In the global trade game, the deck of cards has seldom been more stacked against American manufacturing companies than it is now. Facing players with cards like cheap labor, government subsidies, and tariffs up their sleeves, the United States hasn’t been dealt anything resembling a winning hand in decades.
Confronting such an obviously rigged game, President Trump’s decision recently to delay the imposition of tariffs on steel imports is a serious disappointment for American manufacturing and its hope for the long-awaited leveling of the global trade playing field.
Trump’s pumping the brakes on imposing steel tariffs is a surprising reversal from last year’s tough talk about the need to take immediate action. The decision understandably drew the ire of the steel industry, which considered it a “devastating” functional equivalent of unilateral disarmament. On the other hand, former Commerce Secretary Carlos Gutierrez criticized hastily imposed tariffs for the possibility of opening up the United States to retaliatory measures from the People’s Republic of China, our biggest trading partner and financier of a significant part of the national debt.
The problem is that both arguments are right — American manufacturing is being eviscerated by global bad actors that, as it happens, also have the ability to turn the thumbscrews on the American economy if they are provoked. In many cases, the imposition of tariffs is a ham-handed solution with too much risk to succumb to political pressure to justify possible rewards. Trump’s realization that he cannot “just walk in and say I’m going to do this” clearly reflects the weakness of this approach to addressing disadvantageous trade situations for America and its people.
However, the United States has another tool in its shed. While tariffs are a double-edge sword, a cleaner and more surgical instrument to punish companies and foreign countries distorting market conditions may lie in the Foreign Corrupt Practices Act. Enacted in 1977, the FCPA punishes those who bribe foreign officials in an effort to obtain favorable treatment, be they American or foreign. If applied vigorously, the FCPA could help clean up firms’ illicit activities around the globe costing the U.S. economy billions every year.
In fact, companies engaging in corruption are an ever-growing threat to American interests. Major foreign companies have been slapped with fines totaling hundreds of millions of dollars for violations of the act, including Siemens, Alstom, BAE and Total. And it’s not only foreign firms but also U.S. companies that are guilty of the crime. Walmart, Hewlett-Packard, John Deere, Avon, Disney and Koch Industries are suspected of violating the FCPA in some form. American jobs are lost because these companies are bribing foreign officials to open factories in third countries instead of the United States.
Disregard for the FCPA has become so pervasive that some companies have inserted boilerplate language in their financial disclosure documents acknowledging that some of their employees may be running afoul of the act despite measures taken by the company. Once a niche field on the legal landscape, nearly every major law firm in America now has attorneys fluent in FCPA compliance and defense.
As it happens, the country on the receiving end of a substantial part of illicit bribe money is the same country that is behind the attack on the American steel sector — China. The Chinese market is perhaps the most intensely competitive in the world, making China a global hotspot for bribery, as any business hoping to have a sliver of a chance to set up shop there must gain support from local officials.
The sheer number of companies bribing Chinese government officials to gain a competitive advantage illustrates the extent of the problem. Last year, four U.S. and Canadian life sciences companies settled for a combined $60 million over charges that they were involved in schemes to buy influence from Chinese officials and pay Chinese doctors to prescribe their drugs over those of their competitors.
In 2013, German pharmaceutical titan Bayer was investigated for unfair competition by the Chinese authorities in connection with a larger probe into corruption involving several sectors of the economy. A scant two years later four officials from the Greek branch of Bayer were charged with bribing hundreds of Greek doctors and nurses up to 20,000 euros each for either promoting their brand or insuring that their facility order drugs from Bayer.
As Bayer was fending off Chinese investigators, Swiss transnational food and drink company Nestle found itself explaining to the Chinese government why it was violating the provisions of a 1995 Chinese law requiring doctors to remain impartial in recommending products to families. The company was accused of handing out gifts and incentives to obstetricians for pushing their formula over their competitors.
In addition to greasing the palms of doctors, Nestle was also accused of handing out discount cards to new mothers, distributing branded identity bands for use on infants, and distributing free samples to new mothers in recovery after giving birth. Recent reports in China indicate that six Nestle employees are facing fresh charges for bribing medical staff.
Since FCPA earned the federal budget $2.43 billion last year, it’s highly significant that Attorney General Jeff Sessions vowed to prosecute vigorously white-collar crime, calling the law a “critical” tool in the administration’s arsenal.
Donald Trump swept into Washington on a promise to “drain the swamp” and flush out the rogue’s gallery of influence peddlers and corruption mongers. However, the tentacles of corruption reach far beyond the banks of the Potomac. Breathing life back into the American manufacturing sector and fixing bad trade deals can only be done if U.S. businesses and interests are protected from unfair competition.
