Commentary Magazine


Topic: World Trade Organization

Was Russia’s WTO Membership a Mistake?

A couple of years ago I was having a discussion with a critic of Putin’s Russia–who was expelled for his trouble–who noted with alarm the Russian-owned gas companies dotting American highways. I said I saw that as a good sign: at the very least the economic integration meant Russia had more skin in the game, and would probably be less abusive to Western companies doing business in Russia.

In the broader sense, though, the benefits were potentially endless, in large part because the more that Russian citizens dealt directly with Americans the better for both countries. My interlocutor saw it differently, because America will play by the rules whether Russia does or not. I thought of his warning, and dismissed it, in the debate over Russia’s accession to the World Trade Organization. Russia’s membership in the WTO, I argued repeatedly, was overdue and would benefit American companies, and the increased trade would restrain Putin’s ability to manipulate American policy while boosting American leverage over Russia.

I was sure I was right. I’m not so sure now. But it’s not because Russia doesn’t “deserve” to be in the WTO or that the benefits were a mirage. And it’s not because of the push to “punish” Russia for its invasion of Ukraine–though sanctions are surely appropriate. It’s because the economic integration of Russia has done precisely the opposite of what it was expected to do in one crucial regard: the recent events in Ukraine and the West’s unsteady response indicate Russia’s increased leverage instead. Today’s New York Times story on the Obama administration’s internal debate over Ukraine demonstrates this perfectly.

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A couple of years ago I was having a discussion with a critic of Putin’s Russia–who was expelled for his trouble–who noted with alarm the Russian-owned gas companies dotting American highways. I said I saw that as a good sign: at the very least the economic integration meant Russia had more skin in the game, and would probably be less abusive to Western companies doing business in Russia.

In the broader sense, though, the benefits were potentially endless, in large part because the more that Russian citizens dealt directly with Americans the better for both countries. My interlocutor saw it differently, because America will play by the rules whether Russia does or not. I thought of his warning, and dismissed it, in the debate over Russia’s accession to the World Trade Organization. Russia’s membership in the WTO, I argued repeatedly, was overdue and would benefit American companies, and the increased trade would restrain Putin’s ability to manipulate American policy while boosting American leverage over Russia.

I was sure I was right. I’m not so sure now. But it’s not because Russia doesn’t “deserve” to be in the WTO or that the benefits were a mirage. And it’s not because of the push to “punish” Russia for its invasion of Ukraine–though sanctions are surely appropriate. It’s because the economic integration of Russia has done precisely the opposite of what it was expected to do in one crucial regard: the recent events in Ukraine and the West’s unsteady response indicate Russia’s increased leverage instead. Today’s New York Times story on the Obama administration’s internal debate over Ukraine demonstrates this perfectly.

It reveals that there are two sides in the administration: those who want to swiftly punish Russia and those who want to show extreme caution toward something that could reverberate throughout the economy. That’s why, the Times explains, “Obama has the power to go much further even without new legislation from Congress” but hasn’t done so. And the roster of administration advisors line up pretty much exactly where you’d expect them to on this, with those like Victoria Nuland supporting more aggressive sanctions and Treasury Secretary Jack Lew opposed. The Times continues:

But American businesses are warning against overreaction. Representatives of groups like the U.S. Chamber of Commerce, the National Association of Manufacturers and the United States-Russia Business Council have been holding meetings at the White House or in Congress to share their views.

They are urging policy makers to be sure that any sanctions would actually have an impact on Russian behavior, that the costs not outweigh the benefits and that they be multilateral. “We are working closely with policy makers on both sides of the aisle to safeguard manufacturing employees and manufacturers’ investments around the world,” said Jay Timmons, president of the manufacturers association.

Although the United States does only $40 billion in trade with Russia each year, American businesses argue that the amount understates the real economic ties. Ford, for instance, has two assembly plants in Russia that make cars with material that comes from Europe, so that would not be reflected in import-export figures.

Boeing has sold or leased hundreds of planes in Russia and projects that the republics of the former Soviet Union will need an additional 1,170 planes worth nearly $140 billion over the next 20 years. Moreover, the company has a design center in Moscow, has just announced new manufacturing and training facilities in Russia and depends on Russia for 35 percent of its titanium.

“There’s no doubt that key economic groups, especially energy, don’t want us to act,” said James B. Steinberg, a former deputy secretary of state under Mr. Obama and now dean of the Maxwell School of Citizenship and Public Affairs at Syracuse University.

I’m not suggesting that U.S.-Russia trade suddenly materialized out of nowhere when Russia joined the WTO–of course that’s not the case. But it does raise questions about authoritarian actors joining international institutions that don’t require more sturdy political liberalization (like NATO). I’ve written in the past about “reverse integration,” James Mann’s theory of how China could take advantage of economic integration not to play by international rules but to weaken the threshold for rogue regimes to be granted increased international legitimacy and thus dilute, not enhance, global democracy.

That is not quite the concern here with Putin (or at least not the main concern). Russia’s membership in the WTO doesn’t seem to be de-democratizing economic institutions here or abroad. Rather, Putin has taken advantage of economic integration with the U.S. to dull any American response to his adventuresome foreign policy. Because that response already had virtually no military component, weakening or greatly delaying any financial sanctions would tie both the West’s hands behind its back while he did what he wanted.

There has been some talk of how a more proactive energy policy, in terms of American production and export, could have already put a more effective sanctions infrastructure in place. But it’s also worth pondering if, with the best of intentions, we’ve not only depleted our own sanctions arsenal but bolstered Putin’s.

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China Fight Shows Obama’s Cynicism

White House Press Secretary Jay Carney is paid to deny the obvious on a daily basis, but even his ability to lie on behalf of his boss was strained to the max today when he told reporters on Air Force One the administration’s decision to file a complaint with the World Trade Organization about Chinese tariffs on American cars had nothing to do with the president’s re-election campaign. The WTO complaint just happened to coincide with President Obama’s bus tour of Rust Belt states where U.S. cars are manufactured and where he will beat his chest about the beastliness of China’s unfair trade practices. But though the move comes after three years of kowtowing to Beijing, Carney asserted that the complaint was in the works for years and the timing was pure coincidence.

“It can’t suddenly be a political action because it happens during the campaign,” Carney told the press. Oh, no?

This rhetorical flight of fancy doesn’t just display the boundless cynicism of the Obama campaign. It also illustrates the way the president is prepared to seemingly alter his foreign policy to suit the needs of his re-election hopes. Just as he expects friends of Israel to forget about what occurred during the first three years of his presidency prior to the current Jewish charm offensive he is pursuing, he thinks auto workers and their families have memories that are equally as poor.

