eneral Electric plans to sink more than $2 billion66 into China through 2012. The conglomerate has shifted more production from the U.S. to China, adding more than 1,000 new jobs...Last month it shut a lightbulb factory in Virginia and will relocate those 200 jobs to China.

—London’s Daily Mail

There is no honor among thieves—and no patriotism among American corporations. That’s the clear message companies like General Electric, Caterpillar, and Evergreen Solar are sending to the American people these days as they shut down aging factories in the United States and open up gleaming, new state-of-the-art facilities in Dragonland. By running off to China, these corporate turncoat lemmings are not only helping drive their countries right off a cliff; they are signing future death warrants for their own firms. It was not always so.

At the turn of this century, when China first joined the World Trade Organization and began its mercantilist assault on the American manufacturing base, U.S. corporate executives stood shoulder to shoulder with American workers to strongly protest China’s unfair trade practices. The dire warning of this business-labor coalition fell on deaf ears, however, in a rigidly ideological Bush White House that couldn’t tell the critical difference between free trade benefiting all and unfair trade benefiting mostly China.

Now, a decade later, America’s business-labor coalition is as dead as a democracy protester in Tiananmen Square. In the new political calculus, as each additional American job and each new American factory has been offshored to China, so-called “American” organizations like the Business Roundtable, National Association of Manufacturers, and U.S. Chamber of Commerce have been transformed from staunch critics into meek apologists for a mercantilist and protectionist China having its way with the American economy and its workers.

The ultimate irony of America’s corporate betrayal is this: In the process of helping China decimate the U.S. manufacturing base, many of America’s corporate turncoats are destroying the future of their own companies. They are doing so by turning over to China not just their current technologies but also their ability to invent new ones. To understand why this is so—and why so many American corporate executives have been so willing to let the worship of greenbacks trump the red, white, and blue—it is first useful to understand the “three waves of offshoring” that have characterized the exodus of millions of American jobs to China.

The First Offshoring Wave: The Chinese Plantation Rises

The first wave of offshoring was a slow-moving affair that began shortly after the Communist Party opened China’s “Worker’s Paradise” to the West in 1978. This opening featured so-called “market reforms” that effectively stripped Chinese laborers of their health care and pension benefits along with any rights to decent wages and safe working conditions—while ironically not actually freeing the Chinese economy from domination by state-owned enterprises and communist central planners. Not coincidentally, over the next several decades, Western companies like Mattel, Reebok, and Schwinn began producing more and more of their low-end, labor-intensive products—toys, sneakers, bikes—with cheap Chinese labor.

It was during this first offshoring wave that the model of indentured servitude so prevalent in the China of today was perfected. On industrial plantations, young men and women—and no shortage of children—fresh from the farm sign onerous binding contracts that most are too uneducated to comprehend. They work shoulder to shoulder on hot, dirty, and crowded factory floors, typically for 12 to 16 hours a day. They sleep and eat in cramped dormitory-style quarters, often with bars on the windows or fences around the company’s perimeter. If they try to escape, they are beaten. If they try to organize the workplace, they are first beaten and then fired.

It is precisely these modern-day slaves who, at 40 cents an hour, still make the toys that please our children, mold the running shoes that propel us on our jogs, and stitch the shirts that find their way onto our backs. As stark testimony to the ultimate chains that bind these workers to a “Dickensian World with Chinese Characteristics,” many are relatively happier in their new plight because, as bad as the Dragon’s industrial plantations are, Chinese peasant farm life is worse.

The Second Wave: If You Can’t Beat Them, Join Them

The second wave of American offshoring began shortly after China joined the World Trade Organization in 2001 and began its full frontal assault on the American manufacturing base using “weapons of job destruction” like illegal export subsidies and currency manipulation. Under intense siege from Chinese factories, more and more American corporate executives came to this realization: By taking advantage of China’s elaborate web of illegal export subsidies, they could produce more cheaply on Chinese than U.S. soil, and if they did not, their competitors surely would. This realization inspired America’s corporate catchphrase, “If you can’t beat China, join it.” Soon thereafter, America’s second wave of offshoring turned into a tsunami.

