Washington has been loose with facts, analysis, and conclusions about China, and the American public has been far too gullible in its acceptance of this false narrative, says Stephen Roach. He wants objectivity and honesty in assigning blame

Washington has been loose with facts, analysis, and conclusions about China, and the American public has been far too gullible in its acceptance of this false narrative, says Stephen Roach. He wants objectivity and honesty in assigning blame

In a rare moment of bipartisan agreement, America’s Republicans and Democrats are now on the same page on one key issue: Blaming China for all that ails the United States. China bashing has never had broader appeal.

This fixation on China as an existential threat to the cherished American Dream is having serious consequences. It has led to tit-for-tat tariffs, escalating security threats, warnings of a new cold war, and even whispers of a military clash between the rising power and the incumbent global hegemon.

With a trade deal apparently imminent, it’s tempting to conclude that all this will pass. That may be wishful thinking. Sino-American trust is now in tatters. The likelihood of a superficial deal won’t change that. A new era of mutual suspicion, tension, and conflict is a very real possibility.

But what if the US chattering class has it all wrong and the China bashing is more an outgrowth of domestic problems than a response to a genuine external threat? In fact, there are strong grounds to believe that an insecure US – afflicted with macroeconomic imbalances of its own making and fearful of the consequences of its own retreat from global leadership – has embraced a false narrative on China.

Consider trade. In 2018, the US had a $419 billion merchandise trade deficit with China, fully 48% of the massive overall trade gap of $879 billion. This is the lightening rod in the debate, the culprit behind what US President Donald Trump calls the “carnage” of job losses and wage pressures.

But what Trump – and most other US politicians – won’t admit is that the US ran trade deficits with 102 countries in 2018. This reflects a profound shortfall of domestic saving, owing in large part to the reckless budget deficits approved by none other than Congress and the president. Nor is there any recognition of supply-chain distortions – arising from inputs made in other countries but assembled and shipped from China – that are estimated to overstate the US-China trade imbalance by as much as 35-40%. Never mind basic macroeconomics and new efficiencies from global production platforms that benefit US consumers. Apparently, it is much easier to vilify China as the major obstacle to making America great again.

Next, consider intellectual property theft. It is now accepted “truth” that China is stealing hundreds of billions of dollars of US intellectual property each year, driving a stake into the heart of America’s innovative prowess. According to the accepted source of this claim, the so-called IP Commission, in 2017 IP theft cost the US economy between $225 and $600 billion.

Leaving aside the ridiculously broad range of such an estimate, the figures rest on flimsy evidence derived from dubious “proxy modeling” that attempts to value stolen trade secrets via nefarious activities such as narcotics trafficking, corruption, occupational fraud, and illicit financial flows. The Chinese piece of this alleged theft comes from US Customs and Border Patrol data, which reported $1.35 billion in seizures of total counterfeit and pirated goods back in 2015. Equally dubious models extrapolate this tiny sum into an aggregate guesstimate for the US and impute 87% of the total to China (52% to the mainland and 35% to Hong Kong).

Then there is the red herring emphasised in the Section 301 report published by the US Trade Representative (USTR) in March 2018, which provides the foundational justification for tariffs levied on China: forced technology transfer between US companies and their Chinese joint venture (JV) partners. The key word is “forced,” which implies that innocent US companies that enter willingly into contractual agreements with Chinese counterparts are coerced into surrendering their proprietary technologies in order to do business in the country.

To be sure, JVs obviously entail a sharing of people, business strategies, operating platforms, and product designs. But the charge is coercion, which is inseparable from the presumption that sophisticated US multinationals are dumb enough to turn over core proprietary technologies to their Chinese partners.

This is another shocking example of soft evidence for a hard allegation. Incredibly, the USTR actually admits in the Section 301 report (on page 19) that there is no hard evidence to confirm these “implicit practices.” Like the IP Commission, the USTR relies instead on proxy surveys from trade organizations like the US-China Business Council, whose respondents complain of some discomfort with China’s treatment of their technology.

The Washington narrative also paints a picture of China as a centrally planned behemoth sitting astride massive stated-owned enterprises (SOEs) that enjoy preferential credits, unfair subsidies, and incentives tied to high-profile industrial policies such as Made in China 2025 and Artificial Intelligence 2030. Never mind a large body of evidence that underscores the low-efficiency, low-return characteristics of China’s SOEs.

Nor is there any doubt that comparable industrial policies have long been practiced by Japan, Germany, France, and even the US. In February, Trump issued an executive order announcing the establishment of an AI Initiative, complete with a framework to develop an AI action plan within 120 days. China is hardly alone in elevating innovation to a national policy priority.

Finally, there is the time-worn issue of Chinese currency manipulation – the fear that China will deliberately depress the renminbi to gain unfair competitive advantage. Yet its broad trade-weighted currency has risen over 50% in real terms since late 2004. And China’s once-outsize current-account surplus has all but vanished. Still, the currency grievances of yesteryear live on, getting prominent attention in the current negotiations. This only compounds the false narrative.

