U.S. officials and observers are hoping last week’s U.S.-China Strategic and Economic dialogue will halt what some are calling a “downward spiral” in relations between the two powers. However, this week’s meetings are unlikely to yield transformative changes in policy.
In addition to China’s abysmal human rights record, especially under President Xi, two issues that may go unanswered this week are in need of closer scrutiny.
Although both U.S. and Chinese officials have said that currency manipulation is being addressed in the negotiations, artificial depreciation of the yuan actually has little effect on Chinese exports. The Heritage Foundation’s William Wilson argues that even when the yuan exchange rate was held steady from 1995 to 2005, Chinese exports increased 19.6 percent. Furthermore, from 2005 to 2008, when the yuan appreciated 21 percent against the dollar, exports continued growing at a constant rate of 18.2 percent despite being more expensive. Challenging China only on currency manipulation would not yield more transparency in the Chinese economy. Instead, U.S. officials should address a wide range of issues related to the Chinese economy, notably the country’s subsidies for large state-owned enterprises.
Cyber security issues will likely be addressed but certainly not solved. The Chinese clearly employ cyber penetration as a means of improving their competitiveness. Consequently, they are unlikely to engage in dialogue on the subject now or in the near future. Yet, according to an Intellectual Property Commission report, American companies still lose about $107 billion in intellectual property to China. Chinese government officials can often deflect the charge of cyber theft because it is difficult to tie the hackers to the government, even though it is often state-owned enterprises that enjoy the benefits.
Secretary of State John Kerry is right in saying that a confrontation between the two nations would be a disaster. However, perhaps it is time to reconsider our approach to China and East Asia in general. Clearly, the strategy we have employed in the past year has done little to tame the rising dragon and has done less to protect the American consumer.
Jack McKenna is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please click here.