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White House Press Secretary Jay Carney is paid to deny the obvious on a daily basis, but even his ability to lie on behalf of his boss was strained to the max today when he told reporters on Air Force One the administration’s decision to file a complaint with the World Trade Organization about Chinese tariffs on American cars had nothing to do with the president’s re-election campaign. The WTO complaint just happened to coincide with President Obama’s bus tour of Rust Belt states where U.S. cars are manufactured and where he will beat his chest about the beastliness of China’s unfair trade practices. But though the move comes after three years of kowtowing to Beijing, Carney asserted that the complaint was in the works for years and the timing was pure coincidence.

“It can’t suddenly be a political action because it happens during the campaign,” Carney told the press. Oh, no?

This rhetorical flight of fancy doesn’t just display the boundless cynicism of the Obama campaign. It also illustrates the way the president is prepared to seemingly alter his foreign policy to suit the needs of his re-election hopes. Just as he expects friends of Israel to forget about what occurred during the first three years of his presidency prior to the current Jewish charm offensive he is pursuing, he thinks auto workers and their families have memories that are equally as poor.

The president is right when he now says U.S. car manufacturers have been adversely affected by China’s trade practices. But though the administration has registered prior complaints, the overall tenor of Obama’s attitude toward China has been more focused on appeasing Beijing rather than standing up to it. He has done little if anything to open up China’s markets to U.S. goods, China’s theft of American intellectual property, or to adequately respond to its currency manipulation. Indeed, the only consistent theme of Obama’s policies has been a desire to create U.S. subsidies that give the Chinese cause to complain they are being judged by a double standard.

The contrast between Mitt Romney’s aggressive stance toward China and the more lenient attitude of the Obama administration was illustrated during the Republican presidential debates when Jon Huntsman, the president’s ambassador to Beijing, accused the eventual winner of the GOP nomination of being too tough on the issue. The harsh talk about China we’re hearing now is just one more election-year conversion and about as credible as the laughable Democratic talking points about Obama being Israel’s best friend ever to sit in the White House.

While Americans are used to presidential candidates employing the most transparently cynical political tactics, Obama’s 2012 transformation into Israel’s friend and China’s foe is a bit much for even his most ardent loyalists. While his allies among the leaders of the labor movement have good reason to stifle their own disgust at his trade double-dealing, it’s not likely many rank and file members are going to buy this brazen baloney.

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Middle East Chaos

It is not simply that Iran is moving steadily toward membership in the nuclear powers’ club. It is not only that the UN is plotting to carve up Israel. No, these are symptoms of an underlying problem: the U.S.’s retreat from the Middle East and the decline of American influence. There are other signs as well.

The administration has been demonstrating abject weakness with Syria. It mounted no meaningful response to violations of UN Resolution 1701. It has attempted to confirm and redeploy an ambassador to Damascus. Back in March, Elliott Abrams reeled off the list of “engagement” moves that bore an uncanny resemblance to appeasement:

* High level envoys have been sent to Damascus: Under Secretary of State William Burns visited Syria in mid-February, the highest ranking U.S. official to set foot there in more than five years, and Middle East envoy George Mitchell has visited three times. High-ranking Central Command officers have been sent to Damascus to discuss cooperation against terrorism.

* President Obama has now nominated an ambassador to Damascus, the first since Margaret Scobey was withdrawn in 2005 after the murder of former prime minister Rafik al-Hariri in Lebanon (which was widely blamed on the Assad regime).

* The president has also removed the American block to Syria’s attempt to join the World Trade Organization.

* The United States has eased some export licenses for Syria, mostly in the area of aircraft.

* Syria’s deputy foreign minister was invited to Washington in October, the first such visit in several years.

So how’s that working out? As we’ve seen, Bashar al-Assad has moved ever closer to Iran (the opposite reaction intended by the Obama team), even as he displays his contempt for the U.S.:

Syria’s president has accused the United States of sowing chaos overseas, snubbing Washington’s efforts to improve ties with Damascus. Syrian President Bashar Assad told Al-Hayat newspaper in an interview published Tuesday that the US “created chaos in every place it entered.” “Is Afghanistan stable? Is Somalia stable? Did they bring stability to Lebanon in 1983?” Assad asked, referring to US intervention in Lebanon’s 15-year civil war that ended in 1990.

To this, the U.S. replied, “Are not.” In diplomatic terms: “Spokesman P.J. Crowley charged that Syria is destabilizing Lebanon by supplying arms to militants and issuing arrest warrants for Lebanese officials. ‘These activities by Syria directly undermine Lebanon’s sovereignty and directly undermine Syria’s stated commitments to Lebanon’s sovereignty and independence,’ Crowley said. ‘We believe we’re playing a constructive role in the region, and we believe that Syria is not.”’ This “tough retort,” according to the press account, is what passes for the administration’s Syria policy.

And speaking of Lebanon:

The Obama administration, already struggling to stave off a collapse of Middle East peace talks, is increasingly alarmed by unrest in Lebanon, whose own fragile peace is being threatened by militant opponents of a politically charged investigation into the killing in 2005 of a former Lebanese leader.

With an international tribunal expected to hand down indictments in the assassination of the former prime minister, Rafik Hariri, in the coming months, the Hezbollah militia is maneuvering furiously to halt the investigation, or failing that, to unseat Lebanon’s government, which backs it.

The New York Times helpfully offers that the Obama team has, contrary to appearances, really (honestly!) not been obsessed with the failed Palestinian-Israeli non-peace talks. It has instead been focused on this looming crisis:

The administration’s worries go beyond Lebanon itself, and help explain why it, and not the stalled Israeli-Palestinian negotiations, has been the major preoccupation of American foreign policy officials for the last few weeks. The diplomatic activity follows a splashy tour of Lebanon by Iran’s president, Mahmoud Ahmadinejad, who got an ecstatic reception from members of Hezbollah, the Shiite movement financed and equipped by Iran. American officials were particularly struck by Mr. Ahmadinejad’s trip to a small town a few miles north of the Israeli border, where he called for the “Zionists to be wiped out.”

With unintended comedic effect, the dispatched U.S. envoy, Jeffrey D. Feltman, proclaims: “You don’t want the perception of a vacuum. … You don’t want the perception that Ahmadinejad is the only game in town.” Umm, it’s a little late for that realization, isn’t it? And if that’s the problem, then throwing ourselves at the mullahs’ feet in order to restart the charade of nuclear talks is hardly going to improve matters.

It is not simply that Iran is moving steadily toward membership in the nuclear powers’ club. It is not only that the UN is plotting to carve up Israel. No, these are symptoms of an underlying problem: the U.S.’s retreat from the Middle East and the decline of American influence. There are other signs as well.

