International Alliances are Essential for Changing China’s Behavior
Januaray 2, 2019
by Jeff Steagall, Dean and Professor of Economics
President Trump’s distrust of international alliances is well-known. He criticizes NATO regularly. He withdrew America from the Paris Climate Accord and from the Trans-Pacific Partnership negotiations, which could have generated the world’s largest free-trade zone.
However, the president recently has begun to forge small alliances in order to counter Chinese policies and activities, which he wants changed. International coalitions, such as these, are essential for motivating China to make changes.
Two examples in December 2018 highlight the president’s willingness to partner with other nations. First, Canada arrested Sabrina Meng, the chief financial officer of Chinese telecommunications giant Huawei. Huawei is the world’s second-largest producer of smart phones (behind Samsung, but ahead of Apple), on charges she assisted Huawei in circumventing sanctions against Iran. The U.S. has requested her extradition although Canada released her on bail, and likely she will begin a legal challenge against extradition.
Indeed, this is the second 2018 example of the Trump administration working with other nations to extradite a Chinese citizen. In October, Belgium arrested Yanjun Xu, a senior officer with China's Ministry of State Security, on charges of stealing trade secrets from U.S. aviation defense firms. Xu has been extradited to face trial in the U.S.
Second, the U.S. is coordinating with the United Kingdom and Canada to pressure China to cease its cyberattacks, such as the one perpetrated recently against Marriott Hotels. Reports estimate that up to half a billion customers may have had personal details stolen, with perhaps up to two-thirds of those files including such sensitive information as birthdates and passport numbers. Other countries will likely join this initiative.
Do these activities mark President Trump’s new appreciation in the value of cooperating with allies?
The president has been vocal and engaged about various Chinese policies that harm American business interests and that he deems unfair. He is correct about most of those allegations.
China clearly favors Chinese firms. Its government turns a blind eye to outright theft of the intellectual property (IP) of foreign firms, including, but by no means limited to, American companies. IP is typically extremely expensive to create. The ability to protect the products and services that use IP to earn a return on the investment is essential for providing companies the incentive to innovate.
China also has manipulated currency markets to keep the value of its currency, the yuan, artificially low. This makes imported products more expensive for Chinese citizens than they would be with a market-valued exchange rate. Therefore, Chinese citizens purchase fewer foreign goods and services and more Chinese goods and services than they would under the correct currency valuation. This hurts the profitability of non-Chinese firms across the globe.
Solving either of these issues in bilateral negotiations is extremely unlikely. The gap between the political and economic power of America versus that of China continues to shrink. China need only stall, continuing to engage in these unfair activities, to chip away at America’s bargaining power.
Convincing China that it is in its best, long-term interest to change these policies cannot happen without international partners. No shortage exists of powerful countries that would welcome those changes.
Fortunately, if the president is interested in pursuing a multi-lateral strategy, a forum already exists—the World Trade Organization (WTO). Nearly all countries that would join a U.S. effort to change China’s policies are also WTO members.
China joined the WTO in December 2001. In doing so, it agreed to abide by global trading rules, which its current policies violate. The WTO has mechanisms for resolving such disputes.
Unfortunately, two realities make the WTO route unlikely. First, President Trump has a profound distrust of international economic organizations, such as the WTO, the International Monetary Fund and the World Bank.
Second, the administration’s trade policies have not only affected China, but also have affected the economies of the very partner nations that could join America in pressuring China to change its policies because the tariffs apply to most countries, not just to China.
Assembling the required coalition would require the president to eliminate the new tariffs he has imposed and plans to impose. The question is whether he is willing to do so, given the strong political commitment he has made to sticking with the tariffs.
The president’s recent willingness to cooperate with other nations provides some hope that he is reconsidering his reluctance to rely on them. Perhaps he has only engaged Belgium and Canada because he required their assistance with extradition. But the response to the cyberattack did not require an alliance, yet he has willingly entered one.
Perhaps 2019 will bring a more successful approach to eliminating China’s unfair currency policies and theft of intellectual property.
ABOUT THE AUTHOR:
Jeff Steagall is dean of the John B. Goddard School of Business & Economics at Weber State University, where he is also a professor of economics and holds the Buehler Chair in Leadership. Steagall accepted the position at WSU in 2011, after 21 years at the University of North Florida.
He has published on topics ranging from international economic development to enhancing economics and international business education to bias in the AP football poll. At UNF, Jeff won multiple awards for outstanding teaching, created and developed the international business program to become one of four UNF flagship programs and was named the University Distinguished Professor in 2009.