KRUGMAN - Levin Bill - CHINA


Mr. Krugman's arguments are standard Keynesian and consistent with the mainstream US economic doctrines since the 60's, when the US became a deficit nation. But if we go a little further back to the mid 40's, when the US was THE surplus nation of the world, what was the US' position on this issue? During the Bretton Woods negotiation, the chief representative of the UK (the major deficit nation of the day) was none other than Mr. Keynes himself. His main proposals are 1) to set up a new global currency supervised by an independent world central bank and 2) to have a pre-set mechanism for currencies of surplus nations appreciate and those of deficit nations depreciate. The US' response was NO and NO! This happened at the height of WWII, so guess which side prevailed. Dollar became the global reserve currency, and all others were pegged to it for the next three decades, until Nixon unilaterally trashed Bretton Woods. More precisely, he trashed the second part, which prevented the US from printing unlimited amount of money as its deficits got worse. The dollar remains the global reserve currency, however.

Now, however evil the Chinese de facto peg to the dollar is nowadays, it is only so to half the degree as the US was under FDR (coincidentally one of Mr. Krugman's heroes) because China is at least not forcing the rest of the world to accept Yuan as the reserve currency.

Now, dollar remains the global reserve currency and the Fed gets to print and has indeed been printing unlimited amount of it. Chinese labor and products get traded for this worthless piece of IOU and, guess what, there is no real global currency for the Chinese to convert it to, thanks to the foresight of FDR. Two plus trillions of them have to be put back into treasuries and wait for the eventual depreciation. Believe it or not, the evil Chinese, instead of accepting this depreciation, actually have the temerity to emulate the US and print a large amount of their own money in a futile attempt to delay the day of reckoning. This is the true crime of China. All the talks about jobs are just smoke and mirrors because however much the Yuan appreciate, the overall US trade deficits will not drop. They will simply shift to cheaper countries like India, Pakistan, Indonesia, Vietnam, you name it.

Although there is a real offense made by China, the urgency to dwell on the issue now comes from other considerations, notably the easy scapegoating by Obama administration about the deficits before the election and the geopolitical benefit of weakening China while strengthening its neighbors. The Chinese leadership knows this, so I doubt that they will welcome the American liberators with flowers as Mr. Krugman claims. If the US persists in this attempt, a trade war is not far off.


Lesson learned here. Americans earn 4 times the wages than Chinese workers and Americans are unemployed because of it. No magic tricks, jawboning or diplomacy will change that, and China will continue to bank money every year, America will continue to lose jobs and run deficits.

I am a 6th generation American working for a Chinese company, calling on USA businesses nationwide. American companies cannot compete with pricing on my products, my customers want the cheapest prices, no matter my products are Chinese made. My company also receives alot of investment and grants from the Chinese government for marketing and R&D. In effect, I work for the Chinese government.

The real problem,(wage disparity),will continue to haunt this country for many years, until the imbalance corrects. So, America needs to quit China bashing and whining, and be real Americans and work hard. Do like the Chinese now do. Lace up your shoes, keep your head down and go to work everyday developing new ideas and products. Crying that our problems are created by others, will doom us for sure.

Tom Renda

Samuleson made a similar argument on Monday in the Washington Post. There, he noted that China's share of worldwide exports has risen from 6% in 2006 to 10% in 2010.

Well, inasmuch as China has a third of the world's population, what principled reason is there why its share of exports (and hence share of jobs) should not rise to 33%?

If our answer to that question is nothing more than "because it hurts us" then I would not expect much sympathy from the Chinese anytime soon.

Northern California

Rather than a trade war we should be thinking about a glacier. Slowly, surely, over a period of 3 to 5 years, we should erode China's trade surplus with ever increasing tariffs. The tariffs should not favor specific industries, but should be be broad based and applied to everything made in China.

We should ignore Chinese retaliation against US exports. We can always balance our trade at zero, and we should make that quite clear to the Chinese.

Katy H

I once visited Cheyenne and being in a touristy mood, loaded up on western wear at a local outfitter. imagine my surprise when I got it all home and all of it, every ranch shirt, every longhorn belt buckle I proposed to gift as an "American" present, turned out to be made in China.

Currency is one thing but if China gets more expensive, Lee, Wrangler and Levi will simply go to Vietnam, Bangladesh, the Philippines or Morocco.

They won't come back sadly. Is this inevitable though? Spanish company ragtrade co Inditex (Zara) seems to do well on world domination by manufacturing in Spain.

