In 2000, 170 U.S. House members voted against giving China permanent “normal trade relations.” They didn’t feel more free trade with China would lead to Chinese political reforms.
Today, they could tell you, “I told you so.” Some would argue that the passage of the measure has done worse damage than they thought: It has helped legitimize authoritarianism.
The U.S. has often cozied up to despots in the name of realpolitik. But in 2000, Congress did so with a potential superpower. That vote, which included approving China’s 2001 entry into the World Trade Organization, positioned China to eclipse the U.S. economically, flex its repressive muscles and build its military physique.
U.S. consumers got cheaper goods in the deal. Corporations got some access to China’s markets. But the fallout — unanticipated by most of Congress — devastated Americans: millions of lost jobs; billions of dollars of economic growth vaporized; more than a trillion dollars in hock to China. China’s economy could roar past America’s by 2018, and so could its military spending.
Americans have become complacent about this trend. Most U.S. companies with operations in China have, in effect, supplied capital, technology, know-how and products to fuel a totalitarian communist regime. The victim in the U.S. has been freedom — freedom to maneuver as a global power without deferring to China.
Western business leaders have deferred to China for years. Today, instead of faulting Chinese repression and illegal trade practices, they tacitly condone them out of fear of Chinese retaliation against their China units. Many U.S. CEOs gripe in private about feeling muzzled, but they dare not go public. Their recalcitrance extends to politics and the classroom.
Americans as a whole have also deferred to China. Although people condemn U.S. government loans and tax incentives for renewable-energy businesses, they ignore the Chinese government’s strategy of bankrupting U.S. companies developing technologies of the future. Many also criticize Congress for issuing a report warning of the risks of spying by China telecom-equipment maker Huawei Technologies. They call U.S. concern “protectionism,” instead of a security risk.
Investors defer to China, as well. Retail investors eagerly buy PetroChina, China Southern Airlines and other state-controlled companies. Big equity investors do the same and more. Neither protests when China’s state-controlled enterprises buy sensitive assets in the U.S.
One example: A unit of a Chinese state-controlled enterprise bought AMC Entertainment Holdings in September for $2.6 billion. AMC runs nearly 5,000 screens watched by 200 million Americans a year in 32 states, a natural outlet for Chinese propaganda.
On the global stage, Americans remain far too blasé about China’s growing geopolitical power. China stirs up trouble in North Korea, Iran, Pakistan and islands owned by Japan and the Philippines. It mounts cyberwarfare against U.S. targets. It beefs up its naval assets, including a string of ports across the Indian Ocean. While Americans make little fuss, China’s actions drain the U.S. of funds for military countermeasures.
Meanwhile, China uses its membership in the U.N., International Monetary Fund and G20 to lead anti-democratic factions against U.S. interests. It has more say — and the U.S. less — under the “big tent” of multilateral institutions founded on Western values. While China gains prestige in these institutions, it undermines regional stability with its support of Syria and Iran. Its actions pose the risk of drawing the U.S. into a new conflict.
This begs the question: Since when has making a dollar taken priority over our security and democratic freedoms? Moreover, how do we get the U.S. back to leading the geopolitical game?
Here are some specific economic actions the U.S. could take: Promote diversification away from Chinese suppliers and investments. Shut China out of further entry into U.S. markets, especially in banking, electronics, energy and telecom. Accelerate efforts to craft trade pacts, or trading blocs, that exclude China. Fashion incentives to dissuade U.S. companies from sending capital, technology and know-how to China, all of which bolster the regime and sap our military and geopolitical power to promote democracy.
Some specific security actions we could also take: Replace our opportunistic set of alliances with a free-world bloc. Include in the democratic bloc countries dedicated to free trade that furthers the wealth of democratic nations that play by the rules. Isolate and contain nations like China that insist on using economic power to undercut democracy. The core of an alliance might include the U.S., Japan, the European Union and India.
All of this should be part of a new U.S. strategy. We should remember what Congress debated a dozen years ago: safeguarding and advancing democracy. We need to take stock anew of the threats to our values, and reawaken America’s spirit to defend democracy and oppose authoritarianism at whatever cost.
Richard D’Aveni, a Bakala professor of strategy at Tuck School of Business at Dartmouth College, N.H. This commentary is adapted from his book, “Strategic Capitalism, The New Economic Strategy for Winning the Capitalist Cold War.”