Another Fight Obama Shirks

Last week China’s Alibaba came to America and raised some $25 billion, topping the previous record of $22.1 billion raised by the Agricultural Bank of China in 2010. At the closing price on the day of the offering, Alibaba’s market valuation came to $230 billion, exceeding the combined valuations of Amazon and eBay. The $25 billion haul and $230 billion market valuation reflect the success of the company so far, and what investors see as its even brighter future. Founder Jack Ma, now the richest man in China with a net worth of more than $16 billion, came here to maximize the proceeds from the initial public offering of his company’s shares. Why not Beijing, or Hong Kong, or even London? Because our capital market’s depth and transparency make it a unique resource, and one he could access even though he didn’t build it, an accusation Obama levels at American but not Chinese entrepreneurs. On the same day a Chinese entrepreneur was availing himself and by extension his country of one of America’s great institutions, China declined to permit Apple to include the People’s Republic among the nations in which its iPhone 6 would be launched.

Meanwhile, Beijing was cracking down on other American and foreign businesses. Microsoft is accused of abusing its market power, although the Economist points out that Microsoft has very little such power in China because most of its products are pirated there. Qualcomm, a U.S. telecom equipment firm, is the subject of an investigation aimed, say some observers, at driving down the prices it charges for equipment vital to the regime’s rollout of 4G mobile phones. These alleged violations have suddenly been uncovered by China’s National Development and Reform Commission, officials of which have raided corporate offices, seized computers, and arrested or threatened corporate executives with arrest for various alleged crimes.

The seizure of computers makes it less necessary for the regime to use its more routine methods of stealing our companies’ intellectual property, or forcing American firms to turn over that IP in return for market access presumably guaranteed by China in 2001 when it joined the World Trade Organization. The New York Times reports that “multinational companies broadly have been under pressure in China. .  .  . The legal and regulatory system has shown a greater willingness to prosecute foreign companies. .  .  . Executives have not even been allowed to bring their lawyers to meetings with regulators.” Some trials last one day (a special affront to American lawyers who thrive on multiyear antitrust cases) and are held in secret, the procedure used recently to fine Britain’s GlaxoSmithKline almost $500 million and impose (suspended) prison sentences on several of the company’s executives.

The American companies caught up in this wave of anti-foreign prosecutions are not alone: Chinese officials are raiding the offices of European and Japanese companies as well. But as Yossarian pointed out in a parallel circumstance in Joseph Heller’s Catch-22, the fact that non-U.S. companies are also in the regime’s sights is irrelevant to our possible reaction:

Not only has Obama declined to deploy any of the levers available to us—a WTO complaint; reduced access to our markets, which the regime desperately needs if it is to return its sagging growth rate to levels needed to maintain full employment; a muscular rather than a rhetorical pivot; an end to military cooperation. In fact, despite China’s assaults on our companies’ ability to compete for its customers, the president ordered our military to invite China to participate in the 2014 Rim of the Pacific naval maneuvers that involve 22 nations and are the world’s largest, a prize of extraordinary value to China, which is seeking technology to enable it to extend the forward reach of its military (and a prize not withdrawn even when Chinese fighter jets buzzed our naval aircraft in international air space and continued to threaten our allies in the South China Sea).

As Lenin, a man who knew how to make use of foreign companies when the need arose, once asked, “What is to be done?” The president might try saying to the Chinese, “You want access to our capital markets, give us fair access to your commercial markets, stop manipulating your currency, and, while you are at it, keep your hands off our intellectual property and stop buzzing our aircraft.” Instead, he refuses to challenge the regime’s manipulation of its currency, heroically ignoring pressure to do so from leaders of his own party, or its selective enforcement of its competition laws. China’s leaders would surely have to give their behavior a rethink if we made access to our capital markets—and our consumer markets—contingent on their willingness to engage in fairer trading.

