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Am I a protectionist?

July 17, 2018

Editorial note:  This article is significant because it demonstrates how the business press is coming around to the fact that free trade and globalization have produced big problems. CPA has been communicating with this reporter for several years on the topic.

I’ve been feeling a little worried about job security lately. I am the global business columnist for the world’s most global business publication. I have immigrant parents, two passports, and have lived and worked in many countries. I’m all about crossing borders. And yet, I find myself questioning the logic of unfettered free trade and globalised business more and more frequently, particularly when it comes to China.

[Rana Foroorhar | July 16, 2018 | Financial Times]

No, this doesn't mean I'm pro-Trump or pro-trade war. But the president is right that China has changed the game, and we have to acknowledge this. While many of us stopped believing the “China will get freer as it gets richer” line years ago, I’ve been amazed how many international business people have continued to live in a state of wilful blindness about the political risks inherent in doing business there. Several years ago, for example, I interviewed the chief executive of a large European wind power company. At the time, the firm was number one in its category in China. I asked the CEO how he thought he would do in the market over the next year or two, and he said: “I think we’ll do all right — we’re expecting to be number four in the category.” I was stunned. “Number four? Why do you think that?” Because, he said, that’s what Beijing had told him.

Why did anyone ever think it would be different? For the last several years, there has been a move towards more, not less, state control in China. Particularly in the wake of the 2008 crisis, the Communist Party began openly (and understandably) questioning the basic tenets of neoliberalism and financial capitalism. And yet, even as American and European companies have felt the shifting sands, they’ve hedged their bets and tried to play both sides of the field, complaining to officials about intellectual property theft by the Chinese while refusing to sign their name to public complaints that the US government wanted to lodge about such behaviour at the World Trade Organization. The possibility of getting just a sliver of a 1.4bn consumer market, even for a short period, was just too tantalising. Quarterly results, not long-term concerns and certainly not strategic or geopolitical worries, would rule the day.

This hypocrisy began long before president Trump came into office and began calling corporate bluffs (all but those of his own family and friends, it must be said). “During the Obama administration, nobody wanted to go up against China,” says one former Obama administration official who now represents corporate clients at a blue-chip law firm. “Joe Biden would go around and press these companies on whether he could take their cases public, and they’d always say ‘no, don’t name me’. They’d be happy to talk about being asked to pay bribes by the Indians, but never the Chinese. Public companies in particular would say, ‘you have to be in the Chinese market’.”

In the future, it won’t be so easy to play both sides of the field, as both the 19th party congress and Trump’s election have made clear. Multinational companies are trying to play down the idea that the US-China trade war will fundamentally rejigger how they do business, but that’s clearly a bluff. Firms will come under increasing pressure not just from the president himself and the Chinese authorities, but from the American security community, which would like to see the US move back to more of a postwar industrial policy paradigm, as I explore in my column this week.

I think the US Department of Defense is right to worry about whether America’s industrial and technological capacity, which has become integrally interconnected with China over the last several decades, is secure in the event of a sustained trade war (or, God forbid, a hot war) between the two countries. But there is an inherent tension between the goal of national security, and the goal of shareholder value maximisation, which has been the defining principle for American firms over the last 40 years. I expect that the S&P 500 index will reflect that going forward.


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  • John R Hansen
    Ms. Foroohar, as usual, is right on the money when she says, "there is an inherent tension between the goal of national security, and the goal of shareholder value maximization, which has been the defining principle for American firms over the last 40 years. "

    One of the best ways to eliminate this tension is to assure that the prices at which corporations purchase their inputs and the prices at which they sell their outputs are consistent with important public goals such as national security.

    This consistency has been missing for the past 40-plus years — largely because the overvalued dollar makes imports too attractively cheap and US exports too expensive to compete in global markets. This serious currency misalignment has produced excessive import dependency (including dependence on frenemies and enemies for goods critical to national security), and trade deficits that kill US jobs, close US factories, off-shore critical production capacity, and leave future generations burdened with debt while we live beyond our means, spending more than we produce.

    The best way to assure that the prices facing US producers (and other supply chain intermediaries) are consistent with important public goals such as national security is to move the dollar to its trade-balancing equilibrium exchange rate. This is best done by introducing and approving the Competitive Dollar for Jobs and Prosperity Act (CDJPA), legislation that would mandate implementing the Market Access Charge.

    The MAC is a simple, market-based mechanism that would, after more than 40 years, eliminate the serious devaluation that has been perhaps the most important cause of the “inherent tension between the goal of national security, and the goal of shareholder value maximization” about which Foroohar so wisely writes.

    John R. Hansen