The administration has been demonstrating abject weakness with Syria. It mounted no meaningful response to violations of UN Resolution 1701. It has attempted to confirm and redeploy an ambassador to Damascus. Back in March, Elliott Abrams reeled off the list of “engagement” moves that bore an uncanny resemblance to appeasement:

* High level envoys have been sent to Damascus: Under Secretary of State William Burns visited Syria in mid-February, the highest ranking U.S. official to set foot there in more than five years, and Middle East envoy George Mitchell has visited three times. High-ranking Central Command officers have been sent to Damascus to discuss cooperation against terrorism.

* President Obama has now nominated an ambassador to Damascus, the first since Margaret Scobey was withdrawn in 2005 after the murder of former prime minister Rafik al-Hariri in Lebanon (which was widely blamed on the Assad regime).

* The president has also removed the American block to Syria’s attempt to join the World Trade Organization.

* The United States has eased some export licenses for Syria, mostly in the area of aircraft.

* Syria’s deputy foreign minister was invited to Washington in October, the first such visit in several years.

So how’s that working out? As we’ve seen, Bashar al-Assad has moved ever closer to Iran (the opposite reaction intended by the Obama team), even as he displays his contempt for the U.S.:

Syria’s president has accused the United States of sowing chaos overseas, snubbing Washington’s efforts to improve ties with Damascus. Syrian President Bashar Assad told Al-Hayat newspaper in an interview published Tuesday that the US “created chaos in every place it entered.” “Is Afghanistan stable? Is Somalia stable? Did they bring stability to Lebanon in 1983?” Assad asked, referring to US intervention in Lebanon’s 15-year civil war that ended in 1990.

To this, the U.S. replied, “Are not.” In diplomatic terms: “Spokesman P.J. Crowley charged that Syria is destabilizing Lebanon by supplying arms to militants and issuing arrest warrants for Lebanese officials. ‘These activities by Syria directly undermine Lebanon’s sovereignty and directly undermine Syria’s stated commitments to Lebanon’s sovereignty and independence,’ Crowley said. ‘We believe we’re playing a constructive role in the region, and we believe that Syria is not.”’ This “tough retort,” according to the press account, is what passes for the administration’s Syria policy.

And speaking of Lebanon:

The Obama administration, already struggling to stave off a collapse of Middle East peace talks, is increasingly alarmed by unrest in Lebanon, whose own fragile peace is being threatened by militant opponents of a politically charged investigation into the killing in 2005 of a former Lebanese leader.

With an international tribunal expected to hand down indictments in the assassination of the former prime minister, Rafik Hariri, in the coming months, the Hezbollah militia is maneuvering furiously to halt the investigation, or failing that, to unseat Lebanon’s government, which backs it.

The New York Times helpfully offers that the Obama team has, contrary to appearances, really (honestly!) not been obsessed with the failed Palestinian-Israeli non-peace talks. It has instead been focused on this looming crisis:

The administration’s worries go beyond Lebanon itself, and help explain why it, and not the stalled Israeli-Palestinian negotiations, has been the major preoccupation of American foreign policy officials for the last few weeks. The diplomatic activity follows a splashy tour of Lebanon by Iran’s president, Mahmoud Ahmadinejad, who got an ecstatic reception from members of Hezbollah, the Shiite movement financed and equipped by Iran. American officials were particularly struck by Mr. Ahmadinejad’s trip to a small town a few miles north of the Israeli border, where he called for the “Zionists to be wiped out.”

With unintended comedic effect, the dispatched U.S. envoy, Jeffrey D. Feltman, proclaims: “You don’t want the perception of a vacuum. … You don’t want the perception that Ahmadinejad is the only game in town.” Umm, it’s a little late for that realization, isn’t it? And if that’s the problem, then throwing ourselves at the mullahs’ feet in order to restart the charade of nuclear talks is hardly going to improve matters.

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RE: Frolicking with Despots

OK, not every Democrat is enamored of Obama’s Syrian engagement and technology jaunt:

One House Democratic staffer, briefed in advance of the trip by representatives from the State Department Near East Affairs bureau, called it “f***ing idiotic.”

The staffer said State people briefing congressional staff on the trip said, “we are going to infiltrate them (Syria) with technology without them even knowing it.”

“It’s a stupid thing to do,” he said. “Because they are so enamored of their own brilliance. It’s ridiculous. They don’t know what they are doing if they think they are going to subvert the Syrian government with technology and Syria won’t even notice.”

And not every foreign policy guru is shy about blasting the administration:

The administration thinks “they can make Assad like Gorbachev,” the Washington Institute for Near East Policy’s David Schenker said. “They think they are going to have some level of opening [in Syria] with the Internet.”

But “everything that the administration has dangled in front of the Syrians so far has not worked,” Schenker continued. “So now they are sweetening the pot. … The Obama administration has been trying to think creatively. They think that this is a key. They have given a whole number of things to Syria,” including airplane spare parts and lifting U.S. opposition to Syria applying for membership in the World Trade Organization.

Unfortunately, a different mentality pervades this administration, and there is no congressional majority willing to exercise the power of the purse to put a stop to this nonsense.

OK, not every Democrat is enamored of Obama’s Syrian engagement and technology jaunt:

One House Democratic staffer, briefed in advance of the trip by representatives from the State Department Near East Affairs bureau, called it “f***ing idiotic.”

The staffer said State people briefing congressional staff on the trip said, “we are going to infiltrate them (Syria) with technology without them even knowing it.”

“It’s a stupid thing to do,” he said. “Because they are so enamored of their own brilliance. It’s ridiculous. They don’t know what they are doing if they think they are going to subvert the Syrian government with technology and Syria won’t even notice.”

And not every foreign policy guru is shy about blasting the administration:

The administration thinks “they can make Assad like Gorbachev,” the Washington Institute for Near East Policy’s David Schenker said. “They think they are going to have some level of opening [in Syria] with the Internet.”

But “everything that the administration has dangled in front of the Syrians so far has not worked,” Schenker continued. “So now they are sweetening the pot. … The Obama administration has been trying to think creatively. They think that this is a key. They have given a whole number of things to Syria,” including airplane spare parts and lifting U.S. opposition to Syria applying for membership in the World Trade Organization.

Unfortunately, a different mentality pervades this administration, and there is no congressional majority willing to exercise the power of the purse to put a stop to this nonsense.

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Rand Paul’s Foreign Policy

Rand Paul has tried to dial back the extreme isolationist rhetoric expressed by his father, Ron Paul, who once suggested that 9/11 was our fault for provoking al-Qaeda. For instance, the junior Paul, who is now the GOP Senate candidate in Kentucky, says that he’s against a “wholesale withdrawal” from Afghanistan or Iraq (as opposed to a partial pullout?) and that he’s in favor of winning wars once we get into them. Moreover, he favors keeping Guantanamo open and trying terrorists in military tribunals.

