Pretending all Chinese companies are evil schemers will only hurt the U.S. economy

Some concerns are legitimate: Washington should want to know whether the Chinese government is using companies to steal its secrets or gather data to blackmail federal employees. But many voices are urging an emotional rather than a strategic response. Chinese-made subway cars are now “spy trains.” Steve Bannon just released a documentary called “Claws of the Red Dragon,” less Hollywood than holy crusade: “It’s about Huawei, the technological monster that the Chinese Communist Party is using to devour the United States and the rest of the world,” he explains. “This is a true-life depiction of their pure evil.”

We’ve seen this movie before. It stems from an old and recurring tendency to cast foreign economic competition as a struggle between good (ours) and evil (everybody else’s). Dripping with exaggeration and whispering conspiracy, it is the economic extension of what the political scientist Richard Hofstadter called “the paranoid style in American politics.” Like earlier instances in U.S. history, it is a call to action of the worst kind: harming American competitiveness and the very values its believers claim to protect.

Foreign economic fears often center on technology, but when adequately whipped up, they can spill into unrelated areas. In the early 1800s, Americans worried that the British had a vast plot to destroy U.S. industry and recolonize the United States, as the historian Lawrence Peskin writes. British agents were imagined to be everywhere: slaughtering sheep in Connecticut to keep the United States dependent on British wool, sabotaging manufacturing equipment in Philadelphia and bribing gunsmiths to leave the country. One concerned American warned that mahogany chairs imported for Congress were a British scheme “to promote extravagance” and “to destroy our republican system.” (The anonymous writer was from the Northeast, where, not surprisingly, lumber was a leading industry.)

How China gets American companies to parrot its propaganda

Fears about foreign competition continued to warp U.S. economic policy from the Civil War to World War I, as Douglas Irwin recounts in “Clashing Over Commerce.” Opponents of the McKinley Tariff of 1890 were accused of joining with “agents and factors of foreign manufacturers in a conspiracy . . . to keep profitable production out of this country.” Touring the Midwest in 1916, Woodrow Wilson’s treasury secretary reported that Republicans had stirred “a genuine fear . . . that this country is in jeopardy from a possible invasion of its markets by manufacturers and merchants of Europe after peace is restored.”    

In the 1930s, the media magnate William Randolph Hearst pushed one of the first “Buy American” campaigns. As Dana Frank explains in “Buy American: The Untold Story of Economic Nationalism,” “In Hearst’s Manichean world of domestic good and foreign evil . . . [Asian] products were therefore evil, whether manufactured abroad or by their agents plotting within the borders of the United States.” (Hearst stole the idea from overseas, having learned about a “Buy British” campaign.) He got his wish when Congress passed the 1933 Buy American Act, which requires the U.S. government to prefer domestic goods in its purchases.

President Trump has embraced “Buy American” requirements, but determining what’s domestic has become mind-bendingly difficult since Hearst’s days, and self-inflicted harm is especially likely now that supply chains are global. More than 7 million Americans work for foreign companies, as The Washington Post’s David Lynch points out, and a quarter of U.S. exports come from factories with non-American owners. The increased complexity of domestic-content requirements and conditions for waivers also creates gray areas that well-connected companies can exploit, increasing the risk of favoritism and corruption.

Trump also draws economic inspiration from the 1980s. Back then, Japan was the rising economic power that made America tremble. Its trade surplus with the United States grew eightfold between 1981 and its peak in 1986. Experts warned that Japan would overtake the United States as the world’s largest economy. “Today, 40 years after the end of World War II, the Japanese are on the move again in one of history’s most brilliant commercial offensives, as they go about dismantling American industry,” wrote Theodore White, a Pulitzer Prize-winning journalist. The future looked Japanese: Americans driving Toyotas to work, reporting to their Japanese bosses and returning home to watch Sony TVs.

Let China win. It’s good for America.

Rather than projecting confidence, the United States initially responded by smashing things. U.S. autoworkers took hammers to Japanese cars during rallies. After Toshiba sold dual-use technology to the Soviet Union, a group of lawmakers held a news conference in 1987 during which they swung sledgehammers at a Toshiba boombox. “The United States is rapidly becoming a colony of Japan,” another lawmaker warned in 1990.