All in all, Washington has been loose with facts, analysis, and conclusions, and the American public has been far too gullible in its acceptance of this false narrative. The point is not to deny China’s role in promoting economic tensions with the US, but to stress the need for objectivity and honesty in assigning blame – especially with so much at stake in the current conflict. Sadly, fixating on scapegoats is apparently much easier than taking a long, hard look in the mirror.


Stephen S. Roach, a faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China. Copyright: Project Syndicate, 2019, published here with permission.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

18 Comments

Comment Filter

Highlight new comments in the last hr(s).

' loose with facts, analysis, and conclusions ' - it is just like climate change. However that does not disprove either climate change or the interference and piracy by the Communist party of China in international commerce. As Fonterra found out there really was contamination in milk.

Every criticism levelled at the USA could be also apply to China.
Nothing happens in China without the Govts say so.

This is standard lib-speak from the North American colleges these days. I wouldn't read too much into it.
Never, ever, ever trust the Chinese.

This is a balanced and well written article and I have to say it has changed my view of China. A lot of deeply disappointed former Trump supporters are now looking at China with fresh eyes.

Their belt and road initiative is forward thinking and they appear to be planning for the long term. Their tech is developing at an amazing pace and now they have plans for a Moon base. A Moon base! That alone is enough for me to be pretty sympathetic.

The West should be helping them and not trying to put road blocks in their way. Currently the West is just too cringey and silly to be taken seriously.

Are you including NZ in your west? Cringey is a good word.

NZ is certainly going down that path.

You seem to be determined to find some big, powerful entity that you can kowtow and forelock tug to. There are dominatrix's around that could maybe help you satisfy that.

Your views seem to have shifted quite a lot Zachary. I recall 1-2 years ago you being very pro-West, and almost a self confessed 'Alt-Righter'????

Maybe the common thread is consistently bad ideas.

I think this is a good article.

All we hear is "Good America", "Bad China". But in terms of things like spying, cyber hacking and stealing IP, the US is by far the worst culprit.

I don't like China's political system. And I don't like how they are harming the environment and endangered species.

But then I don't like the way the US has a policy of constant war and regime change either. And of course they have a narcissistic liar for a president.

I agree, especially where the environment and other species are concerned. There seems to be a lot of China spruiking articles at the moment and they all seem to fail to address the negative aspects, which are not insignificant.

PS not saying the USA is much better there, but at least people have the right to choose a government that might do better.

I thought the only person who actually says 'Good America' is president Trump and his judgement is suspect.

For a negative view of China's Huawei see http://newsletters.spectator.co.uk/c/13T7F9MoSHzpNZ7ZMOTqQlR63
Quote ""Huawei’s founder Ren Zhengfei declared that it would be commercial suicide to go against the interests of customers. But he knows that a quicker method of suicide would be to go against the wishes of Xi Jinping’s Chinese Communist Party. And recent national security laws oblige individuals and organisations to cooperate with the CCP’s intelligence services.
Huawei certainly has form. Every night over several years, information from the African Union HQ in Addis Ababa, Ethiopia, reportedly bled to servers in Shanghai. The main supplier of communication technology systems in the building? Huawei.""

Good points.
There's never ever been a benign empire or major power has there? I can't think of one, can anyone else?
It may be a simple universal fact that major powers just aren't very nice, whatever their political system, and that they need to be not very nice to maintain their power.

100%

Very true. Consider all these quotes:

"We do not covet one square inch of the territory of any other nation."

"We are not imperialistic."

"The US is the only great power without a history of imperialistic claims."

"America covets no one else's land. We seek no one else's treasures."

All statements made by Presidents of the USA.

Hence, pretty understandable taking similar statements made by the new kid on the block with a grain of salt too, especially in the light of current debt trap diplomacy being used to acquire strategic assets.

Lapun, you are soooo right in your quote, which I reproduce below:Quote ""Huawei’s founder Ren Zhengfei declared that it would be commercial suicide to go against the interests of customers. But he knows that a quicker method of suicide would be to go against the wishes of Xi Jinping’s Chinese Communist Party. And recent national security laws oblige individuals and organisations to cooperate with the CCP’s intelligence services.
Huawei certainly has form. Every night over several years, information from the African Union HQ in Addis Ababa, Ethiopia, reportedly bled to servers in Shanghai. The main supplier of communication technology systems in the building? Huawei.""

You cannot Trust China!!

I agree Missy. A concern I have here, particularly with Zac's comment above is that so much of the trade issue is intertwined with politics. With the US and most western democracies this is largely less visible (although with the US more rather than less), and small countries like NZ are often asked to choose ideological sides while trying to do trade. In most democracies the rule of law takes precedence and is independent of the political establishment (or is supposed to be), but it is apparent that in China the rule of law is not independent of the political establishment. Trump clearly appears to wish he could do the same in the US. As i said to Xing some time ago, we take great pride in being INDEPENDENT. we would like to trade with everyone without strings. We are vulnerable to political manipulation from the big players, while ideally we should not be.