But his victory is still bad news for Republicans who believe in a strong and active foreign policy. All you have to do is look at his website to see that he holds a quirky — and untenable — view of a “Fortress America.” He writes, “I believe our greatest national security threat is our lack of security at the border,” a threat that he proposes to address by imposing “a moratorium on Visas from about ten rogue nations or anybody that has traveled to those nations.” This may sound like a seductive solution, but it will not keep us safe, because numerous terrorists (like the would-be Times Square bomber) already have U.S. citizenship or citizenship from non-rogue states such as the United Kingdom. By closing our doors to “rogue nation” citizens (which nations qualify? he doesn’t say), he spurns our best counter-radicalization tool — the ability to educate foreign students in the United States.

The rest of his bare-bones foreign-policy statements consists of red herrings, such as his demand “that we fight only under U.S. Commander and not the UN” — as if UN command of U.S. forces were a big issue. Only in the Paul household, I suspect. And maybe the Pat Buchanan household too. Rand Paul really goes deep into isolationist territory with his views on “sovereignty”:

The Founding Fathers warned us that foreign alliances sacrifice our independence as a nation. In Thomas Jefferson’s First Inaugural Address, he asserted that America should have “peace, commerce and honest friendship with all nations — entangling alliances with none.” Yet today, America is often subservient to foreign bodies such as the International Monetary Fund (IMF), World Bank, World Trade Organization (WTO), and the United Nations (UN). …

Rand Paul proposes that America can engage the world in free trade, develop lucrative commercial relationships with other nations, and defend its national interests without funding or joining international organizations. The U.S. Government must answer only to the Constitution and the citizens protected by it.

I suppose some on the right would join him in denouncing the UN, but what about the IMF, World Bank, and WTO? Generally I think most conservatives are Hamiltonian (one of the Founding Fathers whom Paul doesn’t mention) and believe that we gain from such trade and economic arrangements, which, yes, restrict sovereignty to some small degree but in the process immeasurably benefit the United States by curtailing tariffs and other obstacles to economic growth. There is ample room to criticize and improve the UN, IMF, World Bank, WTO, and other organizations, but Paul’s suggestion that we not fund or join any international organizations suggests that he is advocating a fringe foreign-policy outlook — one I hope is not representative of the Tea Party movement as a whole.

Rand Paul has tried to dial back the extreme isolationist rhetoric expressed by his father, Ron Paul, who once suggested that 9/11 was our fault for provoking al-Qaeda. For instance, the junior Paul, who is now the GOP Senate candidate in Kentucky, says that he’s against a “wholesale withdrawal” from Afghanistan or Iraq (as opposed to a partial pullout?) and that he’s in favor of winning wars once we get into them. Moreover, he favors keeping Guantanamo open and trying terrorists in military tribunals.

But his victory is still bad news for Republicans who believe in a strong and active foreign policy. All you have to do is look at his website to see that he holds a quirky — and untenable — view of a “Fortress America.” He writes, “I believe our greatest national security threat is our lack of security at the border,” a threat that he proposes to address by imposing “a moratorium on Visas from about ten rogue nations or anybody that has traveled to those nations.” This may sound like a seductive solution, but it will not keep us safe, because numerous terrorists (like the would-be Times Square bomber) already have U.S. citizenship or citizenship from non-rogue states such as the United Kingdom. By closing our doors to “rogue nation” citizens (which nations qualify? he doesn’t say), he spurns our best counter-radicalization tool — the ability to educate foreign students in the United States.

The rest of his bare-bones foreign-policy statements consists of red herrings, such as his demand “that we fight only under U.S. Commander and not the UN” — as if UN command of U.S. forces were a big issue. Only in the Paul household, I suspect. And maybe the Pat Buchanan household too. Rand Paul really goes deep into isolationist territory with his views on “sovereignty”:

The Founding Fathers warned us that foreign alliances sacrifice our independence as a nation. In Thomas Jefferson’s First Inaugural Address, he asserted that America should have “peace, commerce and honest friendship with all nations — entangling alliances with none.” Yet today, America is often subservient to foreign bodies such as the International Monetary Fund (IMF), World Bank, World Trade Organization (WTO), and the United Nations (UN). …

Rand Paul proposes that America can engage the world in free trade, develop lucrative commercial relationships with other nations, and defend its national interests without funding or joining international organizations. The U.S. Government must answer only to the Constitution and the citizens protected by it.

I suppose some on the right would join him in denouncing the UN, but what about the IMF, World Bank, and WTO? Generally I think most conservatives are Hamiltonian (one of the Founding Fathers whom Paul doesn’t mention) and believe that we gain from such trade and economic arrangements, which, yes, restrict sovereignty to some small degree but in the process immeasurably benefit the United States by curtailing tariffs and other obstacles to economic growth. There is ample room to criticize and improve the UN, IMF, World Bank, WTO, and other organizations, but Paul’s suggestion that we not fund or join any international organizations suggests that he is advocating a fringe foreign-policy outlook — one I hope is not representative of the Tea Party movement as a whole.

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Hillary On The Factor

Hillary Clinton went on Bill O’Reilly’s Factor. The first half of the interview can be seen here and here. If you grade on substance, she’s fairly awful. She going to sue OPEC through the World Trade Organization and tax oil companies to bring down gas prices. (Honest. No, it’s not clear what happens if OPEC doesn’t answer the first set of written discovery requests.) She’s raising income taxes and she’s not willing to come clean on how much her health care plan will cost.

But on style it’s hard not to gape at her tour de force – pugnacious, funny (she says with a twinkle in her eye that she’d expect nothing but “fair and balanced” coverage from Fox), quick on her feet and, within the confines of her shtick, somewhat candid. She’s a phony, but sort of a real phony.

For Democrats and independents who buy into the populist economics and think someone really is going to have to go fight the mean Republicans and the big bad insurance and oil companies, it’s hard to imagine a feistier combatant.

Republicans have long worried that Barack Obama would be a soothing, deceptively alluring figure in a general election. I think what we saw on O’Reilly was that if she makes it that far, Clinton will be a different, but perhaps equally challenging, figure. Somewhere along the way she learned to articulate a nostalgic, even patriotic vision (“Let’s go back to the 50’s and 60’s,” she says) in which, she says, the middle class isn’t under seige. You can argue with her facts, but the message is clear, the audience specific, and the patter fairly effective. One wonders how skilled John McCain will be in arguing with her about health care and the relative merits of the Clinton and Bush economies. Part 2 of the interview will air tonight.

