Outsourcing isn't free trade with China. It's a free ride for China.
Outsourcing by multinationals to China allows Americans to buy cheap goods. But outsourcing is not creating a boom in US exports or jobs.
Here’s how proud the Obama administration is of its own China policy: Its latest major policy pronouncement – declaring that Beijing is not, as widely charged, deliberately undervaluing its currency to rig trade flows – was made the Friday afternoon before Memorial Day weekend, once Congress and most of the media were safely starting their vacations.
If only sheepishness portended rethinking. Although the current mold for the United States’ approach to the People’s Republic was set long before President Obama’s inauguration, Beijing’s behavior along the length and breadth of the Sino-American agenda has unquestionably worsened on the president’s watch.
Crackdowns on Chinese dissidents have intensified. Chinese saber-rattling throughout East Asia continues, along with a sweeping military modernization program. Even the US companies that have massively outsourced production, jobs, and technology to China are grousing that Beijing is becoming a less cooperative, less scrupulous business partner.
The rapid rise and sheer size of China’s economy, moreover, make such bad behavior the world’s problem. The most pressing challenge: Its continuing obsessions with exporting and amassing huge financial surpluses are again expanding the global imbalances that have already made the 21st century world economy so fragile and prone to disaster. We need to move beyond the old free-trade/fair-trade debate and explain to Main Street Americans why China’s unbridled economic rise threatens their future more than its cheap consumer goods help their pocketbooks
One promising possibility: the idea that the status quo that multinational businesses have created and defend as free trading is really free-riding. The key to making this point stick is explaining how the companies’ actual operations and strategies in China differ from the story they’ve peddled.
If, as these companies insist, their main aim is opening China’s immense and burgeoning market to US exports, then current policies are easy to depict as win-win propositions. Pushing production offshore can be portrayed as complementing the companies’ American operations, not replacing them. On an economywide basis, even the sting of import-induced American job loss can be soothed by the promise of export bonanzas and those rock-bottom consumer prices.
But a radically different picture is painted by China’s own continuing export orientation, its constantly surging trade surpluses with the US, and the multinationals’ own mounting global trade deficits. These facts strongly indicate that the multinationals are focused mainly on supplying the US market from China, not the other way around. And in this light, the benefits of trade expansion look much less mutual from America’s perspective.
In fact, it’s easy to conclude that the companies have finagled from Washington a veritable business bonanza that depends on leaving the rest of the US economy in the lurch. That is, they keep reaping all the rewards of selling to an enormous, high-price market like America’s. But their China supply bases enable them to avoid many of the costs of this market’s upkeep. Principally, they don’t need to bear the financial burdens of employing relatively expensive American workers. And they can dodge the taxes that pay for the regulatory apparatus, schools, and other public services essential for maintaining the nation’s prosperity and quality of life.
This free-rider argument, therefore, solidifies heated but amorphous complaints about footloose global firms that no longer feel connected to their home country. This new lens reveals the companies’ investment and sourcing policies as far worse than simple acts of disloyalty. Instead, they’re exposed as decisions with specific, destructive consequences – first and foremost, leaving Americans with little choice but to finance even their most reasonable ambitions by borrowing, rather than earning.
Even worse, free-riding is indefensible philosophically or practically. Unlike the rest of economic globalization, it’s incapable even in theory of producing long-term or worldwide benefits that might justify short-term national costs. And unlike many ethically dubious business practices, free-riding can’t be rationalized as a way to enhance shareholder value over any significant time frame. As even they should have learned from the financial crisis and lingering recession, not even multinationals themselves can ultimately escape the consequences of the unsustainable course free-riding has helped to create.
Finally, this new characterization of America’s China trade policy – and much of its overall trade and globalization policy – should be easy for voters to grasp and, more important, actively oppose. Experience teaches so far that “trade” and “China” as such are both too complicated to demonize in American politics, and both in fact require nuanced approaches. Free-riding, by contrast, has no saving graces and entails no difficult trade-offs. Pinning this label on America’s China policy could finally produce the change this failed strategy urgently needs.
– Alan Tonelson, research fellow at the U.S. Business and Industry Council, is author of “The Race to the Bottom.” He will be speaking on China policy at a June 7, 2011, forum in Darien, Conn., sponsored by the Common Ground Committee.