Editor's Note: The views expressed in this column are solely those of the author.
The original rationale for allowing China into the World Trade Organization (WTO) was to move the country towards a more democratic nation with an open market. Policymakers assumed that working interdependently with China would bring greater stability because both countries would be more dependent on each other's fortunes. China would become a more cooperative, honest trading partner and a reasonable competitor.
But it simply did not happen. Instead of becoming more democratic, China has become more authoritarian as it has become richer—and a threat to U.S. national security. They have chosen to compete using predatory mercantilism instead of competing like the U.S. and other industrial nations.
Made in China 2025 is the Chinese government's ten-year plan to rapidly develop high-tech industries to update the country's manufacturing base. Chief among these are electric vehicles, information technology, advanced robotics, telecommunications, artificial intelligence, aerospace engineering, new synthetic materials, and bio-medicine. They also want to dominate the battery, solar cell, semiconductor, and wind turbine markets. The goal is to become the world leader in advanced technology manufacturing by acquiring new technologies any way they can, giving them total industry dominance.
Examples of Predatory Chinese Mercantilism:
- Technology Transfer: China demands that U.S. multinational companies sign joint venture agreements with local companies to build plants there and share their latest technologies. The practice has given China easy access to many of our technologies without having to do the research and development.
- State-Owned Enterprises (SOEs): These are the driving forces behind the Chinese economy and key actors in the international market. Chinese SOEs are supported by various subsidies and industrial policies, including orders from government fleets, tax breaks, cheap land, low-interest loans from state-owned banks, subsidized raw materials and parts, and a domestic market restricting foreign competition in strategic sectors. China's SOEs compete in the global market and now vie with U.S. and European firms for leadership in cutting-edge technologies. Ministry of Industry and Information Technology Head Xiao Yaqing has said, "To give full play of the party's leadership and its core political role, SOEs should stick to the political principle that all SOEs must be under the (communist) party's leadership."
- Subsidies: According to the Center for Strategic and International Studies report, the Chinese EV industry, including its supply base, received more than $140 billion in direct subsidies between 2009 and 2021—this doesn't include tax deductions, public procurement, land provision, cheap energy, and low-interest loans. China subsidizes many industries, including those listed in the Made in China 2025 plan. For example, in the wind industry, the Chinese government offers 40 different subsidy programs to wind turbine manufacturers. China's wind turbine company Goldwind is now the number three turbine manufacturer in the world and wants to overtake GE and Vestas to be number one. In 2019, Xiaoqing Zheng, a GE engineer in New York, and Zhaoxi Zhang in China were indicted on charges of economic espionage and conspiracy to steal GE's trade secrets in turbine technologies. Regardless of the indictment, they probably already had the secrets in China.
- Dumping & Overcapacity: Dumping occurs when a country or company exports a product at a price lower in the foreign importing market than the price in the exporter's domestic market. Overcapacity happens when China overproduces a product like steel or solar panels and then dumps it into foreign markets at or below cost to gain market share. In May 2024, Chinese President Xi Jinping said there is no so-called problem of Chinese overcapacity. Despite his statement, there is overwhelming evidence of overcapacity in steel, autos, and solar panels.
- Transshipping: To get around the Section 301 tariffs, China contracts companies in other countries to manufacture and ship its products. One example is solar panels made in Vietnam, Malaysia, Thailand, and Cambodia, which are currently under investigation by the Biden Administration. Another example is steel. The Section 232 steel tariffs at 25% have not stopped Chinese steel from entering the U.S. The UAE, Thailand, Vietnam, and Oman buy Chinese steel and process it into products like standard pipe, which is exported to the U.S. In July 2024, the Biden Administration imposed tariffs on Chinese steel and aluminum shipped from Mexico.
- The Uyghur Forced Labor Prevention Act (UFLPA): The UFLPA prohibits the importation of goods into the U.S. manufactured wholly or in part with forced labor in the People's Republic of China. However, companies like Contemporary Amperex Technology Limited (CATL), the largest producer of batteries for EVs, and Gotion High Tech, another battery maker, source materials from companies banned by the Department of Homeland Security. The Whitehouse Select Committee claims that CATL sources lithium-ion anode materials from XPCC, a Chinese Communist Party organization on the UFLPA entity list and its products are banned from the U.S. market. However, CATL and Gotion partner with Ford and Tesla in battery production and are not yet on the entity list.
- American Investor Exposure: In their ongoing efforts to find the best returns for their clients, Wall Street firms like BlackRock and Vanguard funnel billions of U.S. investor capital to a wide range of publicly traded Chinese companies that are involved in developing weapons systems and new technologies, and building infrastructure in support of China's military modernization goals. Millions of average Americans are unwittingly investing, via their pension funds, mutual funds, ETF holdings and other retirement products, in Chinese companies involved in severe technology theft or implicated in the genocide of the Uyghur people.
- Espionage: China's government conducts and sponsors a massive cyber espionage operation to steal trade secrets and intelligence from U.S. corporations and the government. FBI Director Christopher Wray said, "There is no country that presents a broader, more severe threat to our innovation, our ideas and our economic security than China does." On average, the FBI opens a new China-related counter-intelligence investigation every 12 hours—with more than 2,000 such cases underway. Wray said China wants to "seize economic development in the areas most critical to tomorrow's economy, even if doing so requires theft."
Will negotiation work?
Negotiating with the Chinese communist government has proven futile. There is little chance we can convince China to stop predatory mercantilism, which seems to be endemic to Chinese culture and the Communist Party. In testifying recently to the Senate finance committee, U.S. Trade Representative Robert Lighthizer said," I don't know if tariffs alone will get them to stop cheating. I know one thing that won't work is talking to them."
Change is coming
The House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party (CCP) has released a report, "Reset, Prevent, Build: A Strategy to Win America's Economic Competition with the Chinese Communist Party." The report was adopted on an overwhelmingly bipartisan basis and makes nearly 150 policy recommendations to fundamentally reset the United States' economic and technological competition with the People's Republic of China (PRC). The report also says that allowing China into the WTO and granting it permanent normal trade relations status (PNTR) was a serious mistake that "did not lead to the benefits expected for the United States."
Revoking China's status
After 23 years of cheating, it's obvious that China cannot or will not stop its predatory mercantilism. The U.S. cannot compete with China under these circumstances, and they will eventually acquire all of the advanced technologies they need to dominate American industries unless we can stop them.
We know the one thing they understand are monetary penalties like tariffs. The Select Committee recommends revoking China's Most Favored Nation (MFN) status and moving "the PRC to a new tariff column that restores U.S. economic leverage to ensure that the PRC abides by its trade commitments and does not engage in coercive or other unfair trade practices and decreases U.S. reliance on PRC imports in sectors important for national and economic security."
Removing MFN status would increase China's tariff rates from the Column 1 rate, which is near zero, to the Column 2 rate, equivalent to an average tariff rate of 39%.
Michael Collins is the author of a new book, "Dismantling the American Dream: How Multinational Corporations Undermine American Prosperity." He can be reached at mpcmgt.net.
