UC Irvine business professor Peter Navarro steps in it with this post in Businessweek. The hook is the Anshan Steel investment into the U.S.:

China’s fourth-largest steel producer, government-owned Anshan Iron & Steel Group, wants to buy a stake in the U.S. Steel Development Co. The plan is to build five new mills, with the first adding 120 jobs to one of America’s most economically depressed states, Mississippi. What could be wrong with that?

Um, actually there is nothing wrong with that. I said so a while back. But OK, I’m game. Let’s find out what he thinks is the big problem here.

The Anshan deal, far from an isolated event, is part of a larger go-abroad strategy of Chinese industrial policy. The goals: protect and subsidize China’s state-owned “national champions,” acquire foreign companies and/or their technologies, then further penetrate foreign markets while often bypassing trade barriers such as anti-dumping duties.

I see. So the Anshan deal is sort of like one link of a widespread conspiracy. Actually, I have no problem with him saying that China has an industrial policy (it does). Moreover, yes that plan includes the success of “national champions” via M&A and IP/technology acquisition. However, I fail to see how that’s either an illegal or unfair strategy (it isn’t).

With respect to bypassing trade barriers by setting up in a domestic market, I have two responses: 1) anti-dumping is stupid and should be done away with entirely; and 2) most nations are quite happy to receive foreign investment from firms that are faced with onerous trade barriers (that’s one reason they are put there in the first place). Again, I see no problem here.

At the heart of the Anshan matter is an ideological struggle between an America committed to free trade and private enterprise, and a socialist China using a potent array of mercantilist and protectionist weapons to breed national champions in key strategic industries — autos, computers, electronics, paper, textiles and, yes, steel.

No, at the heart of the Anshan matter is a company trying to invest in a Mississippi rebar plant. Everything else is what Navarro and other protectionist/scare mongers are making of it.

The grim reality is that American companies will continue to lose that struggle — and the U.S. will run huge trade deficits and suffer from high unemployment rates — until we adopt this Fair Trade Commandment: Do unto China as China does to us.

Yes, Americans will continue to lose that struggle to the extent that the U.S. fails to come up with some strategic vision of its own. However, the old reciprocity argument is the wrong solution. What that essentially says is the U.S. should also engage in protectionist policies. I disagree. The West has fought long and hard to set up an international free trade regime (i.e. GATT, GATS, TRIPs — WTO system). How about working within that system to fight against protectionism instead of playing tit-for-tat?

Anyway, that was just Navarro’s introduction. He then goes on to enumerate some of China’s sins, to wit:

In direct violation of free-trade rules, government-owned companies like Anshan benefit from massive, illegal export subsidies ranging from highly subsidized land, energy and capital to lucrative tax breaks. No wonder America has lost a third of its manufacturing jobs over the last decade.

If they’re illegal, file a case at the WTO. If the U.S. government refuses, call your Congressman. If these practices are not illegal, then you are arguing “fairness,” which is acceptable, but weak. By the way, and in case you were wondering, I do not accept Navarro’s casual conclusion that American manufacturing jobs have all gone to China or that a change in U.S. trade policy would have fixed that problem.

China is on a quest to beg, borrow, steal, or, in the case of Anshan, buy into the American market and American technology. China’s well-documented industrial espionage network is used to hack into Pentagon computers to steal military technologies. China also forces any American corporation wishing to produce on Chinese soil to transfer its technology.

I think the barrista at the UC Irvine Starbucks is spiking the lattes. This language is way over the top. Navarro seems to think that if he includes mention of cyber-espionage along with Anshan Steel in the same paragraph, readers will conflate the two. Nice try, but that’s a very weak rhetorical technique; Cicero is spinning in his grave.

Even worse, the statement “China also forces any American corporation wishing to produce on Chinese soil to transfer its technology” is really amateurish hyperbole. An editor should have caught this. Does China force (directly or indirectly) some American companies to transfer technology as conditions of investment? Yes, it does, and that’s a problem. I’m not sure why Navarro thinks that happens with all American investors, though, or even a majority (it doesn’t).

This might actually be my favorite bit of nonsense:

The acquisition of U.S. companies by state-owned enterprises is the most direct way for China to get its hands on American technology — and then turn around and use it against American industry.

Should I remind you that Navarro is a business professor? He seems to be saying that using M&A to acquire technology is somehow not fair. He also doesn’t like the fact that Chinese companies are competing against American companies. I hope this is not standard for the UCI business curriculum.¹

Once this technology and managerial expertise is transferred back to the Chinese mainland, it will be shared by China’s steel companies and used to further penetrate the U.S. and global steel markets. The perverse result: Over time, the Anshan deal will destroy far more American jobs than the 120 it supposedly will create.

One man’s perversity is another’s successful industrial strategy. Navarro here simply sounds petulant.

The remainder of the article discusses how Anshan and other steel companies are in bed with the Chinese government, which assists them in their investment activities. These strategic investments are then used to smack down U.S. industry. Navarro concludes by saying that since China does not approve strategic foreign investments, the U.S. should not either.

I am not trying to apologize for China’s trade violations/protectionism. I usually point those out when I see them. On the other hand, some transactions or policies are illegal, some are unfair, and others are simply tough business practices. Navarro lumps everything together. This approach will never lead to a practical U.S. trade and investment policy.

I’m a lawyer, so I look at the Anshan Steel investment like this. If it’s legal, the U.S. should allow it. End of story. Full stop. Shut up. Whenever the U.S. blocks a deal because of bullshit “security” reasons (e.g. UNOCAL), it tarnishes the image of the U.S. as a supporter of free trade.² It makes the job of U.S. negotiators that much more difficult when they try to get their Chinese (or other nation) counterparts to stop being protectionist.

Why is Peter Navarro counseling the U.S. government to become protectionist, and possibly violate WTO law, instead of formulating a legal, measured response to China’s industrial strategy?
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1. Might be a bit awkward, too, given the high percentage of Asian students at UCI.[↩]
2. There are deals where a CFIUS review makes sense, though. The current Huawei matter might be one of those.[↩]

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