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 Richmans' Trade and Taxes Blog

U.S. Corporations not helping China avoid Krugman's tariff
Howard Richman, 3/28/2010

In the mystery story Silver Blaze, Sherlock Holmes uses the clue that a dog didn't bark to help unravel a mystery. The significant thing that happened in U.S.-Chinese relations last week was similar.

With the exception of Morgan Stanley, which is partially owned by the Chinese government, American corporations did not comply with the Chinese government's request that they oppose the 25% across-the-board tariff on Chinese goods proposed on March 14 by Nobel Prize winning international economist Paul Krugman.

On March 19, Canada's Globe and Mail, reported that the Chinese government was asking those American corporations doing business in China to intervene on its behalf:

The Chinese are also courting U.S. multinationals that benefit from low-cost Chinese exports, hoping they will use their considerable lobbying clout to blunt any protectionist retaliation. Analysts say that is already happening.

But on March 29, Reuters reported (U.S. Companies Suddenly Shy on Chinese Yuan Squabble) that they are not barking. Here is a selection:

Reuters approached more than half a dozen major companies with significant business in China for this story but all declined to comment.

A decade ago, chief executives of companies from United Parcel Service Inc to State Street Corp spoke out publicly in favor of letting the world's most populous nation into the World Trade Organization.

So why aren't American corporations helping China by publicly fighting the possible tariff? I think that here are two reasons:

1. Google's courageous example. After the Chinese government hacked Google to steal Google's proprietary code and access dissident e-mail accounts, Google left China.


2. China's demand they move their R&D and Patents to China. On January 26, 2010, 19 American trade groups wrote a letter protesting the Chinese government's demand that American corporations move their R&D and patents to China.

The R&D demand and the Google hack are just the latest attempts by the Chinese government to get American proprietary technology. As economist Peter Morici noted in a Seeking Alpha commentary on March 23 (Google and the Larger Chinese Challenge):

To sell in China, Beijing requires foreign companies to produce in China through joint ventures and then transfer prized technologies to local partners. Now, having extracted the knowhow it needs, China is tightening the noose on foreign companies, causing them to consider withdrawing and leaving behind formidable new competitors.

American corporations might be ready to get behind an American policy that insists upon balanced trade with China, American corporations would then be able to keep their own technologies in the United States, where intellectual property is protected, and still be able to sell to China's growing markets. Not only that, but the investment in American manufacturing that would occur would make America a growing marketplace, not just China.