David Frum

02.16.12

China, Trade Warrior

Mitt Romney in today's Wall Street Journal takes a hard line on China:

We must change course.

In the economic arena, we must directly counter abusive Chinese practices in the areas of trade, intellectual property, and currency valuation. While I am prepared to work with Chinese leaders to ensure that our countries both benefit from trade, I will not continue an economic relationship that rewards China's cheating and penalizes American companies and workers.

Unless China changes its ways, on day one of my presidency I will designate it a currency manipulator and take appropriate counteraction. A trade war with China is the last thing I want, but I cannot tolerate our current trade surrender.

The former Massachusetts governor is expressing something more than knee-jerk populism here. The trade relationship with China is becoming increasingly adversarial. Currency manipulation is only one part of a more complicated and disturbing story. Here's another piece of the story, as reported last night on Canada's CBC: a new and very credible charge that Chinese hacking was implicated in the collapse of Canadian technology company Nortel.

A former systems security adviser to Nortel Networks says he has no doubt that extensive cyber attacks on the technology company contributed to its downfall.

In an interview with the CBC’s As It Happens, Brian Shields, the former senior systems security adviser at Nortel, said spying by hackers allegedly based in China “absolutely” was a “considerable factor.”

“When they see what your business plans are, that's a huge advantage. It's unfair business practices that really bring down a company of this size," Shields said.

Nortel is currently selling off assets in the wake of a 2009 bankruptcy filing.

Shields said both the Canadian and Chinese governments should investigate.

"Your government needs to step in and provide direct assistance with an expert team …[that will] help with the forensics."

For the past 150 years, open trade has been both supported and a product of a liberal world order. But as the liberal world order weakens (see previous post), trade will change its character. If the West loses the power to impose its rules on China, we may find ourselves with no choice but to adapt to a world with fewer rules—and more zero-sum competition. I am very conscious that these kinds of concerns were once wrongly raised about Japan. But the wrongness of these concerns in one case does not mean that they will always be wrong in every case. Japan was a democracy that saw its interests as ultimately aligned with those of the US and Europe. China is not a democracy, will not soon be any kind of democracy, and in any event does not see its interests as aligned with ours. We need to be very cautious, then, about assuming that our interests are aligned with China's.