Free trade and fair competition between the US and China

Is it my imagination, or has the language of “fair competition” suddenly exploded in discussions about trade between China and the US? We used to worry about supporting a totalitarian regime, a regime and firms that violated human rights, helping to grow the economy of a military rival, unfairness in the restriction on foreign investment and imports, not to mention the exporting of American manufacturing jobs.

But now the talk is all about how the US should conceive of China as a rival and competitor, and what the appropriate rules of this competition should be. Those rules might be formal ones — i.e. the rules for a deliberately adversarial institution, as governed internationally (say, through the WTO) or through bilateral treaties — and informal or “ethical” rules that both parties are expected to follow.

The US Secretary of State, Hillary Clinton, gave us a mouthful of what seems to be a new framework-in-progress during her interview with George Stephanopoulos on ABC’s Good Morning America last week, during Chinese President Hu’s official visit to Washington last week. There’s a link to the ABC clip, and a transcription of the interview on the blog Still4Hill, here.

Here is an interesting excerpt:

QUESTION: Madam Secretary, thanks for joining us this morning. The White House is really rolling out the red carpet for President Hu, but I think a lot of Americans, especially those having trouble in the job market, are having a hard time figuring out how to think about China. Are they friend or foe, ally or adversary?

SECRETARY CLINTON: George, one of the reasons why we are rolling out the red carpet and having President Hu Jintao come for a state visit is because we think that we’ll be able better to answer such a question as we move forward. And my hope is –

QUESTION: You don’t know yet?

SECRETARY CLINTON: Well, my hope is that we have a normal relationship, a very positive, cooperative, comprehensive relationship, where in some areas we are going to compete – there’s no doubt about that – but in many areas we’re going to cooperate. And we’ve seen that pattern in the last two years and it’s a pattern that I think reflects the reality and the complexity of our relationship.

QUESTION: It’s tough competition on the economic front especially. Your senior senator in New York, Chuck Schumer, has said America is getting fed up with the way China is manipulating its currency, closing down its markets, and he says that at times they are seeking unfair economic advantage. He’s actually proposed legislation that would sanction them, have tariffs if they don’t stop manipulating their currency.

Can you see a point where the Administration would get behind something like that?

SECRETARY CLINTON: Well, George, let me say first that I think Americans need to put this relationship into perspective. Our economy is about three times the size of the Chinese economy, where they have four times the number of people. So our standard of living is much higher, our innovation, our creativity – all of that is really to America’s advantage.

They have a huge labor market. They have lower costs. And they are going to be a really tough competitor. And what we’re looking for is a competition where nobody’s got their thumb, or their fist, on the scale.

Our understanding of the concept of trade has been complicated at least since Adam Smith’s Wealth of Nations — in part because trade, especially international trade, seems like a cross between cooperation and competition. The idea of a “fist on the scale” is also a cross of metaphors that seems unusually revealing here.

Meanwhile, Nobel-prize-winning economist and NY Times columnist Paul Krugman is worried about “The Competition Myth” that lies behind the new/old buzzword “competitiveness” that he sees trending in recent communications from the White House.

But let’s not kid ourselves: talking about “competitiveness” as a goal is fundamentally misleading. At best, it’s a misdiagnosis of our problems. At worst, it could lead to policies based on the false idea that what’s good for corporations is good for America.

The Economist this week is following the West’s competition with China to the primary schools and nurseries. In its Banyan column on “[China’s] Tiger Cubs v [the West’s] Precious Lambs” it reports on the astounding recent test scores of Chinese students, and the tiger mothers whose all-work-no-fun parenting makes it happen.

Do we only lament the innovations and improvements that arise from competitions when we sense ourselves beginning to lose? Will there always be a cognitive bias or rationalization that will try to explain such competitive failures in terms of gamesmanship, if not cheating? And oh, what about the poor children?! How can we allow them to be the innocent victims in this competition?