Hillary Clinton went on Bill O’Reilly’s Factor. The first half of the interview can be seen here and here. If you grade on substance, she’s fairly awful. She going to sue OPEC through the World Trade Organization and tax oil companies to bring down gas prices. (Honest. No, it’s not clear what happens if OPEC doesn’t answer the first set of written discovery requests.) She’s raising income taxes and she’s not willing to come clean on how much her health care plan will cost.

But on style it’s hard not to gape at her tour de force – pugnacious, funny (she says with a twinkle in her eye that she’d expect nothing but “fair and balanced” coverage from Fox), quick on her feet and, within the confines of her shtick, somewhat candid. She’s a phony, but sort of a real phony.

For Democrats and independents who buy into the populist economics and think someone really is going to have to go fight the mean Republicans and the big bad insurance and oil companies, it’s hard to imagine a feistier combatant.

Republicans have long worried that Barack Obama would be a soothing, deceptively alluring figure in a general election. I think what we saw on O’Reilly was that if she makes it that far, Clinton will be a different, but perhaps equally challenging, figure. Somewhere along the way she learned to articulate a nostalgic, even patriotic vision (“Let’s go back to the 50’s and 60’s,” she says) in which, she says, the middle class isn’t under seige. You can argue with her facts, but the message is clear, the audience specific, and the patter fairly effective. One wonders how skilled John McCain will be in arguing with her about health care and the relative merits of the Clinton and Bush economies. Part 2 of the interview will air tonight.

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Slapping Putin’s Back

Reuters reports that when President Bush meets Vladimir Putin this Sunday, the United States and Russia will sign what an unidentified Kremlin source describes as “a joint document which will become a road map of our cooperation during a transitional period and for the medium term.” Yesterday, Russian spokesman Dmitry Peskov, commenting on the document, said this: “Of course we have to register all the achievements during the two terms of presidents Bush and Putin.”

It’s good that the two countries want to accentuate the positive, but the upcoming summit between the friendly leaders runs the risk of irrelevance. As Jim Hoagland wrote on Friday, Bush and Putin wish to end their relationship as presidents “in the soft glow of mutual legacy-burnishing . . . They will leave relations between the White House and the Kremlin mired in a rare soggy middle ground of extended ambivalence.”

I hope Hoagland’s wrong: there’s no lack of substantive issues to tackle. There are, for instance, NATO membership for Georgia and Ukraine, America’s planned missile defense system for Europe, Russia’s adherence to the Conventional Forces in Europe treaty, the extension of START, recognition of Kosovo’s independence, the Kremlin’s support for the Iranian nuclear program, Russia’s accession to the World Trade Organization, and Moscow’s supply of advanced weaponry to China.

Bush, as we all know, leaves office soon. Back-slapping with the Russian autocrat in his seaside dacha seems like a particularly bad use of time, especially at this crucial moment.

Reuters reports that when President Bush meets Vladimir Putin this Sunday, the United States and Russia will sign what an unidentified Kremlin source describes as “a joint document which will become a road map of our cooperation during a transitional period and for the medium term.” Yesterday, Russian spokesman Dmitry Peskov, commenting on the document, said this: “Of course we have to register all the achievements during the two terms of presidents Bush and Putin.”

It’s good that the two countries want to accentuate the positive, but the upcoming summit between the friendly leaders runs the risk of irrelevance. As Jim Hoagland wrote on Friday, Bush and Putin wish to end their relationship as presidents “in the soft glow of mutual legacy-burnishing . . . They will leave relations between the White House and the Kremlin mired in a rare soggy middle ground of extended ambivalence.”

I hope Hoagland’s wrong: there’s no lack of substantive issues to tackle. There are, for instance, NATO membership for Georgia and Ukraine, America’s planned missile defense system for Europe, Russia’s adherence to the Conventional Forces in Europe treaty, the extension of START, recognition of Kosovo’s independence, the Kremlin’s support for the Iranian nuclear program, Russia’s accession to the World Trade Organization, and Moscow’s supply of advanced weaponry to China.

Bush, as we all know, leaves office soon. Back-slapping with the Russian autocrat in his seaside dacha seems like a particularly bad use of time, especially at this crucial moment.

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“What Is Going To Be Done about China?”

Yesterday I suggested that President Bush use all the leverage we have to convince Beijing to disarm Kim Jong Il. The Chinese supply about 90 percent of North Korea’s oil, 80 percent of its consumer goods, and 45 percent of its food. Pyongyang, as we know, has no more loyal supporter in the councils of diplomacy than Beijing. Without China, Kim “could neither bark nor bite.” There would be no North Korean nuclear program, no North Korean missiles, and no North Korea. Jon S, a frequent contentions reader, has borrowed Lenin’s words and asked the critical question: “What is to be done?”

We must first properly understand the “correlation of forces,” if I may continue with Soviet-era lingo. In “China’s century” the general assumption is that the United States must step out of the way of the rising giant. After all, the argument goes, the central government in Beijing owns about $387 billion in U.S. Treasury obligations and holds the bulk of its $1.5 trillion in foreign exchange reserves in dollar-denominated assets. We cannot afford to irritate the Chinese, especially because they have already threatened to exercise the so-called “nuclear option” and dump their dollars. As Hillary Clinton asks, “How do you get tough on your banker?”

Clinton is wrong because she ignores the reality of the financial markets. If the Chinese sold their dollars, they would have to buy something, as a practical matter, euros and yen. The values of those currencies would then shoot through the ceiling. The Europeans and the Japanese, to bring their currencies back into alignment, would then have to buy dollars. In short, our debt would end up in the hands of our friends.

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Yesterday I suggested that President Bush use all the leverage we have to convince Beijing to disarm Kim Jong Il. The Chinese supply about 90 percent of North Korea’s oil, 80 percent of its consumer goods, and 45 percent of its food. Pyongyang, as we know, has no more loyal supporter in the councils of diplomacy than Beijing. Without China, Kim “could neither bark nor bite.” There would be no North Korean nuclear program, no North Korean missiles, and no North Korea. Jon S, a frequent contentions reader, has borrowed Lenin’s words and asked the critical question: “What is to be done?”

We must first properly understand the “correlation of forces,” if I may continue with Soviet-era lingo. In “China’s century” the general assumption is that the United States must step out of the way of the rising giant. After all, the argument goes, the central government in Beijing owns about $387 billion in U.S. Treasury obligations and holds the bulk of its $1.5 trillion in foreign exchange reserves in dollar-denominated assets. We cannot afford to irritate the Chinese, especially because they have already threatened to exercise the so-called “nuclear option” and dump their dollars. As Hillary Clinton asks, “How do you get tough on your banker?”

