On a recent trip to Washington DC, I was honored and had the wonderful opportunity to meet, and make friends with former Commissioner Patrick Mulloy, who served on the US Government’s US/China Economic and Security Commission. (More biographical information regarding Mr. Mulloy appears below, but prior to his service on the Commission, Mulloy was an Assistant Secretary of Commerce for the International Trade Administration in the market access and compliance area. He is presently a professor of International Trade Law at Catholic University and George Mason University in DC). . Pat has an excellent reputation in Washington, and has long been considered one of the leading policy makers concerning international trade, especially as it relates to China. Each year the Commission provides Congress with a comprehensive report on many facets of the US/China relationship. With his permission, I am providing a portion of a previous Annual Report from the Commission which was authored by Mr. Mulloy. I hope my readers find it as interesting as I did:
The Commission in this Report has attempted to elucidate the nature of the industrial policies and mercantilist trade practices that China has followed for 30 years to grow its economy at nearly a 10 percent annual rate. That unprecedented economic growth un- derpins the dramatic increase of China’s military power and global political and financial influence that the Report also discusses.
It is important that our political leaders and citizens understand that these developments, with their enormous geopolitical implica- tions, are not simply the outgrowth of free market forces and free trade. China’s impressive economic growth stems from sophisti- cated economic policies adopted by that nation to restore its great power status. To help understand the context of what is happening, it is useful to review a little Chinese history.
China was for thousands of years the dominant power and civili- zation in Asia. The Chinese considered their Emperor the supreme political authority and themselves the geopolitical center of the world. China’s Qing Dynasty (1644–1911) at its high point around 1760, was cultured and wealthy, held sway over a vast territory, and received tributes from neighboring states.
When the Western powers, whose strength was being fueled by industrialization and scientific advances, arrived in Asia in the 17th and 18th centuries, they sought to trade with the prosperous Chinese Empire. The Chinese viewed the new arrivals as barbar- ians, who offered little that China needed, and opened only the city of Canton as a port and then only on a part-time basis. In time the British found they could trade opium grown in India to the Chinese for the tea and porcelains the British wanted. In time the Chinese imperial authorities, disturbed by the harmful economic and social consequences of opium addiction, tried to shut off the opium im- ports. The British launched the first Opium War (1839–1843) in the name of free trade, and the Chinese were shocked to discover their opponent’s superior military technologies and capabilities. Over the next 30 years, after a series of other conflicts between China and Western powers, the great Chinese Empire was reduced to a semi-colony. Only the so-called ‘‘Open Door’’ policy championed by the U.S. government saved China from total dismemberment and formal colonization. The Chinese Empire and its once proud people were totally humiliated, and by 1911 the last Emperor fell and China experienced a period of civil wars, famine, and foreign invasion. The Chinese struggled to find a way to restore their lost great power status and standard of living.
The Communist Party, led by Mao Tse Tung, eventually tri- umphed over the Nationalists after a long civil war. On October 1, 1949, Mao announced the founding of the People’s Republic of China (PRC) and proclaimed that ‘‘China has stood up.’’ In short order he drove foreign influences, including foreign missionaries, out of China. The trauma suffered by China during its ‘‘century of humiliation’’ still drives China’s policies. China’s President Hu Jintao in an October 1, 2009, speech marking the founding of the PRC stated:
Sixty years ago today, the Chinese people after more than 100 years of bloody struggle, finally scored the great victory of the Chinese revolution. Sixty years ago, Chairman Mao solemnly proclaimed to the world the establishment of the People’s Republic of China, and stated that the Chinese people had stood up. The Chinese nation, with some 5,000 years of civilization and history, thus entered a new his- toric era of development and progress.
From 1949 to his death in 1976, Mao and his government at- tempted, without success, to restore China’s great power status and rebuild its economy through a domestic-based, centrally planned economy. In the struggle for power after Mao’s death, Deng Xiaoping emerged as China’s new ruler. He promptly advocated in 1978 the development of a new economic program which could help build what the Chinese call their ‘‘comprehensive national power.’’ That new economic strategy was built on the concept of enticing foreigners to help China grow its economy by attracting their cap- ital, technology, know-how, and markets. Since 1978 China has grown increasingly sophisticated in its use of investment incentives such as subsidies, an underpriced currency, and import barriers. The goal is to induce foreign companies, including U.S.-based mul- tinationals, to increase their profits by transferring production fa- cilities, advanced technologies, and increasingly even research and development to China, where goods could be made and sold in China and also exported to America and other markets.
Since 1979, when America established official diplomatic rela- tions with the PRC and granted it annual most-favored-nation (MFN) trading status, our country has run approximately $2 tril- lion worth of trade deficits with China. Since 2001 alone, when China joined the WTO and thereby locked permanent MFN (with its low tariffs) into place, outsourcing by U.S. and other foreign companies of production to China has increased dramatically, and our China trade deficits have totaled approximately $1.5 trillion since then. Sixty per cent of China’s exports are produced by for- eign-invested companies.
I would have no objection to China’s growth if it was not being achieved at the expense of our own country’s productive capacities and the future standard of living of our citizens and with the as- sistance of mercantilist trade practices that violate China’s WTO and IMF treaty obligations. The shift of wealth and power from America to China that is described is this Report is not good for our nation.
After experiencing a century of decline, China developed a strat- egy to grow its comprehensive national power. Now our nation needs to develop a coordinated, comprehensive national policy and strategy to maintain our own manufacturing and technological base. That strategy should include modernizing our infrastructure, improving our educational system, reforming our health care sys- tem, and investing to develop new technologies. Even doing that will not be enough. We must also develop trade policies that will balance our trade account and tax policies that will incentivize American-based producers to keep good-paying jobs in this country.