Your problem lies with the mindset of the CEOs of US companies, the domination that their cheap labour is payed in, isn't important. Any respite would be temporary at best.

Anyway. If you want to play chicken, devalue the $ (even more) and China will overheat or be forced to adjust the peg.

John MacCormak
Athens, Georgia

Krugman writes: "...taking on China is one of the few policy options for tackling unemployment available to the Obama administration, given Republican obstructionism on everything else."

Or so it would appear. Washington and Krugman do indeed seem to feel that they are out of chips. Odd that they should see things that way, of course, given that there is plenty of work to do to solve the real problem, the lack of competitiveness of the US economy, itself a consequence of the US turning itself into a financial theme park over the past thirty years, featuring real estate bubbles, stock bubbles, bond bubbles, insurance bubbles, deficit bubbles, credit card bubbles. Why, there's enough variety in this Bubble Trouble theme park to make Walt Disney envious.

What has been exasperating me over the past two years has been the way that politicians and pundits have been making excuses for America's problems. Do they really think people are stupid enough to believe that printing money, borrowing, and fiddling with currencies and interest rates are going to solve our serious economic problems? They won't. In fact, the "show-me-the-money" obsession is a distraction that is making things worse. It also reveals that, far from having learned from the mistake of redefining productive economic activity as a series of fiscal and monetary moves and regulations, officials are intent on continuing down the same path banal path, and pundits like Krugman are in the bleachers cheering - no, egging - them on.

The myriad market irregularities we see today are a consequence, not a cause of the global crisis. And culprit number one for the break down of the markets is the US, which has been promoting inflationary devaluation of its currency since the end of the post-war boom in the 1970s. Industrial activity as a contribution to US GDP has gone from being around 30% to around 15% over the past three decades; during the same period, financial activities have swollen from around 15% to 30%.

Krugman is also disingenuous (and perhaps less polite words could be used to describe his attitude) in brushing off inflation. He himself in a recent column noted with absolute glee that the US was able to erase most of its WWII through inflation. And you don't need a PhD in economics to see that currency debasement is the only way that governments have out their current debt bubble trouble.

Moreover, he ignores the relevant, current, real-world experience of Greece. Months ago Krugman wrote that Greece will inevitably sink into a deflationary hole because it can't (unlike the US - did I hear the phrase "currency manipulation"?) print or devalue its own currency. In the real world, however, Greece is sliding slowly into a deep recession featuring high unemployment, severe slowdowns in commerce and production, and, yes, high inflation. It's hard to see why Krugman thinks there is no inflationary risk. It's so hard to see, in fact, that he probably does see it. He wants inflation as a way of writing off bad debt.

What Krugman doesn't like to say is that currency debasement and other inflationary policies are a destruction of the wealth of creditors, and people on fixed incomes, and a giveaway to debt-holders. But then, he wouldn't want to mention that, would he? But that's capitalism: when you've got a bubble, it means that there is more "wealth" on people's books - in the form of bank deposits, houses, gold, you name it - than society consumes. One way or another, the books will be balanced. The only question is, will money lose its value or assets?

On another level, I also find distasteful, racist, and dangerous Krugman's continued attempts to talk up some Chinese peril. Krugman reproduces in a sanitized form the old American racist stereotypes of the Chinese as inscrutable, devious, cold, and calculating fiends who are selfishly destroying the US economy. The US, on the other hand, is seen as the good guys who just want to pitch in and help "the global economy" recover. The truth is that the US wrote the book on currency manipulation.

Krugman should stop blaming the Chinese and take a look at the man in the mirror.

New York

It's interesting that this column appears only two days after a very insightful op-ed by Stephen Roach, yet Paul Krugman doesn't even so much as acknowledge the existence of Roach's column, or of the one by two former trade negotiators that appeared several weeks ago.

Both op-eds rather deftly refuted Krugman's constant refrain that a) China manipulates its currency to subsidize its exports; b) This is the direct cause of the loss of America's manufacturing capacity; c) We must level sanctions against China and force it to revalue its currency; d) We must also sink the dollar; and e) Once this happens, it will bring about a renaissance of American manufacturing and an avalanche of new jobs.

We already tried this tactic with Japan and Germany back in 1985 with the Plaza Accord, and what did it get us? To this day, we still run trade deficits with both countries, even though their currencies are now stronger than the dollar! The Washington Post even reported that German companies have been making all kinds of money selling their products to the Chinese, even though at the time, the euro was trading at $1.30 to the dollar!

