What Do We Want China To Do?

I was impressed by the way Chinese President Hu worked the line of dignitaries at the White House before the formal meetings with President Obama. He looked relaxed, engaged, and comfortable shaking hands, and he seemed genuinely pleased to see Vice President Biden. Depending on the day, President Obama looked pensive, relaxed, stressed and confused.

We are not going to talk down the Chinese currency. Decades ago, this was called "jawboning,' and it didn't work under President Nixon and it won't work now. The Chinese will not make any significant efforts to move off their policy. Let's save a few trees and stop writing or talking about this.

Now, we trot out our business leaders with various special pleadings for their industries. Ladies and gentlemen, please go back to your offices and work on your businesses. Software piracy and intellectual property issues are real issues now, and they cast a pall over future economic relations. Going back to the days of Microsoft Office and Lotus installations on diskettes, there were all kinds of protections, in the form of keys, to prevent multiple installations and copying of the applications. There were also widely available $20 key breakers for sale on the street that unlocked these applications. I'm not sure that the solutions to illegal downloads can be strictly technological, as the hackers are now unconstrained and more clever than the corporate code writers. Unless the Chinese become convinced that it is in their long run interest to become a part of the global institutional system around organizations like WIPO, there is little hope here.

On the other hand, noise about making other currencies the basis for global trade is, for the medium term future, just posturing, as analysis by Professor Peter Kenen and others have argued. We shouldn't get exercised by this.

American companies doing business in China will have to do it on their terms, not ours, no matter what the final communique from the White House says. Carving out a stake in their market will ultimately involve loss of control over partnerships and joint ventures, and impacts on the brands. The companies will just have to quantify what these trade offs are worth and factor it into the NPV of the whole investment project. Wishing is not going to change anything here either.

We have to take the initiative on things we can control: our fiscal lack of discipline, our perpetual list of subsidies and ineffective social programs, the bloated, inefficient and unfocused structure of our public and private universities, the technical training of our workforce, the rediscovery of our manufacturing heritage, and shrinking of the risk in our increasingly concentrated financial sector. If we did any of these things, you can believe that the Chinese leadership would sit up and take notice.