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China's foray into U.S. Steel part of an insidious strategy

China's fourth-largest steel producer, government-owned Anshan Iron & Steel Group, wants to buy a stake in the U.S. Steel Development Co. The plan is to build five new mills, with the first adding 120 jobs to one of America's most economically depressed states, Mississippi. What could be wrong with that?

Plenty, says a bipartisan group of 50 members of Congress. They are demanding an investigation by the Obama administration on economic and national-security grounds.

The Anshan deal, far from an isolated event, is part of a larger go-abroad strategy of Chinese industrial policy. The goals: protect and subsidize China's state-owned "national champions," acquire foreign companies and/or their technologies, then further penetrate foreign markets while often bypassing trade barriers such as antidumping duties.

At the heart of the Anshan matter is an ideological struggle between an America committed to free trade and private enterprise, and a socialist China using a potent array of mercantilist and protectionist weapons to breed national champions in key strategic industries — autos, computers, electronics, textiles and steel.

The grim reality is that American companies will continue to lose that struggle — and the United States will run huge trade deficits and suffer from high unemployment rates — until we adopt this Fair Trade Commandment: Do unto China as China does to us.

What is China doing?

In direct violation of free-trade rules, government-owned companies like Anshan benefit from massive, illegal export subsidies ranging from highly subsidized land, energy and capital to lucrative tax breaks.

China's great wall of protectionism also features a wide array of tariffs and other barriers that shield its national champions from competition in its domestic market.

These companies also fight behind the shield of a grossly undervalued currency. The artificially cheap yuan heavily subsidizes the exports of companies like Anshan even as it imposes a hefty tax on American imports into China.

China is on a quest to beg, borrow, steal, or, in the case of Anshan, buy into the American market and technology.

Once this technology and managerial expertise is transferred back to the Chinese mainland, it will be shared by China's steel companies and used to further penetrate the U.S. and global steel markets. The perverse result: Over time, the Anshan deal will destroy far more American jobs than the 120 it supposedly will create.

Yet another reason to reject the Anshan deal relates back to the inherent contradiction between American capitalism and Chinese socialism. While America's private corporations seek to maximize profits, deploying resources by the laws of economics, Chinese state-owned enterprises seek primarily to create jobs, to ease political pressures on the ruling Communist Party.

While job creation is a salutary goal, the perverse result in China has been a beggar-thy-neighbor cycle: China invests in a glut of over-capacity, then dumps its excess production into world markets at prices well below cost. While China booms, unemployment rates and trade deficits soar for trading partners like the United States and Europe.

It should be clear that if our government approves the deal, this will reduce any pressure on the Chinese government to end its mercantilist practices.

China would never permit an American company to make the kind of strategic acquisition proposed by Anshan. Why should we?

China's foray into U.S. Steel part of an insidious strategy 08/29/10 [Last modified: Sunday, August 29, 2010 5:19pm]
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