The Foreign Service Journal, July-August 2019

32 JULY-AUGUST 2019 | THE FOREIGN SERVICE JOURNAL T he rapid rise of China to the status of economic powerhouse has roiled marketplaces all over the world and caused serious disruptions in the global trading system. Part of this was inevitable—in economics, as in many things, size matters, and China is the proverbial 800-pound gorilla. Once it emerged from its largely self- imposed economic cocoon, it was bound to leave a very large footprint. But that footprint has proved heavier than expected, in large part because of the policies China has chosen to pursue. Having watched the rapid development of Japan, the original “capitalist developmental state” (a term coined by Chalmers Johnson), and then the Asian Tigers—South Korea, Hong Kong, Singapore and Taiwan—China has developed its own blend of state control and market policies, with the emphasis on the former. It did not start out that way, however. When China sought to join the World Trade Organization, its premier at the time, Zhu Rongzhi, made clear that his government saw WTO acces- sion and the obligations it required as a means of bringing China into the Western trading system and forcing internal U.S.-CHINA TRADE IFWE GET TO YES, William A. Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies and is a senior adviser at Kelley, Drye & Warren LLP. Previously, he served for 15 years as president of the National Foreign Trade Council, where he led efforts in favor of open markets, in support of the Export-Import Bank and Overseas Private Investment Corporation, against unilateral sanctions, and in support of sound international tax policy, among many issues. From 2001 to 2016, he concur- rently served as a member of the U.S.-China Economic and Security Review Commission. He is also an adjunct assistant professor at the University of Maryland School of Public Policy. Reinsch also served as the under secretary of Commerce for export administration during the Clinton administration. Prior to that, he spent 20 years on Capitol Hill. A trade agreement with China will be good news in the short term, but the path to lasting improvement in the relationship, as well as political success for President Trump, is a narrow one. BY WI L L I AM A . RE I NSCH reforms. That was then. Now, the current Chinese leader, Xi Jinping, strongly favors state-owned enterprises over private companies and uses a mix of tactics that are creating consterna- tion in developed economies, beginning with the United States. These changes, and the negative consequences they have for China’s own economy, are well documented in the latest book by Nick Lardy of the Peterson Institute, The State Strikes Back (2019). The past several U.S. administrations have all complained about Chinese theft of American intellectual property, unfair and discriminatory treatment of U.S. companies operating in China, forced technology transfer, channeling of resources to state-owned enterprises and massive subsidies. But they soft- pedaled such criticism to obtain cooperation on other foreign policy goals, such as Iran, North Korea and climate change. In contrast, the Trump administration decided to tackle these practices head on. In the summer of 2017, U.S. Trade Representative Robert Lighthizer began an investigation of Chinese policies and prac- tices under Section 301 of the Trade Act of 1974. That section authorizes retaliation against “acts, policies or practices that are unreasonable or discriminatory and that restrict or burden U.S. commerce ” (emphasis added). FOCUS MANAGING COMPETITION WITH CHINA