Pop culture was not much subtler: In 1990, best-selling novelist Clive Cussler published “Dragon,” a thriller about Japanese bad guys who plan to smuggle nuclear weapons into the United States by hiding them in Japanese cars. (Publishers Weekly called it a “Japan-bashing ad­ven­ture . . . perfect beach reading.”) Michael Crichton’s “Rising Sun,” published in 1992 and released as a movie the following year, warned that the United States was selling its future to Japan. The story begins with a murder in the U.S. headquarters of a Japanese corporation and proceeds to expose the imagined sins of Japan Inc. (In case readers missed the point, Crichton’s afterword concluded: “The Japanese are not our saviors. They are our competitors. We should not forget it.”)

Japan, of course, is a democracy and a U.S. ally. China is neither of these things, it is much larger, and its behavior is objectively more alarming. At home, its technology companies have helped create a police state that has imprisoned more than 1 million ethnic minorities. Abroad, they help authoritarian regimes spy on opposition groups. Effectively competing with China, however, requires more nuance than a good-vs.-evil framework allows.

The paranoid style dangerously neglects offense. Rather than considering how the United States should become more competitive, it fixates on defensive measures to undercut foreign competitors. It views the competition as nefarious — and, therefore, lacking in any redeeming qualities that could be emulated or lessons that could be learned. It puts the blame on cunning foreigners, avoiding difficult questions about why domestic companies are struggling. It replaces introspection with condemnation.

Take Huawei. It has benefited from generous state subsidies and alleged intellectual-property theft. But it has also thrived by providing communications technology to rural and underserved markets, especially in Asia and Africa, which are expected to drive global growth in the coming decades. With about half of humanity still lacking access to the Internet, the United States should be thinking about how to incentivize its own companies to forge those connections. But when you’re the good guy, why change?

The risk of overreaction is considerable. By design, the paranoid style exaggerates foreign challengers’ strength and cohesiveness. Foreign actors are assumed to be marching in lockstep, taking their orders from a central authority and moving briskly toward dominance. Rather than individual companies with varying degrees of independence and obligations to the state, it conjures up a monolith: China Inc.

Trump wants China to help him win. China wants nothing to do with him.

American households often foot the bill. In the 1800s, tariffs on British goods helped U.S. textile producers but sent prices for basics like copper sky-high. “Buy American” requirements like those from the 1930s raise costs for taxpayers, decrease exports and could amount to losses today exceeding $100 billion annually. In the 1980s, a quota on Japanese cars incentivized U.S. carmakers to lower production, lay off workers, raise prices and pass billions in additional costs to American consumers each year. Trump’s trade policy, including tariffs justified on national security grounds, cost Americans $7.2 billion in 2018, according to an academic study.

Ultimately, the paranoid style harms the values its believers claim to defend, as a sense of unfairness often leads to replicating the unfair behavior. Tariffs to meet tariffs, subsidies to meet subsidies, and other regulations designed to advantage domestic companies. America’s behavior gives other countries an easy excuse to discriminate against U.S. companies on national security grounds, which, naturally, U.S. policymakers object to. China, for instance, is developing its own blacklist of “unreliable entities” for punishing foreign companies that harm its interests. Like Hofstadter’s original concept, this phenomenon is not confined to the United States.

America’s openness is what makes our system work — and it mandates that we fight our economic battles offensively rather than defensively. Openness brings the world’s brightest minds to U.S. universities and research labs, fueling American innovation. As MIT President L. Rafael Reif has written, “If all we do in response to China’s ambition is to try to double-lock all our doors, I believe we will lock ourselves into mediocrity.”

Good policy solutions rarely exist in the extremes, but that’s the only space the paranoid style allows. The risk of getting this wrong is not merely that the United States becomes less competitive, but that it also becomes less American.

Twitter: @HillmanJE

Read more from Outlook:

Follow our updates on Facebook and Twitter.