by Mark MacCarthy

Working with our allies is the best way to persuade China to practice open trade and investment

Apr 13, 2018
GovernmentTechnology Industry

The administration’s announced tariff actions is a mistake.

CSO slideshow - Insider Security Breaches - Flag of China, binary code
Credit: BirgitKorber / Getty Images

As Senior Vice President of the Software & Information Industry Association (SIIA), I have been engaged on U.S.-China economic issues for many years.  SIIA, like other associations, supported China’s entrance into the World Trade Organization (WTO) as a way to bring them into the international trading system. The general thinking was that, over time, China would develop and maintain the practice of open trade and investment across borders.  That has proven false as the Trump Administration’s Section 301 investigation amply demonstrates.

But while the Administration’s diagnosis is correct, the announced tariff action against many countries, including China, is a mistake.  An increase in tariffs is effectively a tax hike that would directly harm U.S. consumers. It could also lead to a trade war that could seriously undermine the global economy and cause additional pain for American workers, farmers, consumers, and businesses.  This is why SIIA joined with 45 other trade associations in a letter arguing against tariffs.

Instead of tariffs the Administration should make meaningful change in China’s economic behavior the focus of its global diplomatic trade strategy.    But for that to happen, the United States is going to need allies.  And that requires dropping most, if not all, of the other announced U.S. tariffs affecting European, NAFTA, and hemispheric partners.

Our allies recognize that more needs to be done to strengthen a global economic system that emphasizes open trade and investment.  The Trans-Pacific Partnership contained groundbreaking digital trade provisions that provided for free flow of data and a ban on forced data and server localization.  The Administration rejected it when it came to office, but 11 nations including Canada, Mexico and Japan have signed a new version of this trade deal that contains those same progressive digital trade provisions.  The good news is that the President reportedly instructed Ambassador Lighthizer to analyze the possibility of joining TPP.

Changing China’s economic behavior should be the focus of the Administration’s global diplomatic trade strategy

The new Asia-Pacific trade deal is good economics and a rejection of the Chinese vision of digital trade, which calls for strict government control over Internet trade and investment.  So, we have potential partners in containing China’s mercantilist trade and investment practices.  We need to reengage with these allies in a common effort focused on China.  The U.S. business community has had some success with this strategy. In 2015 and 2016 a coalition of U.S., EU, Japanese, and South Korean business associations pushed back against a proposed protectionist Chinese cybersecurity law and cybersecurity regulations in the banking and insurance sectors.  There was a coordinated government diplomatic approach to China as well.  This broad coalition should be revived for the broader purpose of changing Chinese economic behavior.

Commerce Secretary Ross has already made good progress with the EU through his strong support for the EU-U.S. Privacy Shield, which enables data to flow from Europe to the United States.   We share a common commitment to the fundamental right to privacy that separates both of our privacy regimes from the authoritarian approach prevailing in China.   Our commitment in the Privacy Shield to provide a comprehensive and public explanation of our surveillance practices and a redress option for EU consumers who feel aggrieved is not something China would ever provide.

Getting to “yes” on the modernized NAFTA is a crucial element of building a global economic architecture committed to openness in trade and investment.  It would be a step forward in getting China to play by our open rules, not their mercantilist ones.  The Trump Administration’s updated proposed digital trade (effectively “TPP-plus”) rules for a modernized NAFTA are an excellent way to get there.  And why not build out on NAFTA?  Shouldn’t we also think about a hemispheric free flow of data area built on the APEC Cross-Border Privacy Rules system?

On the free flow of data, Japan has been a crucial player

Japan has played an important role in arguing for good data flow provisions in its negotiations with other partners, notably the EU.  With the right diplomacy, Japan could become an even more important partner in changing Chinese economic behavior.

One way to jumpstart the creation of a coordinated alliance strategy might be to use the Section 301 investigation report’s nuanced and fact-based findings as the basis for our conversations with allies.  We could encourage other countries to issue their own public reports on their experiences with closed Chinese trade and investment practices.  The EU already issues a report on China’s IPR regime.

Our true ace in the hole in creating a free and open trading system is that we have real allies.  Together, we created the rules and institutions that guide the world trading system. We don’t always agree on some details and in particular cases, but they are real friends with whom we agree on the fundamentals.

Let’s play our ace.