Shooting Back – The US-China Trade War Started Decades Ago

Log onto any news site and you will see headlines screaming that we are headed for a trade war with China. Most of those headlines suggest that the blame for this lies with President Trump. Virtually none of them even hint at the truth. We have been in a trade war with the Chinese for decades; we just haven’t been shooting back.

Most economists who favor so-called free trade rely on the principle of comparative advantage. Some countries are better at certain things. Some countries have resources others don’t. Some countries can produce things more cheaply than others. If we all trade freely, we will all be better off. We will acquire higher quality goods at cheaper prices. Everyone wins.

Unfortunately, the fantasy world in which this principle rules does not exist. We do not trade freely with other nations, which allow companies and industries to prosper or fail based on their own merits. We compete against nations, which intervene massively to favor their industries and their people over ours.

The kings of this game are the Chinese. Many of their key corporations are, in fact, owned outright and subsidized by the Chinese government. Additional subsidies are provided to encourage exports. Dumping of products abroad below cost is widespread. Access to the Chinese domestic market is heavily restricted.

And, of course, the outright theft of the intellectual property from foreign, particularly American, companies is practiced across the board on a scale that is perhaps hard to grasp simply from statistics. Let’s take a look at a specific case in order to see what this means in the business world.

In 2007, an American wind turbine company, American Superconductor (AMSC) started doing business in China. The company partnered with a Chinese company Sinovel for the actual production of wind turbines in China. AMSC brought to the partnership proprietary technology used in the wind turbines.

AMSC became a hugely profitable business, with a factory in China, a design center in Europe and hundreds of employees in the United States. Then in 2011 everything began to fall apart.

Sinovel refused to pay AMSC about $70 million dollars it owed for goods already received. Then it refused to even accept a follow-on shipment of equipment from AMSC. AMSC’s stock plummeted, and it was forced to lay off hundreds of workers. Sinovel moved into business on its own and began signing contracts to supply wind turbines in Massachusetts. AMSC was on the brink of bankruptcy.

AMSC began an internal investigation to determine what had lead Sinovel to suddenly walk away from their partnership. It discovered a spy.

In July 2011, an AMSC employee named Dejan Karabasevic confessed that he had been bribed by Sinovel into turning over to that company AMSC’s proprietary turbine control software. The Chinese company gave Karabasevic a laptop that he used to steal the data and then transmit it to a computer in Austria.

According to Karabasevic he was paid $2 million and promised women, apartments and resettlement in China by Sinovel. He was convicted of theft and sentenced to a year in prison.

In 2013 the US Department of Justice brought intellectual property (IP) theft charges against Sinovel. In January of this year Sinovel was found guilty after an 11-day trial. Sentencing in the Sinovel case is set for June 4th. The Justice Department says it intends to seek a fine and order Sinovel to pay American Superconductor $900 million in restitution.

The Commission on the Theft of American Intellectual property says IP theft costs the US economy as much as $600 billion a year. According to the Commission, China is the world’s biggest culprit in this arena. In the last decade the Chinese have stolen proprietary information from Boeing, Northrop Grumman, DuPont and Monsanto among others.

These are not the actions of individuals or companies acting on their own. These thefts are all part of a national strategy designed explicitly to guarantee that the Chinese dominate world markets and gain supremacy in technology over the West. Our businessmen are not operating in a free market competing against other businessmen. They are being eaten alive by a nation state pursuing deliberately predatory and expansionist policies.

All of this has been clear for many years. We have refused to act on it, because American companies, offshoring production to China, have been getting filthy rich and have subordinated our long term national interest to their desire to make a quick buck. Seduced by the ability to gain access to hundreds of millions of Chinese workers willing to work for virtually nothing under working conditions no American worker would accept, our corporations have tolerated Chinese criminal conduct and the loss of market share and our economic vitality.

Our politicians, bought and paid for by the companies making a quick buck in China, have followed suit. They have cautioned against pushing back on Chinese trade practices and neutered what measures we have taken so thoroughly as to make them ineffective. The Chinese have continued, year after year, to gut our manufacturing base, destroy our most vibrant companies and continue their march toward economic dominance. They have continued to wage war, while we have sat idly by and allowed them to do it.

Now, suddenly, that is at an end. We have made clear we’ve had enough. Where we go from here remains unclear, but this is much is certain. You can’t win a war unless you shoot back.