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'America's China Plan: A Proposal' by Clyde Prestowitz

'America's China Plan: A Proposal' by Clyde Prestowitz'America's China Plan: A Proposal' by Clyde Prestowitz
Clyde Prestowitz | Economic Strategy Institute
Book
Interview
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Clyde Prestowitz

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Founder and President of the Economic Strategy Institute

Clyde Prestowitz

|
Founder and President of the Economic Strategy Institute
Interview

Clyde Prestowitz

|
Founder and President of the Economic Strategy Institute

Clyde Prestowitz

|
Founder and President of the Economic Strategy Institute

A Necessary Debate

Malcolm Riddell
CHINADebate

As I write, President Biden's infrastructure bill is through Congress and awaits his signature.

  • As anyone who has spent much time in China knows, this is long overdue.
  • Happy as I am about this, infrastructure is only one element of improving U.S. competitiveness.

What else should America be doing - and how should it decide what those things are?

  • Below are a few of my thoughts on process.
  • And, to kick off debate and discussion, ‘America’s China Plan: A Proposal’ from Clyde Prestowitz, who, for decades, has been a force in shaping U.S. trade policy and thinking on competitiveness.

‘To win a race, you can either trip the other guy or run faster,’ says CSIS's Bill Reinsch. And I’ve watched how U.S. policy toward China has applied this in turns.

  • The Trump administration’s actions on China – tariffs, Huawei, tech restrictions - aimed at tripping the other guy.
  • Now with the Biden administration, the emphasis has begun to shift – with the infrastructure bill and ‘Build Back Better’ - toward helping the U.S. run faster.

Each administration's proposals or actions are piecemeal.

  • What’s missing from each of these approaches is a comprehensive plan about how to make the U.S. more competitive – in general and especially with China - one that includes both tripping and running faster.

You would think that Congress would be holding hearings; that Select Committees would be meeting; that the op-ed pages would be filled with suggestions; and that the conservative and liberal think tanks would be pressing competing visions.

  • In other words, you would think that the U.S. would be having a vigorous debate about U.S. competitiveness.
  • And why we are not having one, I simply do not understand.

To help stimulate that debate, we present today ‘America’s China Plan: A Proposal’ by Clyde Prestowitz.

Some of these six recommendations I agree with, some not, and some I don’t have the expertise to fully evaluate.

  • So publishing the plan does not imply endorsement.

But it does imply that I welcome your thoughts about Mr. Prestowitz’s Plan.

  • Email them to me directly, and I will share them with Mr. Prestowitz for his response.

And my thanks to Mr. Prestowitz for selecting the CHINAMacroReporter as the venue for publishing ‘America’s China Plan: A Proposal.’

All the best,

Malcolm

'America's China Plan: A Proposal'

Clyde Prestowitz
Economic Strategy Institute

The Challenge: ‘Made in the Free World’

In dealing with China, America could do worse than take some pages from China’s book.

  • For instance, under its ‘Made in China 2025’ program, Beijing is aiming to become the leader and self-sufficient producer in a variety of high -tech industries including: semiconductors, artificial intelligence, telecommunications, robotics, aviation, biotech, machine tools, aircraft engines, solar energy generation, and more.
  • Washington should adopt a similar program.

Except the U.S. project would aim at ‘Made in the Free World.’

  • Everything does not necessarily have to be made in America, but America should not allow itself to become significantly dependent on China for critical technology.
  • President Biden’s ‘Innovation and Competition Act’ (passed by the Senate and pending in the House) aiming to strengthen the U.S. semiconductor and solar industries is a step in the right direction, but many more such steps are needed for industries like batteries, advanced materials, 5 and 6 G telecommunications, robotics, and more.

Nor is China’s the only book to be read.

  • Singapore, Germany, Switzerland, Taiwan, Sweden, and South Korea all have very active and effective policies and programs to assure domestic production of and technological and industrial excellence in manufacturing and high- tech industries characterized by high productivity, high innovation, and global dominance by a few outstanding producers.
  • For each of these countries, manufacturing accounts for around 20 percent of GDP compared to only 11 percent for America.

Here are six of the actions for ‘America’s China Plan’:

  1. Rejuvenating U.S. Manufacturing & High-Tech
  2. Balancing the U.S. Trade Deficit
  3. Adopting an Independent, Global Reserve Currency
  4. Creating a U.S.-led Alternative to China’s ‘Belt & Road Initiative’
  5. Taxing Carbon
  6. Reducing Chinese Government Influence on U.S. Corporations

1 | Rejuvenating U.S. Manufacturing & High-Tech

Rejuvenation of the U.S. manufacturing and high-tech industries will require (as has been the case in all the countries mentioned) investment incentives such as capital grants, tax holidays, “buy American” policies for government procurement, R&D and education support, and aggressive enforcement of trade laws aimed at preventing dumping (selling at prices below cost or below prices in the home market) and export subsidies.

  • It will also entail putting pressure on the CEOs of American corporations to produce in America.

Taxes on earnings gained from products made in America might be set at a lower rate than those on products made abroad.

  • Tax avoidance strategies such as the Singapore Sling, the Double Irish, and the Dutch Sandwich (they may sound delicious, but they mean that Apple and companies like it pay little or nothing in U.S. taxes) must be outlawed, and U.S. corporate taxes should be paid on world- wide earnings in the same year as they are paid on earnings in the U.S.

