The New Cold War: Time to get serious about China.

• Author: Mastel, Greg

In a recent speech, U.S. Trade Representative Katherine Tai revealed that China had not been living up to its promises in the agreement negotiated just months earlier in the closing months of the Trump administration. That really should have surprised no one, as it is difficult to find a trade agreement between the United States and China that Beijing has not violated. Depending upon how you define a trade agreement, the United States has negotiated at least four agreements on intellectual property protection with China; none of them have been enforced by Beijing beyond making "show" seizures.

Twenty years ago with much fanfare, President Bill Clinton helped to usher China into the largest trade agreement, the World Trade Organization with its many trading rules, in the hopes of furthering market reform in the Middle Kingdom. The United States issued a formal report on China's compliance in 2021 that summed the situation up concisely: "China's record of compliance with the terms of its WTO membership has been poor. China has continued to embrace a state-led, non-market, and mercantilist approach to the economy and trade despite WTO Members' expectations--and China's own representations--that China would transform its economy and pursue the open, market-oriented policies endorsed by the WTO."

Unfortunately, China's dismal record of compliance with trade agreements is more than just a problem of bad behavior by a series of Chinese officials. It is an inevitable result of expecting China to follow rules designed to promote "free trade" and "free markets" when China actively opposes those objectives.

CLASH OF SYSTEMS

The defining reality is simple: the People's Republic of China is controlled by the Chinese Communist Party. While it is true that today's China is not quite what was envisioned by Karl Marx, it is in many ways the opposite of the system dreamed of by Adam Smith.

The revered founder of the Chinese system--Mao Zedong--was a solid communist devoted to the economic theory and the powerful role of the government in making decisions. It is true that some of Mao's successors, notably Deng Xiaoping, sought specific reforms and more opening to the West, but they remained committed communists. Attempting to make the functioning of the Chinese communist system more efficient is simply not the same as moving away from it. The state economic planning process has been dominated by five-year plans drafted by the Chinese Communist Party since 1949.

Since the Tiananmen Square Massacre in 1989, China has largely limited political engagement with the West and increased the level of state control and repression. China's current president and general secretary of the Chinese Communist Party, Xi Jinping, has held the reins of power since 2013. He has led China on a course that is increasingly authoritarian, more supportive of state control of the economy, and much more hostile to the United States.

There is some diversity in estimates, but about 40 percent of China's GDP is generated by state-owned enterprises. That includes more than 150,000 separate enterprises with about three-quarters of the Chinese companies in the Global Fortune 500 state-held. In China, many key sectors including energy, telecommunications, construction, mining, and most manufacturing are dominated by state-owned enterprises.

Those figures on state-owned enterprise presence in China actually underestimate the government role in the economy. Given the nature of China's political system, the government has always held more sway in the "private sector" than can be imagined in the West. President Xi has spoken in recent years about the need to increase control of the private sector. Several Chinese "think-tanks"--that could not operate without support from at least major factions in the...