When the country engaging in mercantilist-protectionist policies is also your banker, I guess you tend to look the other way. My fellow CNBC contributor Peter Navarro makes the devastating case:
For starters, we must puncture the myth that China’s main manufacturing edge is solely its cheap labor. Indeed, while low labor costs are a factor, when you carefully research the biggest source of China’s manufacturing advantage, it is actually a complex array of unfair trade practices, all of which are illegal under free-trade rules.
The most potent of China’s “weapons of job destruction” are an elaborate web of export subsidies; the blatant piracy of America’s technologies and trade secrets; the counterfeiting of valuable brand names like Nike and Chevy; a cleverly manipulated and grossly undervalued currency; and the forced transfer of the technology of any American company wishing to operate on Chinese soil or sell into the Chinese market.
Each of these unfair trade practices is expressly prohibited both by World Trade Organization rules as well as rules established by the U.S. government, e.g., the Treasury Department has sanctions against currency manipulation (which, alas, the Obama administration refuses to use against China despite campaign promises to do so).
Make no mistake. All of these real economic weapons have led to the shutdown of thousands of American factories and turned millions of American workers into collateral damage, all under the false flag of so-called free trade.
The second myth we must expose if we are to ever reverse the job-killing trade deficits we now run with China is the idea that free trade always benefits both countries. That doesn’t hold true if one country cheats on the other. Instead, when a mercantilist China uses unfair trade practices to wage war on our manufacturing base, the American economy is the big loser.
I am not sure of the solution here, though more vigorous pursuit of these issues in the World Trade Organization would be part of it, certainly. (And reducing our debt would reduce China’s leverage.) Otherwise, I mean, what is the point having a WTO? Though if you wanted to go further, especially on the currency issue, there is this idea from economist Peter Morici:
The United States should impose a tax on dollar-yuan conversions in an amount equal to China’s currency market intervention divided by its exports—about 35%. That would neutralize China’s currency subsidies that steal US factories and jobs. It is not protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it’s self defense.
I am for open trade and subjecting the U.S. economy to maximum competitive intensity. That will spur more innovation, productivity and economic growth. China should do the same.