Trading with the Enemy is Wrong

The Navy and Marine Corps have kicked off their two-week Large Scale Exercise 2021, a massive effort that spans 17 time zones, to test their vision of how to conduct war on a global scale against peer competitors. Such an operation is reminiscent of the Cold War, but then we are in another Cold War facing a coalition of powers who want to dominate the international order. That coalition is lead by the People’s Republic of China with the strong support of a Russia seeking to recover from its defeat in the first Cold War. Both powers have been strengthening their ties with Iran at the intersection of Europe and the Indo-Pacific. In response, the U.S. has reenergized its alliances and expanded them, most importantly in partnership with India. The Trump administration recognized the danger of renewed Great Power competition, and the Biden administration is continuing many of its policies because the change in the White House has not changed what is going on in the outside world.

The most prominent flashpoint is the South China Sea, where China has created artificial island bases backed by a naval buildup to support its claim to imperial sovereignty over this vital maritime realm in defiance of international law. China and a U.S.-led coalition are both conducting rival air and naval exercises in this sea demonstrating their ability to defeat the other. Beijing has complained to the UN that “The US has been stirring up trouble out of nothing, arbitrarily sending advanced military vessels and aircraft into the South China Sea as provocations." Washington is not acting “unilaterally.” Great Britain has sent its new Carrier Strike Group to the region. Dutch and German frigates are there, along with a French task force to show NATO unity. Beijing’s state media outlet Global Times made a direct threat “We advise US allies to be particularly cautious…They must be bluntly told that if their warships rampantly behave as the U.S. military does in the South China Sea, they will more likely become an example of China defending its sovereignty and territorial integrity -- just as a popular Chinese phrase indicates: To execute one as a warning to a hundred.”

India has sent a task force into the South China Sea as part of the Quad, which includes Japan and Australia along with the U.S. China claims to have the largest fleet of warships in the world. Beijing’s full spectrum military buildup and militant rhetoric have been the real provocations that has brought forth a powerful response.

Yet, in the midst of this very evident confrontation that actually goes back to the Obama administration's “pivot” to Asia which saw the escalation of naval exercises during 2010, corporate lobbyists in Washington are still pushing for closer commercial ties with the Beijing regime. On August 5, nearly three dozen business groups, including the Chamber of Commerce, the Business Roundtable, the National Retail Federation, the American Farm Bureau Federation, and the Semiconductor Industry Association sent a letter to U.S. Trade Representative Katherine Tai and Treasury Secretary Janet Yellen, claiming Beijing had met "important benchmarks and commitments" in the so-called Phase One agreement negotiated by President Trump, including “opening markets to U.S. financial institutions and reducing some regulatory barriers to U.S. agricultural exports to China.” The aim of the letter was to cut tariffs and expand trade with China while ignoring its aggressive behavior in the larger context of world affairs.

The letter purposely missed the real point about the “trade war” with China, which is to correct past “public policy choices” which President Biden has accurately blamed for allowing American firms to create “fragile supply chains across a range of sectors and products. Unfair trade practices by competitor nations and private sector and public policy prioritization of low-cost labor, just-in-time production, consolidation, and private sector focus on short-term returns over long-term investment have hollowed out the U.S. industrial base, siphoned innovation from the United States, and stifled wage and productivity growth.” President Trump explicitly imposed tariffs on national security grounds to stem technology transfers (legal and illegal) that have fueled Chinese economic growth which the regime has transformed into military strength. Indeed, Beijing has a program of “Military-Civil Fusion” which is “an aggressive, national strategy of the Chinese Communist Party… to enable the PRC to develop the most technologically advanced military in the world.” To a large extent, the current China Threat was “made in America’-- not in factories here, but in boardrooms.

Big Business wants tariffs and other restrictions removed to lower the costs of continuing these foolhardy commercial ties rather than adjust their behavior to conform to the international environment. They must not be listened to by policymakers whose first duty is to national security in a dangerous world. And corporate managers might ponder why public respect for them has fallen so low.

In classic tales of the Wild West, outlaws rustled cattle and robbed banks. The worst villains, however, were the merchants who sold guns to renegades who massacred homesteaders. They usually met their fate when their customers turned on them in the same brutal fashion. The audience shed no tears for their nasty demise as it was no more than justice demanded. Beijing is openly devising programs to drive American firms out of China. They will be replaced by national champion firms that have benefitted from the knowledge and market the greedy but unwary, “gunrunners” provided. Beijing will never allow foreign interests to carve out any substantial part of its domain.

Nor will trade tame the communist regime. This was never a credible scenario despite the brief popularity of fanciful academic theories and wishful thinking about a new kind of world. It was the great economic reformer Deng Xiaoping who ordered the troops into Tiananmen Square to crush students calling for democracy. Increased wealth and capabilities only give the regime more resources to advance its hostile ambitions. The business leaders who sent their letter to Biden’s officials calling for the appeasement of Beijing cannot claim they do not really know what is going on. They just do not care next to even dim prospects of making money and covering their butts for past errors in judgment that have them mired in China. But the real bottom line is that trading with the enemy is always wrong and cannot be tolerated.

William R. Hawkins is a former economics professor who served on the professional staff of the U.S. House Foreign Affairs Committee. He has written widely on international economics and national security issues for both professional and popular publications

Item: Naturalflow

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