Wall Street's China Apologists

Analysts who know China are the true pacifists in this trade war.
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In the age of Trump, it frequently bears repeating: the stock market is not the economy. The health of the stock market is measured by the success of large companies with access enough to capital to benefit from the growth and deepening of global trade. The health American economy, and the welfare of the median American worker, is subject to different concerns, like the strength and distribution of jobs at home.

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Take, for instance, Caterpillar. The United States’ 74th largest company has long been a symbol of domestic advanced manufacturing prowess, a firm that leverages American ingenuity to take capitalize on growth around the globe. Since announcing a big bet on the China market in 2010, Caterpillar’s stock has soared 178%. But that success hasn’t translated in to more American jobs, as the firm employs fewer Americans today than eight years ago, according to its latest annual report.

This is no criticism of Caterpillar. Like many U.S. multinational companies, it has rightly concluded that faster economic growth in places like China warrants increased investment. As GM CFO Chuck Stevens said Thursday to Bloomberg TV, “we build where we sell.” And GM is eager enough to sell to China that it has agreed to setting up close to a dozen joint ventures in the world’s second largest economy, where it must share its considerable institutional knowledge with Chinese partners.

But just because companies like GM set up these joint ventures, doesn’t mean that they should be required to do so, nor does it mean that it would be eager to share valuable high tech secrets otherwise. Remarkably, this is what some observers on Wall Street, like Stephen Roach, former Chairman of Morgan Stanley Asia are arguing. “Significantly, US and other multinational corporations willingly enter into these legally-negotiated arrangements for commercially sound reasons – not only to establish a toehold in China’s rapidly growing domestic markets, but also as a means to improve operating efficiency with a low-cost offshore Chinese platform,” he writes in an article published Tuesday in Project Syndicate. “Portraying US companies as innocent victims of Chinese pressure is certainly at odds with my own experience as an active participant in Morgan Stanley’s joint venture with the China Construction Bank.”

It’s certainly true that absent Chinese joint-venture requirements, many U.S. companies would join forces with Chinese firms for purely commercial reasons. But that doesn’t mean that Chinese trade restrictions are just, or that they don’t hurt the U.S. economy or domestic employment at the margin. And it’s odd that Roach is attacking the Trump Administration’s stance on technology transfer, given that his criticism of Obama-era trade policy was its lack of strategic vision. It’s difficult to imagine any coherent strategic vision for an economy at the technology frontier, like America’s, which doesn’t include a proactive policy of protecting that technological supremacy.

It shouldn’t surprise us that those with a Wall Street pedigree are reflexively averse to any policy that threatens the continued investment of U.S. multinational companies in the China. It’s in part the deepening relationship between American business acumen and the potential growth of China and other developing economies that undergirds today’s lofty stock market valuations.

But it shouldn’t be the policy of the American government to protect the interests of U.S. multinational companies to the detriment of all else, and there’s a good argument to be made that putting an end to a Chinese policy of forced technology transfer is best for the American economy. Whether or not the Trump Administration can accomplish this goal is another question entirely.

Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.

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