Clinton is wrong because she ignores the reality of the financial markets. If the Chinese sold their dollars, they would have to buy something, as a practical matter, euros and yen. The values of those currencies would then shoot through the ceiling. The Europeans and the Japanese, to bring their currencies back into alignment, would then have to buy dollars. In short, our debt would end up in the hands of our friends.

And there’s a couple more things that we need to remember about the balance of power between China and the United States. Beijing’s spectacular rise has occurred in a period of sustained worldwide prosperity, but that era is now coming to an end, as the ongoing plunge in global financial markets indicates. China, the world’s largest exporter, has built its economy on selling goods to the United States. Beijing’s trade surplus with us for last year will exceed a quarter trillion dollars when the figures are announced. In short, the stability of the modern Chinese state largely depends on prosperity and that prosperity largely depends on access to American markets, capital, and technology.

Therefore, Beijing’s leaders are not about to cross Washington if they thought we were serious about proliferation. So far, we have not vigorously enforced the trade promises that Beijing made to join the World Trade Organization in 2001. Should we do so, we could drive the Chinese economy into the tank—and Beijing’s leaders know that. It’s time to have a conversation with them about their support for rogues like Kim Jong Il.

Moreover, the United States has never made China pay any price for proliferant activities. We announce slap-on-the-wrist measures on state-owned enterprises every once in a while, but now it’s time to levy real penalties on the Chinese government, which controls those businesses. Until we do that, Beijing’s leaders will just laugh at us while continuing their support for the Kims of the world.

And there’s one more thing. The United States needs to speak clearly to the Chinese, both in public as well as in private, about behavior that is, by any standard, unacceptable. The world looks to Washington for leadership, and we have not been providing it.

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That 70’s Show

Director Jonathan Demme’s documentary on Jimmy Carter—Jimmy Carter Man from Plains—has been drawing dozens of the former President’s devotees to the theaters. The film couldn’t be better timed. What with the shock of skyrocketing oil prices, a feeling of political malaise, the renewed threat of Iranian extremism, and an economy that no longer conforms to tried and true assumptions, it’s starting to seem like the Carter years all over again. (As it did then, it feels now like we’re in a kidney stone of a period that will pass only with great difficulty.)

If you let your memory roam a bit during last Tuesday’s Democratic Party debate, you could, listening to Barack Obama (who is nearly as unctuous as Carter) speak of how only he could deal “honestly with the American people,” hear further echoes of the Carter era. Evidently, such honest dealings require the good will of the Iranian leadership. Carter reached out to Khomeini as “one man of God to another.” Obama, holding out the promise of membership for the Persian state in the World Trade Organization, says he too wants to “engage in aggressive personal diplomacy” with Iran.

But it was John Edwards, like Carter a Southern liberal, who took the most Carter-like approach. President Carter spoke of the need to put aside “our inordinate fear of Communism.” A would-be President Edwards similarly complained that we have been “governed by fear” of terrorism; he promised to put an end to the “politics of fear.” Carter and his spokesmen, such as UN Ambassador Andrew Young, spoke insistently and repeatedly of the need to “restore America’s reputation.” Edwards also speaks about “restoring our good name” in the world.

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Director Jonathan Demme’s documentary on Jimmy Carter—Jimmy Carter Man from Plains—has been drawing dozens of the former President’s devotees to the theaters. The film couldn’t be better timed. What with the shock of skyrocketing oil prices, a feeling of political malaise, the renewed threat of Iranian extremism, and an economy that no longer conforms to tried and true assumptions, it’s starting to seem like the Carter years all over again. (As it did then, it feels now like we’re in a kidney stone of a period that will pass only with great difficulty.)

If you let your memory roam a bit during last Tuesday’s Democratic Party debate, you could, listening to Barack Obama (who is nearly as unctuous as Carter) speak of how only he could deal “honestly with the American people,” hear further echoes of the Carter era. Evidently, such honest dealings require the good will of the Iranian leadership. Carter reached out to Khomeini as “one man of God to another.” Obama, holding out the promise of membership for the Persian state in the World Trade Organization, says he too wants to “engage in aggressive personal diplomacy” with Iran.

But it was John Edwards, like Carter a Southern liberal, who took the most Carter-like approach. President Carter spoke of the need to put aside “our inordinate fear of Communism.” A would-be President Edwards similarly complained that we have been “governed by fear” of terrorism; he promised to put an end to the “politics of fear.” Carter and his spokesmen, such as UN Ambassador Andrew Young, spoke insistently and repeatedly of the need to “restore America’s reputation.” Edwards also speaks about “restoring our good name” in the world.

Both then and now, seemingly paradoxical developments in the economy shredded the old certainties. The Democrats had, since the late 1930’s, organized their economic policy around the requirements of Keynesian demand management. Government spending was their means to avoid economic downturns and ensure a robust economy. This approach was summarized by what was known as the Phillips curve, which described how x percentage of inflation brought y percentage in unemployment reduction. But by the late 1970’s, as business had become accustomed to the Keynesian game and oil prices ramified through the economy, government spending produced the combination of stagnation and inflation known as stagflation. Stagflation ended the Keynesian era and left the Democrats economically rudderless.

Republicans, notes economist Joel Kotkin, face something similar now. There is no doubt that global trade has expanded our GDP. The aggregates, as Larry Kudlow points out, are looking very good. But people don’t live in the aggregate economy. Paradoxically, a sharp increase in inequality, as middle-class incomes grow slowly at best, has accompanied the increase in overall prosperity (the economy grew at a very strong 3.9 percent rate in the last quarter). As former Treasury Secretary Larry Summers explains, “If the distribution of income in the U.S. today were the same as it was in 1979, and the U.S. had enjoyed the same growth, the bottom 80 percent would have about $670 billion more, or about $8,000 per family a year. The top 1 percent would have about $670 billion less, or about $500,000 a family.”

One response to this seeming paradox has been an increasingly critical attitude towards global trade, as if there were an alternative. Politically, this represents a huge opening for the Democrats—much as stagflation helped make Reagan’s election possible.

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Another Fundamental Mistake Involving Russia

Yesterday, Russia’s finance minister said that U.S. officials wanted to conclude discussions on the country’s accession to the World Trade Organization as quickly as possible. “I got the feeling that they are ready to push these negotiations forward,” noted Alexei Kudrin. Russia is the largest economy that is not a member of the global trading body.

And it should stay that way because the Russian Federation is not ready to trade fairly within the context of a rules-based system. For instance, last Wednesday, European Union Trade Commissioner Peter Mandelson again went public with complaints of Moscow’s violation of trade agreements with Brussels. Russia’s previous responses to European complaints have been to continue and even expand aggressive trade practices. For example, Moscow has indicated that it may extend its meat-and-plant ban, which it imposed on Poland almost two years ago.