The Chinese didn't come over here and steal our manufacturing sector; rather, they simply took advantage of our own stupid and shortsighted economic policies, policies whereby the government essentially bent over backwards to encourage companies to increase their profits by shipping manufacturing and, increasingly, R&D to countries with cheaper labor.

A number of economists have countered the dangerous ideas being put forth by people like Krugman and various members of Congress, showing that even a dramatic revaluation of the renminbi would in fact result in little job creation here in the United States. The manufacturers that have moved their factories there would simply move them to cheaper countries like Bangladesh, India and Vietnam.

Another thing is that if we couldn't get goods from China, then where would we get them? We don't have the manufacturing capacity here to make things like flat-screen TVs, iPhones and other products. If they become too expensive, then the companies that make them (including many American companies) and the retailers that sell them will lose money and, in many cases, go out of business or get gobbled up by foreign competitors. How would Krugman like to see Apple acquired by China's Lenovo, hmm? That's why two retailing lobbies -- the Retail Industry Leaders Association and the National Retail Federation -- have both come out against this bill.

If we want to revive manufacturing in this country, then rather than blaming the Chinese for our problems, we should take a cue from the Germans and get into manufacturing value-added goods, high-value goods that sell regardless of currency exchange rates on the basis of their QUALITY, not just their PRICE.

A big reason why have such a huge trade deficit with China is because our products suck, not because they're too expensive.


With appropriate apologies to my American friends who might think I'm hogging this board, I would like to make one final observation.

Does anyone remember Richard Nixon or John Connally? Do Americans recall when Nixon's administration unilaterally took the US off the gold standard?

The end arrived in 1971 when the French Government, fearful of the considerably weakened position of the US dollar and concerned for its currency reserves, demanded to have all its dollars converted into gold - as guaranteed by the system.

Instead, the US defaulted on the Bretton Woods Agreement, and on the fixed currency regime itself, and unilaterally terminated convertibility of dollars to gold. Of course, the entire international currency system collapsed. This US default not only left the rest of the world very angry, but holding huge amounts of US currency that now had no fixed value.

The world's economies now had no choice but to continue to use their dollars as the reserve currency. Everyone who wanted to trade, had to buy US dollars. The result was that the US was able to sell as many bonds and print as many dollars as it wanted - in fact, to be able to inflate itself out of debt and pass the inflationary pain to the rest of the world.

The European countries complained bitterly to the US about their losses and the resulting currency fluctuations they had to deal with. Does anyone recall then Treasury Secretary Connally’s famous statement? “It’s our currency, but it’s YOUR problem.”

That 1971 decision left the US free to inflate their money supply and fuel more credit bubbles, but it plunged the world into a decade of ruinous inflation, reaching 20% or more in many countries and interest rates reaching 25% even in stable countries like Canada. The inflation led to, and was ended only by, the severe worldwide contraction of the early 1980s - when oil fell from US$40 to US$10 a barrel.

The severe recession in the 1980s was a direct result of the US default ten years earlier, and was a necessary consequence for a worldwide realignment of currencies and economies. That recession was very severe in many countries, devastating entire sectors of economies - energy, for one - and created enormous hardships and economic losses.

In Western Canada, the center of that country's petroleum industry, the contraction hit so hard and so quickly that house prices dropped by 50% in only 3 months, and those prices did not recover their 1984 levels until the year 2000.

All of that worldwide inflation, all the worldwide recessionary pain, were from the same root cause - the US overextending itself, excessive liquidity fueled by easy credit, and then passing the pain to the rest of the world. The US has repeatedly and severely damaged the world's economies by its financial irresponsibility. It is usually the same - overextension of credit, living beyond their means, creating and bursting financial bubbles, that has done it.

It’s exactly the same picture today. Don’t blame China or anyone else.

If I may, (and with the kind permission of the editors) here are a few links to articles that may clear up some misconceptions.


The Structure of the US Economy Today:

On the supply side, 70% of the US economy today is services - banks, insurance and investment, legal, accounting, consulting, and more usual items like tourism and pizza.

A huge part of the US service sector is financial services - in other words, perhaps half of the US economy consists not of production but simply of bookkeeping entries. That's a poor recipe for a healthy economy.

Only about 10% of the US economy is manufacturing, and most of that is arms and weapons, aircraft, autos and machinery, petroleum and food products. There are almost no consumer goods made in the US. Simply put, the US doesn't make anything anymore.

