Andy Puzder and Jim Talent's China Stance Contradicts Puzder
Andy Puzder and Jim Talent are correct. I take issue with their view of China, and expressed as much in a September 12th column which can be found here. They’ve responded at RealClearMarkets, and here is my response to their response.
Puzder and Talent argue that as a supporter of free markets, I should be pleased with President Trump’s policies toward China; policies they agree with. The problem is that as applied to China, Trump’s policies aren’t free market. My take is that their stance is contradictory precisely because they've been put in the position of defending that which runs counter to existing realities, along with what they (Puzder in particular) have long believed.
For one, they contend that “Beijing’s 'techno-national toolbox' includes walling off their domestic markets from foreign competition.” The problem with such a view is that it’s belied by any visit to China itself. For an American to walk off an airplane in the country, is for that same American to see U.S.-based businesses everywhere. Off the top of my head, to walk down a commercial street in Beijing, Shanghai, Shenzhen, Urumqi, or seemingly any other major Chinese city is to spy countless McDonald’s, Starbucks, Burger Kings, KFCs, Pizza Huts, Nike Stores, Apple Stores, Sunglass Huts – the list is incredibly long.
If the Chinese are “walling off their domestic markets from foreign competition,” it’s plainly a porous wall. Notable here is that even the company Puzder once ran, CKE, has quite the presence in China if a 2008 CKE press release is to be believed. About CKE's growth in China, Puzder is a very accomplished businessman. He wouldn’t have entered China with Carl’s Jr. restaurants (they’re excellent by the way!) if the Chinese Communist Party (CCP) were as unwelcome as he now contends. As Puzder put it about CKE's 100-store China expansion back in 2008:
"We are pleased to announce this agreement and our new partnership with BreadTalk and to expand our successful relationship with Aspac. This is a very exciting development for our company. The People's Republic of China represents a tremendous growth opportunity.”
Puzder and Talent cite “forced technology transfers as a condition of selling or producing in China,” but as evidenced by CKE’s aggressive move into the country, the good plainly outweighs the bad. Useful here is that China is Nike’s ($113B market cap) biggest manufacturing locale, it’s also a prominent one for Apple ($998B market cap), and then Starbucks is so smitten with the country that it intends to expand its presence from 3,400 stores to 7,000.
So while Puzder and Talent paint a picture of a country that’s very unwelcoming to U.S. businesses, and that’s defined by intense thievery of all things American, the reality is quite a bit different. Yet that’s almost not the point. Puzder knows well that companies have shareholders. If the owners of American companies aren’t fearful of mass theft in China, is it right for Trump, Peter Navarro, Puzder and Talent to turn their noses up to the wants of those owners? How is a yes answer a free market answer? But speaking of markets, shouldn't we leave it up to investors aggressively pricing in the future to decide if the soaring growth of U.S. businesses in China is wise?
After that, Puzder would surely acknowledge that Nike co-founder Phil Knight is one of the more brilliant businessmen to ever walk the earth, surely he admired visionary ways of the late Steve Jobs, which raises a basic question: why, if they felt China an incredibly important aspect of their growth strategies, and why if per Puzder himself China (at least in 2008) represented “a tremendous growth opportunity,” would he and Talent cheer a trade war from Trump meant to make it less so?
Puzder and Talent cite what they describe as “Estimates” that “Beijing steals anywhere from $225-600 billion dollars from the United States every year.” As they go on to write, the “whole economic system set up by the Chinese Communist Party (CCP) – what Beijing calls ‘socialism with Chinese characteristics’ -- is essentially designed to con, cajole or steal wealth from the rest of the world, in support of what Xi Jinping has called “the Chinese Dream.’” Ok, but what the duo describes is if true, a tax. This is important mainly because Republicans have long correctly made the case that governments prone to taxing away the wealth of their vital few will soon enough have very little to tax. Why produce if others will take your production, yet they claim the Chinese system is all about conning, cajoling and stealing wealth from the rest of the world; the U.S. most notably. So if the Chinese are taking away our genius, wouldn’t this show up in shrinking U.S. growth? Not according to Puzder. His most recent book is titled The Capitalist Comeback: The Trump Boom and the Left’s Plot to Stop It. Assuming the Chinese are stealing from us, it’s apparently not so substantial as to restrain brilliant American ingenuity.
Of course it’s worth pointing out that stealing technology or ideas is no easy feat. As my initial rebuttal made plain, two of the richest men in the world (Jeff Bezos and Bill Gates) freely admit to having been wrong about technology far more than they were, or are, right. Puzder and Talent somewhat gloss over the previous truth, all the while arguing that “we certainly know which technologies have value now.” Implicit there is that the Chinese wait to see what’s a winner, only to steal it. Again, no easy feat. If readers doubt this, think back to how roundly the iPhone was dismissed by competitors as a niche product around the time of its introduction. Back then, it was a known quantity that Blackberry would clean Apple’s clock. In 2007, the Blackberry was a "now" piece of technology. Based on Puzder and Talent's expressed views, the Chinese aggressively stole RIM/Blackberry IP. How’d that one work out?