There seems to be a general feeling in Washington and Brussels that Russia will somehow reform its bad practices once it becomes a WTO member. That sentiment mirrors American and European hopes and expectations regarding China at the end of last decade. Yet, as we have seen since Beijing’s accession in 2001, the Chinese have continued non-compliant trade practices. The United States has had to file five WTO cases against China; even with these complaints we have yet to scratch the surface of Chinese trade violations.

If the experience with China is any guide, Russia will change the WTO more than the WTO changes Russia. We will not be able to say that we were not warned. In June, President Vladimir Putin called for “the creation of a new architecture of international economic relations.” The question is why should we help him wreck pillar multilateral institutions, like the World Trade Organization, from the inside?

Yesterday, Russia’s finance minister said that U.S. officials wanted to conclude discussions on the country’s accession to the World Trade Organization as quickly as possible. “I got the feeling that they are ready to push these negotiations forward,” noted Alexei Kudrin. Russia is the largest economy that is not a member of the global trading body.

And it should stay that way because the Russian Federation is not ready to trade fairly within the context of a rules-based system. For instance, last Wednesday, European Union Trade Commissioner Peter Mandelson again went public with complaints of Moscow’s violation of trade agreements with Brussels. Russia’s previous responses to European complaints have been to continue and even expand aggressive trade practices. For example, Moscow has indicated that it may extend its meat-and-plant ban, which it imposed on Poland almost two years ago.

There seems to be a general feeling in Washington and Brussels that Russia will somehow reform its bad practices once it becomes a WTO member. That sentiment mirrors American and European hopes and expectations regarding China at the end of last decade. Yet, as we have seen since Beijing’s accession in 2001, the Chinese have continued non-compliant trade practices. The United States has had to file five WTO cases against China; even with these complaints we have yet to scratch the surface of Chinese trade violations.

If the experience with China is any guide, Russia will change the WTO more than the WTO changes Russia. We will not be able to say that we were not warned. In June, President Vladimir Putin called for “the creation of a new architecture of international economic relations.” The question is why should we help him wreck pillar multilateral institutions, like the World Trade Organization, from the inside?

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Free Trade on Planet Kristof

This morning, New York Times columnist Nicholas Kristof launched a full-throated—and empty-headed—defense of free trade. Along the way he praised President Bush and attacked Senators Clinton and Obama.

Their offense? The pair of presidential hopefuls engaged in “cowboy diplomacy” by co-sponsoring legislation that targets China for manipulating the value of its currency (he was referring to the bipartisan Baucus-Grassley-Schumer-Graham bill). The proposed legislation, in Kristof’s view, will antagonize the Chinese, politicize trade disputes, and betray President Clinton’s “outstanding legacy on economic issues.”

Outstanding legacy? There may be many magnificent aspects of Bill Clinton’s economic policies, but his strategy for dealing with the mercantilists in Beijing is not one of them. It was he, after all, who decided that China should be permitted to join the World Trade Organization without first reforming its currency regime. The Chinese, once admitted to the global trading body, pegged the renminbi and from July 2005 on have maintained a managed float. As a result, Middle Kingdom manufacturers have obtained an enormous price advantage, which has translated into outsized Chinese trade surpluses against the United States.

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This morning, New York Times columnist Nicholas Kristof launched a full-throated—and empty-headed—defense of free trade. Along the way he praised President Bush and attacked Senators Clinton and Obama.

Their offense? The pair of presidential hopefuls engaged in “cowboy diplomacy” by co-sponsoring legislation that targets China for manipulating the value of its currency (he was referring to the bipartisan Baucus-Grassley-Schumer-Graham bill). The proposed legislation, in Kristof’s view, will antagonize the Chinese, politicize trade disputes, and betray President Clinton’s “outstanding legacy on economic issues.”

Outstanding legacy? There may be many magnificent aspects of Bill Clinton’s economic policies, but his strategy for dealing with the mercantilists in Beijing is not one of them. It was he, after all, who decided that China should be permitted to join the World Trade Organization without first reforming its currency regime. The Chinese, once admitted to the global trading body, pegged the renminbi and from July 2005 on have maintained a managed float. As a result, Middle Kingdom manufacturers have obtained an enormous price advantage, which has translated into outsized Chinese trade surpluses against the United States.

These surpluses have, in turn, cost Americans jobs, undermined our manufacturing base, and de-legitimized free trade. President Clinton engaged China before it was willing to embrace the notion of the mutuality of international commerce, and President Bush, for his part, has failed to hold China accountable for predatory trade and currency policies.

These policies, apparently, do not bother Kristof. In his view, it’s fine for the Chinese to pursue one-sided trade strategies and violate the obligations they undertook in joining the WTO. Only Americans, apparently, deserve condemnation on Planet Kristof.

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Rice’s China Correction

On Friday, Condoleezza Rice, in an interview on CNBC’s Closing Bell with Maria Bartiromo, said “China doesn’t play fair” on trade, according to a transcript released by CNBC—or at least that is what she had said until the network issued a revised transcript. The new version of her remarks came out this way: “China could play fairer.” Dr. Rice apparently believes that Beijing is already something of a fair trader.

This depends on the definition of “fair.” Beijing keeps its currency undervalued by as much as 40 percent. It maintains the world’s largest array of manufacturing subsidies and permits the biggest ongoing theft in history, the piracy of foreign intellectual property. China continues its system of restrictions on foreign products and competitors, and consistently violates the promises it made in order to join the World Trade Organization. This, in Rice’s view, is “fair”?

One of the most important things that Rice can do in the remainder of her tenure is to get China policy right. She needs to formulate effective strategies to encourage Beijing to help solve problems around the world, not continue to make them worse. But she can’t do that if she won’t tell the truth about China. A good starting point would be to correct the correction of her CNBC remarks.

On Friday, Condoleezza Rice, in an interview on CNBC’s Closing Bell with Maria Bartiromo, said “China doesn’t play fair” on trade, according to a transcript released by CNBC—or at least that is what she had said until the network issued a revised transcript. The new version of her remarks came out this way: “China could play fairer.” Dr. Rice apparently believes that Beijing is already something of a fair trader.

This depends on the definition of “fair.” Beijing keeps its currency undervalued by as much as 40 percent. It maintains the world’s largest array of manufacturing subsidies and permits the biggest ongoing theft in history, the piracy of foreign intellectual property. China continues its system of restrictions on foreign products and competitors, and consistently violates the promises it made in order to join the World Trade Organization. This, in Rice’s view, is “fair”?