And on the demand side, 70% of the US economy depends on consumer demand - on people shopping and spending money. Only about 20% is from corporate investment.

Some of this consumer demand will be spent on services, but much (or most) will go to consumer goods. So when Americans go to the mall to shop, what will they buy? Stinger missiles? A new Boeing 737? In fact, virtually all the goods in US shops are imported.

China is irrelevant in this picture. If it isn’t China, it will be someone else. If a country no longer manufactures anything, consumption goods must be imported, and that will always result in a huge trade deficit. It cannot be any other way.

The last time the US had a small trade surplus was in 1975, just after it reneged on the Bretton Woods Agreement, destroying the international financial agreements that had persisted since the Second World War.

By that time, the expansion of credit had begun to fuel the new consumer-led economy and the trade deficits began to emerge - and have continued ever since. And these trade deficits are not only with China. During the past 35 years, the US has consistently had trade deficits with more than 60 countries.

Worse, the US economy is fueled to an exaggerated extent by credit. Americans save no money but spend today's money and next year's. Consumer demand is therefore exaggerated and artificial, and the US (both government and consumers) is living beyond its means. It is borrowing from the future to spend today.

In simple terms, the US consistently buys more than it sells. It means that the world, including China, produces many things that the US wants to buy, but the US is consistently producing fewer goods that the rest of the world wants to buy.

This is the source of the trade deficits. It has nothing to do with the value of the Chinese RMB. In the almost 35 intervening years every country's currency has been up and down, often many times, but the US trade deficits (with all countries) have persisted through all of that.

The US cannot increase its exports unless it sells more arms and weapons, or commercial aircraft. It can try to increase exports of services, but that isn't so easy as the Americans thought. You can export some professional services like consulting and insurance, and tourism is a useful export. But you cannot export restaurants and dry cleaning. The scope for US exports is quite limited.

The US Credit Binge

The US economy is fuelled to an excessive extent by credit, especially consumer credit, and the US savings rate has been at zero or negative for quite some time. Americans are spending not only today's money, but also tomorrow's and next year's. Borrowing money for investment can be wise; borrowing for consumption will lead to disaster.

During the recent subprime financial disaster, Americans were using their homes like ATMs. As their houses increased in value, Americans increased the mortgages on those homes - and spent the money. As the values rose again, the process was repeated. Housing prices collapsed, the housing bubble burst, and more than 25% of all Americans owe the bank more money than the value of the house; many owe twice the value of their homes.

One of the fundamental problems with the US economy is that both the government and its population are living beyond their means, borrowing money for consumption, spending tomorrow's money today with little apparent thought of how to repay. With so much of the US economy fueled by credit, the US is not only living beyond its means, but its 'standard of living' is artificially high; my personal guess is 30% too high. This cannot likely be sustained; a major correction is inevitable.

The US wants other countries to adopt their model - stop saving, push consumer spending, overflow with liquidity, use consumer credit to a much greater degree. If this were to happen, the trade deficits might decrease, but Canadians, Japanese and Chinese will not do that.

Since the US is the only country that follows this model, the best solution is that they increase savings, reduce liquidity and consumer credit to dampen demand, and live within their means. But that's not likely to happen because it will mean an economic contraction and significantly reduced living standard.

Fred Li

During the past couple of years, the writings of Professor Krugman often puzzled me. Is this the same Krugman who taught me so much with his earlier books, like, “Peddling Prosperity”? Holding large amount of foreign reserve is a sign of an economy’s inability to utilize her assets, isn’t it? Buying a lot of US treasury bonds is a way of giving a loan to the seller, isn’t it? The borrower can use the loan in different ways, like building green technology, improving the crumbling infrastructure, but should not be used in blowing up a real estate bubble. Right? The loan provider, in this case, cannot dictate to the borrower for what the loan is to be used. Right?

Krugman’s accusation that China restricted foreign investment is ludicrous. China is the destination one of the largest FDI in the world! Is China hurting US employment? One period that had unemployment figures, comparable to today, was during the early 1980’s, before China began to export at all. In subsequent years, China began to export more and more and correspondingly the US boomed! How about jobs? There was a time when New England had a major textile industry that shriveled away. Jobs of those textile workers were taken by foreigners, Japanese first, Asian tigers next, and China following. It was the Japanese who took away US jobs not the Chinese. The jobs are now leaving China for places like Vietnam, Sri Lanka. They will not go back to New England! The irresponsible Wall Street types playing with “financial innovation” caused the financial crisis, which led to the current high unemployment. Wasn’t it? The whole world, including significantly the developing countries, paid for that bit of Anglo-Saxon shenanigan and we are, by and large, out of it by now. The US is not even in recession; the corporations are making record profits but they are just not hiring. One may argue that the US workers are improving on productivity so much that not so many is needed. If you look beyond the US, Germany is booming! Their unemployment rate dropped significantly. Newly rich Asians want to buy BMWs and Porsches, not Ford. Appreciation of the RMB will reduce the trade imbalance! Will it? During 2007 to 2008, RMB did appreciate over 20% and the trade imbalance worsened.

