Out of Control

In recent years when senior US officials have met with their Chinese counterparts the US side invariably would use its standard talking points decrying the enormous trade deficit the US runs with China. The Chinese would respond with their standard talking points which argued that if only the US would loosen its controls on high technology exports to China the trade deficit would drop sharply or even be eliminated.

I never much cared for the Chinese argument. By any stretch of the imagination, even the total elimination of US export controls would have a relatively small impact on the $250 billion plus trade deficits we have been running with China. I always felt the Chinese would have been better off focusing on the real story: the US-China trade deficit (or any bilateral trade deficit) tells us nothing about the economic impact of US-China relations on the US economy. Further, the huge global trade deficits the US was racking up did tell us something about the US economy, i.e., we were consuming way more than we were producing; our savings rate was low; and we were living on a huge credit bubble. We all know how that story has ended.

While I thought the Chinese talking points on this issue were inaccurate, this is not to say I thought we had our export control policy right. In the mid-1980s I was the officer in the China Office at State Department handling export control issues. It was a very intense portfolio. In those days State Department and Commerce Department pretty much were aligned in strongly fighting an irrational and overreaching Defense Department which pursued export controls as though on a ideological crusade. (Note: One of the architects of the DOD perspective at that time was Richard Perle. Another person involved in the process was a very young Deputy Assistant Secretary of Defense named Doug Feith. Nuff said?)

In the years since then, regrettably, not too much has changed, other than the fact that there have been periods when State Department was more aligned with DOD than with Commerce on the issues. The basic problem has been that the national security hawks could always come up with some kind of threat from a given export. It might be small, it might be theoretical, and it might be long term. On the other side, while many of knew there was a real cost to US industry and US competitiveness in over controlling in this way, it was often hard to describe the benefit in concrete terms. Further, when senior officials from the various agencies met to fight out a particularly contentious case, it was tough for anyone in the room to stand up to the blustering DOD reps who would thunder, “So, you are saying you want to risk the lives of US fighting men and women for the sake of some profits for X company?” Ugly, and stupid, stuff, but effective.

And yet, the piper must be paid. The chickens do come home to roost. And a penny saved is still a penny earned.

The NYT had a terrific article yesterday http://www.nytimes.com/2009/04/02/science/space/02export.html detailing how the zealots of export control (in this case Congressional zealots aligned with DOD’s agenda and a desire to bash the Clinton Administration, regardless of the cost to the US economy) have almost obliterated a leading high tech US industry. As detailed in the article, efforts are under way to reverse this legislation, but we can only hope it is not too late.

The Times article also notes that:

“In January, the National Research Council, an arm of the National Academy of Sciences, called relaxation of the export policies a matter of urgency. The rules, it said in a report (http://books.nap.edu/catalog.php?record_id=12567), weaken national security and discourage innovation, isolating domestic industries in “a self-destructive strategy of obsolescence and declining economic competitiveness.””

The Times article and the National Research Council report are both must reads for those concerned about how the interaction of national security concerns, politics, and US competitiveness come together in the formulation and implementation of US-China policy. Just be warned, it is not a pretty story.

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