This March 17, 2010 illustration in Beijing sh...

Image by AFP via @daylife

Politicians argue how China’s currency manipulation steals America’s jobs, and whether challenging it would start a trade war.  It is and can be a problem, however, much more serious problems are being underestimated.  Currency manipulation does add to a 20:1 US vs. China labor cost disadvantage, allowing Chinese exports to drive US companies out of business.   But US consumers also benefit from lower priced products.

Additionally, when Chinese currency shifts in value it also incurs the opposite effect  (positive or negative) as a purchasing currency.  If the Chinese Yuan gets stronger, it makes China’s exports more costly but it also becomes more valuable for buying materials in global commodity markets—and these materials make up more than half of the value of China’s exported products.  Thus the currency manipulation helps China in the place it needs help least—its domestic cost of production, which already has low cost labor and government subsidized overhead.  Stopping currency manipulation only addresses one part of much larger, multi-faceted threat to the USA from China.



China uses this “Hydra” to steal proprietary information, which accelerates its technology development and advances its global position by leaps and bounds.  US businesses enter the Chinese market at risk of losing their proprietary technologies.  Sometimes openly, but usually clandestinely, the Chinese espionage has been stealing secrets for years and the pace has picked up.  Chinese people are “planted” in targets to bring out the most confidential materials. As long as a decade ago, hard drives containing secrets from Los Alamos National Laboratory disappeared along with one of more suspicious Chinese who worked there.

The enforcement of intellectual property rights in China remains a poorly controlled area, adding huge risks of the loss/theft of proprietary information.  The USA has been working diligently for a long time to protect IP globally, but China is a continuing problem.  Thus China gains access to the world’s most advanced technologies and can build upon them immediately, accelerating the speed of developments by decades. In an interesting potential turnabout, IF China continues to accelerate its internal technology development; it could soon become the victim, instead of the perpetrator of such thefts.

Since joining the WTO in 2001, Chins has frequently ignored, avoided or violated many of its provisions.  The typical Chinese reaction has been: deny/appeal, then obfuscate and finally (rarely) to capitulate, only in part, until a new charge arises. China continues to employ unfair trade practices to gain competitive advantages for its companies (and government) far beyond what currency manipulation yields.  If subjected to  “mirror-duty” system, this abuse might sloe. (“Mirror-duty” means it is levied the same rates on exports that it charges on imports.)

Finally, the greatest Chinese threats are its hackers, some of whom are “loosely aligned” with the government. To preserve deniability,” these hackers operate from computer technology schools.  Others are clandestinely involved, but more directly by the Chinese government (the People’s Liberation Army is a long suspected den of cyber-attackers).  Despite the difficulty of tracing sources of cyber-invasions, the broad consensus of the world community believes much of it originates in China.

Starting in 2007 cyber-thefts began to escalate, including theft of plans for the F-35 fighter Joint Strike Fighter (before the first one was built in the USA) and intrusions into multiple US government sites, including the Secretary of Defense’s system.  The US is not suffering alone; German Chancellor Merkel reportedly objected directly to Chinese Premier Wen Jiabao about Chinese originated cyber-attacks.