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Whiting column: Risks of TPP and Chinese business ownership

Last of two parts. Read Part I.

Our economic relationship with China is complicated by the Trans Pacific Partnership and China buying U.S. businesses.

The TPP was a trade agreement between the U.S. and 11 other Pacific Rim countries signed by President Obama in February 2016. Its presence moved to the front row during the campaign because candidate Trump promised to withdraw our support. It jumped to center stage on Jan. 23 when President Trump did so.



We are not reneging because it hadn’t been signed by all countries. Total ratification was expected in 2017. China wasn’t involved because it didn’t support its requirements.

Major provisions include removing all tariffs and other trade barriers between all 12 countries. Tariffs were discussed in Tuesday’s column. Other trade barriers removed included regulations regarding limitations on quantity of a product that can be imported and limitations on environmental aspects of raw materials utilized. An example: the U.S couldn’t limit the quantity of foreign cars imported nor place any environmental or consumer safety regulations on the materials in that car.



Another provision stated a member country could not adopt any trade regulation in the future unless approved by the other 11 signees. It also provided a mechanism by which a member country could sue the U.S. or any country that broke the TPP or passed a law which hurt the domestic or international business of that country.

The stated future goal was to eventually create a single market similar to the European Union. Virtually every industry is subject, including agriculture, automobiles, technology, industrial goods and most service industries. Interestingly, the Obama administration added a provision that would prohibit foreign pharmaceutical companies from developing competing products for eight years.

TPP’s proposed advantage was other countries could not levy any tariff or trade barrier on products we export. Given most other countries products are priced below ours because of lower labor costs and lack of regulation, this aspect is of little value. Because we couldn’t add tariffs or trade barriers, we would be flooded with lower-priced beef, wheat, steel and consumer products, further reducing sales and employment. In order to compete both domestically and internationally, we would have to reduce labor costs. There are only three ways to accomplish that: reduce wages, outsource to a foreign country or increase automation, none of which is desirable.

The provision requiring TPP approval for any future regulation or law also would have put us at the mercy of these other countries and inhibited self-determination. We know best how to promote our economic system.

China’s determination that TPP is not in its best interests should illustrate that our inclusion is not advisable. China is and will continue to have free reign in regard to trade with other countries including import regulation, currency manipulation and artificially low prices. Limiting our ability to compete is not to our economic advantage.

CHINA BUYING U.S. BUSINESS

In 2010 China spent $15 billion acquiring U.S. businesses. Significant enough, but that figure has grown every year. In 2015 China spent $102 billion. Again, what did we receive of value? The largest areas of acquisition are food, finance and energy, which potentially facilitates threatening our way of life, national security and equity markets.

The same concerns exist when we allow any country to purchase property and business. Beyond China, other countries own more than 50 percent of the balance of our Treasury obligations, so the same strategy discussed in the first of these columns could be utilized.

A proposed solution: We should start buying Chinese and other foreign businesses. This would work, but the risk is China or any country can “nationalize” a foreign-owned business. This has historically occurred many times, especially in Latin America and Africa, but can happen in any country. Could we nationalize a foreign-owned business? Sure, but that is not something we historically have done.

Other countries buy our property and business so they can access capitalism. Their economic system doesn’t work as well as ours.

When China or any foreign country owns a business here, they possess significant power in our economy, the use of our resources and the employment of our people. Another negative is their ability to shield income generated in our country. A Chinese-owned business utilizes its financial system, hence avoiding most of the auditable processes to which our companies are subject. This means these businesses do not pay their share of income, sales or excise taxes that may apply.

Another solution: Don’t allow Chinese ownership of American business. A less dramatic solution would be limiting foreign ownership to 10-20 percent.

To be fair, there is the political theory of economic interdependence. Its thesis is the more countries are economically dependent, the less likely they are to destroy one another. This concept was hypothesized during the Cold War. Advocates felt it wasn’t necessary to match the Soviet Union weapon for weapon to create the balance in which war would lead to mutual destruction hence deterring its occurrence. Instead, because the Soviet Union could only produce 60 percent of the food it needed, it wasn’t going to bomb the grocery store.

The Chinese presents other issues, especially environmental. Their opening two coal-fired power plants per week in 2015 and 80 percent of their water wells being contaminated with industrial pollution are just two negatively affecting us.

Similar to the “peaceful coexistence” strategy of Cold War Russia, China has determined its goal of world domination is best accomplished through economic as opposed to military means. It is our responsibility to try and understand the Chinese, their system and motives so we can encourage our politicians to have the courage to make common-sense decisions based on what is best for our country, and not just partisan agendas.

Bryan Whiting believes most of our issues are best solved by personal responsibility and an understanding of nonpartisan economics rather than by government intervention. He is retired after 40 years of teaching marketing, entrepreneurship and economics. Comments and column suggestions: bwpersonalresponsibility@gmail.com.


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