Uniformly, a number of those who have just read my new paper (0) have been struck by the fact that today 8 of the world’s 25 most trafficked websites are completely blocked in China — including those of Apple, Google and Twitter.*
But this was only one important symbol of the systematic closing of the Chinese market to US and other foreign Internet and information and communications technology companies. As a general rule, on trade I believe in “unilateral disarmament”—that is, as a French free trade philosopher once stated (paraphrasing): “Just because your neighbor blocks his harbor with rocks is no reason for you to follow suit.”
But the truth is that the Chinese market for investment and trade is now so large, and under President Xi Jinping the market-closing strategy and tactics so egregious, that the US has no choice but to devise a counterstrategy to defend the highly competitive US technology companies whose future in world markets could well be jeopardized by Beijing’s industrial policies.
While I remain nervous about the developing trade philosophy and actions of the Trump administration, still I recommend the following options in dealing with China’s destructive trade and investment practices. The US should attack the Chinese sweeping censorship rules (the Great Firewall) directly by bringing a case against this huge trade barrier in the World Trade Organization. While there is no certainty of victory in such a case, earlier opinions from the WTO panels and the Appellate Body seem to foretell that these judicial bodies will look with disfavor on China’s defense that its actions are legal under WTO rules with the invocation “morals” or “public order” exemptions.
Beyond this, though strict reciprocity is usually not good trade policy, at this point it is time for the US to invoke its market power, and first warn the Chinese that it will restrict or close its market to Chinese companies — and then take action to accomplish this purpose should Beijing refuse to change its obstructive policies. While WTO rules for trade sanctions are confining, international rules for investment restrictions are either non-existent or much looser. These potential retaliatory actions should be carefully calibrated to Beijing’s response to negotiations over the first year of the Trump administration.
These recommendations have not been advanced lightly. But it is time to take action to defend open markets and vigorous competition for digital trade and investment.
This post originally appeared in AEIdeas (1).