The simple truth is that with commerce, the present rarely mirrors the future. Crucial is that Puzder knows this. He knows it well. The U.S. economy is far too dynamic for the status quo to reign. Puzder knows well that the technologies which “have value now” don’t always have long shelf lives. If readers doubt the previous truism, they need only contemplate what were the biggest and best U.S. companies when the 21st century began: GE was the world’s most valuable company, Yahoo and AOL were easily the most dominant internet companies, Tyco was viewed as the next GE, Worldcom was seen as the future of communications, and Enron was run by the brightest minds in the world. It’s a long way of saying that what’s valuable now is hardly indicative of what will be valuable in the future. And if Puzder can predict what technologies of the present will dominate in a year, two years, or five years from now, I’ll soon be at his door begging him to raise an investment fund with me. We will earn billions.
Puzder and Talent argue that the CCP’s “policies are designed to, and do, ensure that the Chinese economy operates first and foremost to serve the State.” The latter presumably explains all the subsidies, protections, and other state-oriented handouts in place to “allegedly” boost Chinese commerce. Allegedly is put in quotes because as Puzder and Talent most certainly know, economies operating to serve political ends, or as they put it, to “serve the State,” are performing sub-optimally. Which raises the question brought up in my previous rebuttal about why Puzder and Talent spend so much time on a country which, if their analysis is true, represents no economic threat to U.S. supremacy? Puzder and Talent surely know that state-run economies are the opposite of dynamic. Puzder knows this intimately. Please read on.
As Puzder told the Wall Street Journal in 2013, it’s much easier to open restaurants in business-friendly places like Texas than it is in California. In his own words, "California is not interested in having businesses grow." That’s why he expressed to the Journal’s Alyssia Finley his plans to open 300 new Carl’s restaurants in Texas by the end of the decade. California’s government had become too demanding, so much so that according to Puzder it took 285 days to open a restaurant in Los Angeles versus 60 in Texas. Notable here for the purposes of this piece is that the second easiest city to open a restaurant in was, according to Puzder, Shanghai. In his interview with Finley, Puzder indicated to the Journal editorial page writer that as of 2013 it took 63 days to open a Carl’s in China’s most prominent city. Maybe China’s changed since then, but if so, there’s no reason for the U.S. to pile on with its own attempts to weaken the country’s economy.
To which Puzder and Talent might reply that the trade issue is one of fairness. In their defense of Trump’s China policies, they contend that “trade is not free unless it’s fair.” They’re surely correct, albeit for the wrong reasons. No doubt trade that isn’t free isn’t fair, but only for those cruelly "protected" by tariffs, subsidies, and other forms of state intervention. It's the cities and countries most open to foreign plenty (think Hong Kong, Singapore, and the U.S.) that are the most prosperous. It's the cities and countries most closed off to global production that suffer the most.
Lest Puzder and Talent forget, the purpose of work is to import. The importing could be from across the street or the other side of the world, but we work in order to get things. So when governments impose tariffs on other countries, they shrink the value of the pay earned by their own people. Sadly, the story gets worse. Companies “protected” by tariffs are in truth shielded from market realities that ultimately set them up for failure. No doubt China does have higher tariffs on foreign goods, and perhaps more in the way of protections for its domestic industries, but far from something that elevates the country’s economy, these protections rob the Chinese people of the full value of their paychecks all the while weakening the companies they work for.
Puzder and Talent cheer Trump for “using the tools at his command to pressure the CCP to abandon its illicit and exploitive approach to the global economy,” they want me to cheer alongside them, but to do so would be for me to cheer Trump for shrinking American paychecks, weakening American businesses, and slowing the path toward specialization for American workers in the hope that the CCP will stop doing that which damages its people and businesses. Sorry, but that’s impossible to countenance. Nor do I think a threat effective which implicitly says “we’re going to harm our businesses and people until you cease harming yours.”
All of which brings us to the most incorrect part of Puzder and Talent’s rebuttal. Toward the end they write that “China has an export dependent economy, and the United States – the world’s largest consumer market – is China’s biggest customer.” No, that’s not true about the "export" nature of China's economy. And Puzder knows it isn’t. He didn’t excitedly announce his former country’s expansion in China because its people are “export dependent. The businessman in Puzder intimately knows that all production is an expression of a desire to consume. The Chinese haven’t been working energetically since the late 1970s so that they could continue to endure the abject poverty that was theirs in brutal fashion for all too long. The Chinese produce feverishly to meet the needs of Americans because they want things. And many of those things are American as evidenced by the fact that Apple sells 1/5th of its iPhones in China, Boeing sells ¼ of its planes, GM sells more cars in China than it does North America….the list of American companies prospering in China is long, and it includes the great corporation that Puzder himself used to run. That’s why it’s so odd and contradictory to read Puzder’s excited commentary about a weakening Chinese economy. If growth in China slows, so does it stateside.
And that’s why I can’t agree with Andy Puzder or Jim Talent. I can’t because so much of what they write contradicts the economics we three all know, observable realities, along with what Puzder himself has explicitly expressed over the years. Indeed, to read the authors is to wonder if even they agree with what they write. Color me skeptical. That’s politics.