Is the US government too passive in facing up to China? It is true that whatever you think the Obama government doesn’t have many cards to play against China short of going to war. The US is in two wars right now already! It is also true the government can’t do much on anything else either, not on further stimulus, not on immigration, not on renewable energy. It is mired in the quagmire of political polarization of historical proportion!


Barry Nuechterlein,Stratford, PEI, Canada said...

Funny, nobody complained about cheap Chinese imports when times were good. $20 DVD players seemed like a good idea, then...after all, we were in the "new economy," the "knowledge economy," where clever ways of marketing financial "products" were more important than industrial output.

People seemed to like not producing anything, and living off the fruits of Chinese labour. Well, now the time for payback has come, and you can hear the squealing far and wide. It's the squealing of a people who are alarmed at the prospect of having to reduce their short-term material prosperity and actually start WORKING for a living again, instead of "doing deals," in hopes of getting the big windfall that will allow them to retire at 45.

Maybe, just maybe, it's time to abandon this "free trade" dogma, and go back to the system of managed trade and limited protectionism that made the U.S. a rich country. Look it up on Wikipedia. It was called the "American system," or the "American School." It was later used by Japan and China. It's literally a blueprint for developing a country!

Protectionism run amok may have contributed to the Great Depression, but free trade has never made a country rich. It has turned a lot of countries into economic colonies, though. If allowed to continue to the point of reductio ad absurdem, it could do that to the United States.

Unlike the current international trade scheme, the "American System" actually worked repeatedly, in different environments, and different countries! It worked in Germany, in the United States, in Japan, and now in China. Of course the "free trade" advocates all claim it was something else, but if you look at the economic history of these countries, and how they got so rich and powerful, you'll notice a pattern.

The "free trade"-based system, started in the 1970's, seems like a pretty good blueprint for converting a prosperous, growing first-world country into a developing-world basket case. It is certainly good for import-export "entrepreneurs," speculators, bankers, lawyers, and financiers, though!

soaresb, london said...

There will be a trade war. Essentially we are asking them to give us something for nothing. We want them to revalue the renmimbi. But what can we give them in return? They don't want our approval, that's for sure. Global influence as "approved" by the west is surely less than useless to them. I can't imagine them rolling over and acquiescing like our friendly allies the Japanese did. So what can we give them in exchange? We don't want them to dig our minerals out from the ground, we don't want them to buy our companies, we refuse to work for their companies, so what's left? We can cut off their access to our markets, I suppose our markets still command some value. And that's what we are going to do, even though it'll probably hurt us more than it hurts them. Because there is no other option, not until the new generation comes along and stop regarding the Chinese as the enemy.

schrodinger, Northern California said...

We cannot continue to buy $4 worth of Chinese imports for every $1 that we sell to China. We should buy our TVs, refrigerators and toys from countries that buy our power plants, aircraft and farm products and which pay us for our intellectual property.

Almost every other American trading partner, with the exception of a few oil exporters, is a better market for our goods than China. Mexico has plenty of cheap labor, and would be happy to make the things we buy from China. American manufacturers would benefit because Mexico, unlike China, likes to buy American products.

America should not fear Chinese retaliation. They don't buy our stuff anyway. As the late 1930s showed, appeasement of dictatorships leads to disaster. Is America so afraid of the Chinese bully that we will continue to meekly buy their products while they grow ever stronger and ever more assertive? Where does that lead?

Michael Wolfe, Henderson, Texas said...

As most people in the West know, in 1918 the Germans, like all other Westerners, believed that the only real money was gold, and the mark derived its value from the gold backing it. Then the victorious Allies took all the German gold as the reparations the losers of a war must pay the winners, and the Papiermark lost its value. Since then, the Germans have maintained the value, first of the mark, and now of the Euro. When the dollar weakened, the mark or Euro always rose in value against it, since the Germans are determined their currency will never again weaken as it did in '18.