One of the most important things that Rice can do in the remainder of her tenure is to get China policy right. She needs to formulate effective strategies to encourage Beijing to help solve problems around the world, not continue to make them worse. But she can’t do that if she won’t tell the truth about China. A good starting point would be to correct the correction of her CNBC remarks.

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Will China Collapse?

My May 16 post, “Trade Showdown with China,” attracted a comment from one “Tongluren,” who asked, “Is this the same Gordon Chang that insisted that China will collapse in 2007?” It’s a fair question.

My first book, The Coming Collapse of China (2001), predicted that the Chinese Communist party would fall from power by the end of this decade, that is, by 2011 (not 2007). One of my principal arguments was that international commerce would remake Chinese society in ways that the country’s collective leadership—now composed of nine aging engineers who all favor blue suits and red ties—would not be able to handle.

Most people, like my new friend Tongluren, believe the Chinese one-party state is durable. If there is any consensus about China’s trajectory at this moment, it is that the Communist party will lead that nation to geopolitical and economic dominance in a few decades, perhaps sooner. “Resilient authoritarianism,” championed by Columbia University’s Andrew Nathan, is the latest intellectual flavor.

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My May 16 post, “Trade Showdown with China,” attracted a comment from one “Tongluren,” who asked, “Is this the same Gordon Chang that insisted that China will collapse in 2007?” It’s a fair question.

My first book, The Coming Collapse of China (2001), predicted that the Chinese Communist party would fall from power by the end of this decade, that is, by 2011 (not 2007). One of my principal arguments was that international commerce would remake Chinese society in ways that the country’s collective leadership—now composed of nine aging engineers who all favor blue suits and red ties—would not be able to handle.

Most people, like my new friend Tongluren, believe the Chinese one-party state is durable. If there is any consensus about China’s trajectory at this moment, it is that the Communist party will lead that nation to geopolitical and economic dominance in a few decades, perhaps sooner. “Resilient authoritarianism,” championed by Columbia University’s Andrew Nathan, is the latest intellectual flavor.

So it is no great surprise that people often ask me, in light of the spectacular performance of the Chinese economy in the last half decade, whether I have changed my opinions on the stability of the modern Chinese state. I have, in one important respect: I am surprised that China’s trading partners have been so tolerant of its failure to meet its World Trade Organization obligations. China’s economic success is based not only on structural factors like cheap labor and extreme environmental degradation, but also on widespread violations of trade promises. WTO membership limits the Communist party’s ability to continue those violations—and therefore to rack up enormous trade surpluses—but only if other nations enforce their rights.

At first, other nations were tolerant. America waited until March 2004 to file the first WTO complaint against China. Then Washington gave Beijing a private warning in February 2006 that its informal grace period was over. After more Chinese intransigence, Washington and Brussels took the unprecedented step of joining in a complaint the following month. Finally, Americans lost patience and filed three cases this year. In one of them—concerning intellectual property violations—we have been joined by Canada, Japan, Mexico, and the European Union.

China’s trading partners have just begun to scratch the surface with cases like these. Undoubtedly, additional complaints are on the way, as even more nations lose their patience with Beijing’s predatory trade practices. So WTO membership can eventually lead to major dislocations in the Chinese economy. Before joining the global trading organization, Beijing set the rules and administered the game. Now, however, it has submitted itself to external requirements and foreign tribunals.

Sensing American frustration, Beijing is approaching next week’s trade talks with the Bush administration with a hint of desperation. It is making pugnacious pronouncements, purchasing large quantities of American technology and soybeans, and pleading for more patience. It is, in fact, doing everything but complying with its trade obligations. Chinese leaders know that their economy cannot compete according to the rules. And that is one reason why the Chinese one-party state, which is overly dependent on exports to deliver prosperity, might just yet collapse.

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Trade Showdown with China

This month Beijing is sending one of its largest delegations ever to visit America. Headed by the “Iron Lady of China,” Vice Premier Wu Yi, the group will participate in the second round of Treasury Secretary Hank Paulson’s Strategic Economic Dialogue, which begins in Washington next week.

In the last two weeks, Paulson has been trying to lower expectations for the upcoming discussions with the Chinese. That’s smart strategy. The first round of the dialogue, held in Beijing last December, was an abysmal failure. And the talks later this month are bound to be contentious: the Bush administration in March announced it would reverse decades of trade policy by imposing countervailing tariffs on products from non-market economies. The U.S. has also filed a series of World Trade Organization complaints against China: one in February and two more last month. The February case complains of nine discrete sets of manufacturing subsidies. The cases last month target both Chinese piracy of American intellectual property and China’s internal restrictions on the distribution of foreign films, music, books, and journals.

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This month Beijing is sending one of its largest delegations ever to visit America. Headed by the “Iron Lady of China,” Vice Premier Wu Yi, the group will participate in the second round of Treasury Secretary Hank Paulson’s Strategic Economic Dialogue, which begins in Washington next week.

In the last two weeks, Paulson has been trying to lower expectations for the upcoming discussions with the Chinese. That’s smart strategy. The first round of the dialogue, held in Beijing last December, was an abysmal failure. And the talks later this month are bound to be contentious: the Bush administration in March announced it would reverse decades of trade policy by imposing countervailing tariffs on products from non-market economies. The U.S. has also filed a series of World Trade Organization complaints against China: one in February and two more last month. The February case complains of nine discrete sets of manufacturing subsidies. The cases last month target both Chinese piracy of American intellectual property and China’s internal restrictions on the distribution of foreign films, music, books, and journals.

How important are these WTO cases to Beijing? Very—each touches on an essential part of China’s vast economy. Trade subsidies are vital to China’s competitiveness—they benefit about 60 percent of its exports, according to U.S. Trade Representative Susan Schwab. China’s theft of intellectual property is now tightly interwoven into the fabric of its economy. And the restrictions on legitimate distribution of foreign entertainment products and publications are essential to the Communist party’s control over ideas and its political monopoly.

Late last month Vice Premier Wu said Beijing would “fight to the finish” over the U.S. complaints. These words make it clear that we are heading for a rough patch in U.S.-China relations. Trade issues like these not only affect the foundations of China’s export economy, but also impinge deeply on political matters. The Chinese undoubtedly feel they have little room for compromise.

And fighting to the finish they are. Beijing capitulated on the first case Washington filed: against a preferential value-added tax rate for domestically produced or designed integrated circuits.* But the Chinese government has chosen to resist the second American complaint-relating to discriminatory auto-parts tariffs-even though it has little chance of success, and it will undoubtedly oppose the three cases just filed. The Bush administration may want to avoid a trade war with Beijing. But, as Wu Yi has indicated with her stark words, the Chinese think they are already fighting one.

*Through an editor’s error, this tax rate was originally mislabelled.

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