The goal of all this must be to raise U.S. manufacturing to at least 15 percent of GDP.

2 | Balancing the U.S. Trade Deficit

The United States has been accumulating enormous trade (current account) deficits for forty- five consecutive years.

  • This year, the deficit will be around $800 billion which means that Americans will be paying out $800 billion more for what they buy abroad than they will receive for what they sell abroad.

This deficit is not paper money.

  • It is long term debt on which interest and/or dividends must be paid.

This accumulated debt now equals about $15 trillion which is getting close to the $21 trillion of total U.S. GDP.

  • At, say, 3 percent annual interest, the U.S. is paying out to its foreign debt holders about $450 billion annually. This is on top of the initial price paid for the imports.

Under the treaties and agreements that established the global trading and investment system, chronic imbalances were never conceived of as a possible long- term situation.

  • The founders of the system expected it to remain balanced over the medium and long term.

That it has not been balanced is largely due to the U.S. dollar’s role as the world’s only major reserve currency.

  • This makes it a target of manipulation by countries with export led growth strategies who wish to keep their own currencies undervalued as a way of subsidizing exports.
  • They sell their own currencies and buy dollars, thereby depressing their currencies and raising the value of the dollar.

To remedy this situation, Washington should take two steps.

  • One step is to impose a Market Access Charge on all inflows of investment into America except for those aimed at building new production facilities. The charge would vary depending on the status of the U.S. trade deficit and could vary from 0 to 5 percent. The funds thus collected would help support a U.S. Infrastructure Bank.
  • A second step would be for the Department of Commerce to self-initiate imposition of anti-dumping charges on all imports from countries engaging in currency manipulation.

3 | Adopting an Independent, Global Reserve Currency

While taking these steps, Washington could also call for international talks on the possible creation of a true, independent global reserve currency that would not be subject to manipulation or to speculative global investment.

  • This idea was initially proposed by the great economist John Maynard Keynes when the system was established.
  • It is now past time to adopt Keynes idea for an independent, global reserve currency.

4 | Creating a U.S.-led Alternative to China’s ‘Belt & Road Initiative’

China’s ‘One Belt One Road’ project is a stroke of genius.

  • The major free world countries led by the United States should create a similar but better planned and financed program to compete with China as the world’s major infra-structure builder.

5 | Taxing Carbon

Global warming is the greatest long term danger facing humanity.

  • Today’s globalized supply chains exacerbate the problem by dint of air and sea shipping that create about 14 percent of annual global greenhouse gas releases.

The cost of carbon must be added both to production costs and to shipping costs by the application of carbon taxes.

  • Products arriving in the U.S. from sources with no or only small carbon taxes would have a further carbon border tax imposed to cover the environmental damage they are causing.

The effect of these taxes would be to shrink global supply chains, reduce greenhouse gas emissions, and increase production of products in America while reducing its trade deficit.

6 | Reducing Chinese Government Influence on U.S. Corporations

Finally, to reduce the power of the Chinese government to influence how U.S. corporate executives lobby the U.S. government, the Federal Government Foreign Agents Registration Act should be vigorously applied.

  • It requires all those representing foreign interests to U.S. government authorities publicly to declare themselves as foreign agents not necessarily speaking for the best interests of the United States.

For example, because everything it sells is made in China, Apple is inevitably subject to pressure from Beijing.

  • Thus, when Apple CEO Tim Cook speaks with the U.S. government on any issue concerning China, he should be required to declare himself a possible foreign agent as should other CEOs of U.S. corporations with large operations in China.

Conclusion: ‘It’s About America’

Outcompeting China and avoiding global extension of its authoritarian and coercive policies and practices is not really about China.

  • It’s about America.

It’s about remembering how we became the world’s leading country in the first place,

  • about remembering that citizens have obligations as well as rights,
  • about remembering that we are American citizens first and seekers of fortune second, and that the rights of free speech, rule of law, and the welfare of all Americans are far, far more important
About Clyde Prestowitz For decades, Clyde Prestowitz has been a force in shaping U.S. trade policy and thinking on competitiveness. He has played key globalization roles in both government and industry. Government — Mr. Prestowitz served as counselor to the Secretary of Commerce and was a lead negotiator with Japan, China, and South Korea. He was a leader of the first U.S. trade mission to China in 1982. He negotiated with Japan over autos, computers, semiconductors, and much else and had a key role in persuading Japan to move factories to America. In 1995 he was Vice Chairman of President Clinton’s Commission on Trade and Investment in the Asia Pacific Region. Later he counseled Secretary of State Hillary Clinton and President Obama. Industry — Mr. Prestowitz worked as Director of European Marketing for Scott Paper Company, as Vice President Japan for Egon Zehnder International, and as Director of Global Marketing for American Can Company. He also served on the Policy Advisory Board of Intel and of Form Factor, and was a consultant to FedEx, Authentix Inc., and many other leading companies. Besides A World Turned Upside Down, he is the author of the best-selling book on U.S.-Japan relations, Trading Places, and of six other books on international trade and business strategy. And he has presented his views in major publications including The New York Times, The Washington Post, Foreign Affairs, Foreign Policy, and Fortune. Mr. Prestowitz is president of the Economic Strategy Institute.

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