The opportunity to act is at hand. When Treasury Secretary Jack Lew complained to China’s vice premier Wang Yang about selective enforcement of China’s antitrust laws, Xu Kunlin, a senior antimonopoly official responded, denying the accusation and adding, “I welcome you to hire the most famous lawyers in the world.” Here is an opportunity for the president to find work for those Justice Department attorneys who are not investigating the IRS scandal. When Obama meets Chinese president Xi Jinping at the Asia-Pacific Economic Cooperation forum in Beijing in November, he should take Xu up on his offer, and dispatch a team from the antitrust division to Beijing to provide an opinion on whether the regulatory actions being taken by China are solidly based on its regulations, or are acts of discrimination against successful American firms. If the latter, he could then deploy some of the retaliatory tools at his disposal 

Yes, any such action would have costs, but the cost of doing nothing in the face of discrimination against American companies is far higher, both in hard cash and credibility. Rather than lose face, President Xi would have to cooperate with the Justice team, or fire Mr. Xu, who invited the American legal team.

Meanwhile, not to be outdone by the Chinese, our European friends have decided that major, successful, American high-tech companies are a threat to, let’s see now: the privacy of Angela Merkel and other European leaders, the German newspaper and taxicab industries, a variety of Google competitors in industries from search to communications, French culture such as it now is, and government control of the flow of news and entertainment. The Financial Times thinks there is more than a minor amount of technology envy at work: “The U.S. technology giants’ huge personal and corporate wealth has attracted the kind of envy and resentment previously reserved for that most resented of social cliques, bankers.”

In effect, the European Union is making it plain that “disrupters” are unwelcome. This is not to say that all U.S. companies always operate within the constraints of European antitrust law—Microsoft and Intel were both fined for acts that would almost certainly have been deemed anticompetitive in American courts. Nor is it to say that the EU does not at times have reason to challenge the competitive behavior of American companies. Or that American firms, many of them combining executive provincialism with international commercial reach, have been sufficiently sensitive to special characteristics of European culture. American motorists might appreciate a mapping service that leads them directly to the driveways of their distant friends; Germans are less enthusiastic about having a prowling camera-equipped car tell the world that “we know where you live,” even if not now followed by a knock on the door. The world is not a mere suburb of San Francisco and Silicon Valley, something many Left Coast executives have yet to learn.

That said, there is no question that a wave of anti-Americanism is activating regulators in Europe to increase their scrutiny of American firms. That general prejudice is backed by a more specific force—lobbying by competitors who are finding their often obsolete technologies threatened by American innovation. Keep in mind that many high-ranking Eurocrats and regulators are due to return to their home countries and resume their political careers, making them sensitive to the desires of constituents now seeking to rein in American multinationals with whom they are having difficulty competing. 

It probably is too much to hope that our president might find a diplomatic way of saying, “If you continue to make it difficult for our most successful companies to operate in your common market, we will retaliate against your firms. If I know anything, it is how to use regulations to stifle a company’s growth.” Instead of demanding fair treatment for American firms, Obama is pushing for a trade agreement—the Transatlantic Trade and Investment Partnership—with the EU that would reward its members with even greater access to our markets in return for benefits so trivial that most of the president’s supporters are opposing the pact.  

Fortunately, there is a long history of U.S.-EU cooperation in antitrust matters, and the eurocracy is unlikely to decline an opportunity to welcome a team of Justice Department lawyers deployed in Brussels, as in Beijing, to determine whether the difficulties being created for American companies operating there are based on violations of EU law or the needs of hometown competitors. 

In short, the president can make a difference with both China and the EU. And the only boots on the ground would be the Gucci loafers of a few American lawyers.

Irwin M. Stelzer is a contributing editor to The Weekly Standard. He has served as a consultant to counsel for an Intel competitor and at different times to Google and its critic, News Corp., and was an unpaid adviser to Gordon Brown when the then-Chancellor of the Exchequer pushed through the criminalization of cartel behavior in the U.K.