prime time to try and force China to play fair in the global economy.

However, Trump’s effort is drastically weakened by his antagonism toward U.S. allies worldwide. European and Asian countries are similarly hurt by China’s aggressive trade tactics, but threatened tariffs by Trump make them unlikely to join the U.S. in the trade war against China. And Trump’s indifference to the World Trade Organization, which aims to uphold free trade, delegitimizes his efforts. These weaknesses will potentially allow China to shift its business to our allies, undercutting our economy and allowing China to continue its anti-competitive practices. Instead, the U.S. should strengthen its hand by embracing its allies and working together to reign in China.