President Donald Trump’s wooing of Chinese President Xi Jinping has so far failed to deliver the results he promised since their first summit meeting in April at his Mar-a-Lago compound in Florida, according to the 2017 annual report by the U.S.-China Economic and Security Review Commission.
The bipartisan, Congressionally-mandated commission presents a cold-eyed view of China’s current economic approach to the global market: “Despite President Xi’s stated commitment in 2013 to allow market forces to play ‘a decisive role’ in the economy, genuine liberalization has not only stalled, but has also been backsliding.”
In contrast to Trump’s optimistic post-Mar-a-Lago statement that, “We have made tremendous progress in our relationship with China,” and “The relationship developed by President Xi and myself I think is outstanding,” the commission found almost no progress at all.
Instead, the commission found, “Beijing’s discriminatory treatment of U.S. companies and ongoing failure to uphold its World Trade Organization obligations continue to damage the bilateral relationship.”
The report represents a sort of attack from within. Appointed by the senior leaders in the Senate and House, the 12-member commission includes several strong Trump supporters: former Sen. James Talent (R-MO), once a candidate to be Trump’s defense secretary; Dennis Shea, whom Trump has nominated to be deputy U.S. Trade Representative; and Daniel Slane, who worked on infrastructure planning during the Trump transition.
By law, the commission’s job is to “monitor, investigate, and submit to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China.”
The U.S. trade deficit with China was a main theme of Trump’s presidential campaign. “We can’t continue to allow China to rape our country,” Trump said on the campaign trail last year. “It’s the greatest theft in the history of the world.” Yet, the commission reported that “in the first eight months of 2017, the goods deficit [U.S. imports from China compared to U.S. exports of goods to China] increased 6.2 percent year-on-year basis.” That deficit grew another $34.6 billion in September, and so far for 2017 that goods deficit has grown 8.3 percent year-to- year over last year.
Trump’s view of who is causing that deficit has changed since he was elected. In Beijing on Nov. 9, he said, “The current trade imbalance is not acceptable. I do not blame China or any other country, of which there are many, for taking advantage of the United States on trade. If their representatives are able to get away with it, they are just doing their jobs. I wish previous administrations in my country saw what was happening and did something about it. They did not, but I will.”
“From this day forward, we will compete on a fair and equal basis. We are not going to let the United States be taken advantage of anymore,” Trump said. “I am always going to put America first the same way that I expect all of you in this room to put your countries first.”
The commission said the Trump administration’s efforts to reverse China’s protectionist activities “continue to yield limited results.” The economic dialogue that began last April at Mar-a-Lago “concluded with no concrete agreements or future agenda.”
For example, U.S. financial services companies seeking to work in China “face significant market access barriers in China.” There are “formal and non-formal bans on entry, equity caps, and licensing restrictions.” In addition, China’s new cybersecurity law adds to the problem, which has seen “U.S. firms’ market share in China’s financial sector… stagnant or declining in recent years.”
American companies have had to surrender technology at the same time that Chinese government subsidies have allowed Chinese companies to acquire worldwide “valuable assets in cutting-edge industries like semiconductors, robotics, and artificial intelligence. Foreign companies cannot do the same in China,” the report claims.
And while not criticizing the Trump Administration’s decision to pull out of the Trans-Pacific Partnership, which would have expanded U.S. Asian trade agreements into new areas, the report noted that President Xi’s charm offensive through his “One Belt, One Road” program “seeks to bring more than 60 countries into China’s economic and strategic orbit.”
Among strategic industries targeted for purchase by the Xi regime are “information communications technology, agriculture, and biotechnology.”
“China’s push for global influence has recently expanded to the media realm—including the U.S. entertainment industry—with Beijing using various tactics to encourage foreign media to portray China in a positive light,” according to the report.
These investments can “lead to the transfer of valuable U.S. assets, intellectual property, and technology to China, presenting potential risks to critical U.S. economic and national security interests,” the report said. In addition, “in many of these sectors, U.S. firms also lack reciprocal treatment in China and are forced to disclose valuable technologies and source code to gain access to the Chinese market.”
The commission also said some Chinese companies have attempted to invest in American companies, including those in defense-related industries, through shell companies outside China or by using cyber campaigns to weaken them financially.
The 643-page report also has a long section on Chinese military developments that fits in with its overall impression that contrary to Trump’s efforts to reach common ground with Xi over the past 11 months, tensions between the two countries have actually increased.
While China’s e-commerce boom offers U.S. retailers and brands an opportunity for growth—thanks to Chinese demand for foreign products such as high-quality foods, healthcare and beauty products—the report said that “China’s restrictions on foreign participation in the country’s digital ecosystem limit the ability of U.S. companies to similarly leverage Chinese consumer data.”
“U.S. firms cannot go toe-to-toe with China’s technology giants and state-owned enterprises, and in most consumer segments, are largely relegated to partnering with domestic firms,” the report states.
At home, the Chinese have significantly expanded “censorship, surveillance, and invasion of privacy by the authorities,” the report said, including targeting of foreign reporters.
The report also noted the rapid expansion of Chinese reporters working overseas, including a campaign to discredit a whistleblower living in the U.S. as well as the Turkish government’s announcement that it would eliminate anti-China media reports. The commission also described the growth of the Chinese government-run Xinhua news agency, which now has offices, editors and reporters at the United Nations in New York, Washington, Chicago, Los Angeles, Houston and San Francisco.
One of the commission’s recommendations, which reflects steps taken recently against Russian-owned media outlets Russia Today and Sputnik, is that “Congress strengthen the Foreign Agents Registration Act to require the registration of all staff of Chinese state-run media entities, given that Chinese intelligence gathering and information warfare efforts are known to involve staff of Chinese state-run media organizations and in light of the present uneven enforcement of the Act.”
On the North Korean threat, the commission presents a much less favorable view of China’s efforts to halt North Korean dictator Kim Jong-un’s pursuit of a nuclear missile capability than Trump does.
The report credited China for taking some steps to strengthen sanctions on Pyongyang this year but added that “it is too soon to measure China’s compliance with the latest rounds of sanctions, which, if implemented fully, would significantly constrain the North Korean regime’s ability to fund its nuclear and conventional weapons program.”
“Given China’s lackluster record of previous sanctions and enforcement and continued sanctions violations by Chinese companies exporting dual-use items to North Korea, however, the United States and the international community should keep their expectations low.”
The report also warns that China’s attitude when it comes to North Korea “is also driven by Beijing’s belief that Washington’s North Korea policy is designed to strengthen U.S. regional alliances and military posture to contain China.”