Obama Is Being Economically Outmaneuvered By China

Obama Is Being Economically Outmaneuvered By China

By: Rachel Marsden

PARIS -- U.S. President Barack Obama had barely set foot in Beijing for the Asia-Pacific Economic Cooperation (APEC) summit before he was cutting lip-service deals with China, seemingly unaware of that nation's long-term agenda and the American vulnerability that's ripe for exploitation. For the Chinese, it's not about trade anymore, but about making the U.S. dependent on China in the long term..

Obama announced an "understanding" with China that would kill tariffs on high-tech products such as global positioning systems, video game consoles and medical devices. The net benefit of tariff elimination and free trade -- something that Obama is pursuing not only with China bilaterally but also with other countries in the Asia-Pacific region via the Trans-Pacific Partnership (TPP) -- goes to the nation that gets the tax break in getting its products to market. That would be China, because it makes virtually everything that anyone else anywhere in the world wants to buy, with the exception of defense technology products.

China dominates global consumer-technology manufacturing. American corporations can outsource manufacturing to Chinese workers nowadays without hearing complaints that the products weren't "made in America" and are therefore of lesser quality.

As a consolation prize for having their jobs shipped overseas, maybe Americans will pay less for some of their consumer electronics. Or maybe the cost benefit will just disappear into the corporate-stakeholder abyss.

It would be nice if Obama could clarify that point. Will Americans actually see lower sticker prices? Or is this one of those convoluted formulas whereby a net benefit to the American consumer has to trickle down in the form of some vague and abstract "opportunity" to be more concretely defined later, if at all.

Tariff elimination makes sense when a country exports raw materials to another nation and later gets the finished product back. Give your neighbor an egg and some flour to bake a batch of cupcakes, and it's all good as long as you get some of the sweet treats in return.

The problem with these new free trade agreements is that, like capitalism itself, the original incarnation has been completely perverted. China isn't importing raw materials from the U.S. to manufacture and return a finished product to the American market. Instead, China is mining rare earth minerals all over the planet, particularly in places where labor is cheap and regulation is nonexistent. Then Chinese companies can jack up the profitability of the end product when it's sold in foreign consumer markets.

There's a potential economic pitfall for America here. U.S. mining companies have interests in Africa, Indonesia and elsewhere -- and American shareholders are no doubt reaping the spoils from these operations. However, U.S. mining companies are largely feeding the Chinese manufacturing machine.

See the vulnerability in this chain? All China would have to do is undercut or outmaneuver U.S. companies in places like Africa and Indonesia, and America would effectively be shut out of those markets. Flashing the mega-cash has already worked for the Chinese in post-Saddam Iraq, throughout Africa and elsewhere.

So while Obama is focusing on getting more China-made tech products into America without offending the Chinese with taxes (though he has no qualms about offending Americans with taxes at home), the Chinese are playing a totally different game that's strategically focused on the long term.

China is conveniently admitting that it couldn't possibly qualify to be a TPP partner, what with all the stringent requirements related to labor and environmental standards, intellectual property, etc. This gives China the excuse that it needs to focus instead on pursuing greater regional integration.

This means, for example, that when Indonesia's government succeeds in divesting U.S. and Western mining operations of their ownership through a law mandating that within 10 years, the majority of every Indonesian mine must be owned by state-sanctioned Indonesian nationals, China will be in a natural position to move in to exploit the situation.

On Sunday, the presidents of China and Indonesia agreed that China would move into Indonesia to "push forward cooperation in the fields of infrastructure building, agriculture, finance and nuclear power, and fully utilize related mechanisms to advance maritime and aerospace cooperation," in the words of Chinese President Xi Jinping.

Meanwhile, Obama has scored some cost reductions in Chinese-made video games that may or may not be passed along to American consumers. Yay.