China has had paper money for a very long time, and no idea that the money needed to be backed by anything except the full faith and credit of the Emperor. One hundred yuan was always the price of a yoke of oxen. Then the Emperor was deposed, and, during WWII, the Chinese currency collapsed. One of the Chinese Communist arguments for taking control was that the Nationalists had allowed hyperinflation.

After Mao's death, China again suffered from severe inflation as cadres with guanxi forced the printing of far too much money to fund their whims. The RMB had lost almost 2/3 of its value when the Chinese pegged to the world's key currency, a peg with which even the cadres with the most guanxi were not allowed to meddle. The Chinese are now determined to use a peg to keep their currency stable, because they fear the alternative.

If the Chinese could be persuaded to peg to the Euro, they would have far more stability than they have pegging to the dollar, but the current crisis of the PIIGS has the Chinese thinking (just as it has many others thinking) that the Euro may not last. The dollar seems to be the most stable currency available for their peg.

The Chinese people's anger at hyperinflation got rid of one government, and the current government isn't taking any chances on what might happen if cadres again gain full control over the currency.

Srinath Jayaram, Durham NC said...

Krugman has a point... the impulse to reassert the sovereignty of the state to regulate and protect the national economy will undermine the formation of any international political coalitions. The art of international political coalition building is undermined when you allow it to be determined by petty economic interests. The argument needs to be constructed around the question of values, not just economics. Krugman is mistaken if he thinks that the BRIC countries will ally with the US. Historical memory lingers a bit longer out there... they remember all too well the "good old days" when the US and Western Europe did exactly what China is doing now... subsidize North Atlantic manufacturing; set import tariffs on goods manufactured in the third world; flood third-world markets with cheap US primary commodities; finance dubious industrialization projects at exorbitant extortionist interest rates by becoming rent collectors; and ignore the effects of their respective domestic economic policies on the "global influence they so clearly desire"; "used its financial clout to mollify and intimidate its critics".

Clearly, what's good for the goose is not so much for the panda?!

The unfairness of Krugman's proposition is not hidden. Everyone in the world knows that Europe refuses to see the effects of its Common Agricultural Program on the intractable problems of hunger and malnutrition in Africa and Asia; same goes for US agricultural policy and the bullies in the world bank who think that marginal farmers in the third world should not be supported by their state's deficit spending measures. But somehow Krugman feels entitled to the alliance of governments of countries faced with hungry populations. Surely, they must feel the pain of unionized workers in America's rust belt?! Perhaps Krugman needs to examine his own sense of entitlement!

You could conscript Indians and Africans to fight for the western alliance in the first world war... the price for their loyalty was the acknowledgment of the despotism of colonial rule and the promise of self-determination for the colonies. If the West wants to find allies in the BRIC countries to put some pressure on China, what can you offer them today? What can the US-EU offer to the BRIC countries... "low-interest loans" from their broken financial system?

But then is Krugman really casting his net that wide... perhaps he wants to go back to the glorious days where the geopolitical imaginary was organized along the axis of the west versus the rest. If that indeed is the case--one hopes it's not--good luck!

Micheal Deal, Leipers Fork, Tennessee said...

While it is debatable whether these tariffs are punitive or merely remedial,in either case, the federal government still needs the additional revenue. The additional revenue would mitigate some of the deficit spending, borrowing for which facilitates Chinese currency manipulation by giving China a safe, income producing place to park their excess dollars.

The fact that most of the products are no longer made here is because American firms made the decision to move production to China either through subsidiaries and joint-ventures or through contract production. China would have never been in the position to grab such market share through its indigenous resources alone: China is on top because of the capital and technology transferred to China by Western firms who are enarmoured of the ease by which they can buy government cooperation in China.

In addition to tariffs, we need diligent enforcement of the export control laws on transfer of design and production technology. Most export control enforcement actions have focused on relatively small shipments of hardware, because that is easier to investigate and prove than illegal transfers of technology. We need a stricter licensing policy and stricter enforcement over transfers of design, development, and production technologies, and not so much emphasis on policing hardware exports.

We also need diligent enforcement of the Foreign Corrupt Practices Act. US companies routinely bribe Chinese officials in order to get permits, land, and approvals by paying large fees or shares to "consultants" in China who then distribute those fees and participations to government and Party officials. Use of third parties is just as illegal as paying direct bribes, but it is harder to prove.

We need dedicated resources and personnel knowledgeable about and experienced in international transactions to investigate and penalize these crimes, not your usual flatfoots.

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