It is important to emphasize that during this second wave, the primary goal of American executives was not to sell to the hypothetical 1.3 billion ravenous consumers in the Chinese market. Rather, it was to produce for export to the rest of the world—including back to America! To be crystal clear here, the advantage that American executives believed they could gain from offshoring during this second wave was not just from cheap labor; there was plenty of that in other countries like Bangladesh, Cambodia, and Vietnam. Rather, the real lure was China’s unfair trade practices, lax environmental and safety regimes, and artificially subsidized export trade. If the American government was not going to crack down on China’s unfair trade practices—and the Bush administration provided precious little help during this siege—it would be better at least for the shareholders and executives (if not for the workers) of these corporations to shift their production to China.

The Third Wave: The Grand Illusion of 1.3 Billion Consumers

The third and far most dangerous wave of American offshoring is now in progress. It is fueled partly by cheap labor as in the first wave and partly by the mercantilist advantages of producing in China as in the second wave. But the far more important propellant for this third wave is the grand illusion among American corporate executives that their next big market opportunity lies in selling to the 1.3 billion consumers residing in the world’s most populous country. This wave of offshoring is ultimately the most dangerous because it is driven by the illusion that most Chinese consumers have adequate purchasing power to propel the market—when in fact, many are dirt-poor. This dangerous offshoring wave also requires any American corporation wishing to sell into the Chinese market to accede to three protectionist conditions as set forth in China’s policy of “Indigenous Innovation.”

The first protectionist condition requires minority ownership; American companies must form a joint venture with a Chinese partner and hold no more than 49% of the enterprise. Most obviously, this condition means loss of direct control of the enterprise by the American company. More subtly, this condition gives the Chinese majority partner—most often a state-owned enterprise—the power to access any and all information about the venture, including trade secrets.

The second protectionist condition constitutes one of the egregious Chinese violations of free trade rules; it mandates forced technology transfer. To wit, American companies must surrender their intellectual property to their Chinese partners as a condition of market entry. The practical effect of this condition is to facilitate the dissemination of various technologies not just to the Chinese partner directly involved but also to the Chinese government and other potential Chinese competitors. By surrendering to this condition, Western companies, in effect, create their own Chinese competitors virtually overnight.

The third condition goes mercantilist hand in protectionist glove with the second condition of forced technology transfer. It is the equally forced export of Western research and development facilities to China—likewise a gross violation of World Trade Organization rules. This is the unkindest cut of all because it is equivalent to selling America’s seed corn; as any economist will tell you, it is only through research and development that the technological innovation necessary for new job creation can take place. If that R&D and innovation take place on Chinese rather than American soil, guess which nation is going to reap the lion’s share of new job creation?

It should be obvious at this point why any American company that surrenders to China’s three protectionist conditions of indigenous innovation virtually ensures its self-destruction. For once an American company surrenders its autonomy, its current technologies, and its ability to develop future technologies, it is only a matter of time before Chinese companies “digest” these technologies and use them to outcompete the American company—not just on Chinese soil but in the global marketplace. In this way, American companies learn the hard way that the lure of 1.3 billion Chinese customers is more siren song illusion than dollars and cents reality. In this way, “Death by Corporate Turncoat” also turns into corporate suicide.

A Tale of Two Countries and Four Companies

To put a more personal face on this, let’s contrast the activities of four major corporations in China and their CEOs: Westinghouse, the most naïve; General Electric, the most schizoid; Caterpillar, a poster child for the lure of Chinese mercantilism; and Evergreen Solar, the once “Great Green Hope” of the Obama administration and now an exclamation point to the failure of America’s politicians to defend our business community from Chinese aggression.

Westinghouse’s Wishful Fission Thinking

Westinghouse Electric has handed over more than 75,000 documents67 to its Chinese customers as the initial part of the technology transfer deal it hopes will secure its place in the fastest-growing nuclear market.... Jack Allen, president of Westinghouse for Asia [said] the company had “no guarantees” of its role in China once the four AP 1000 [nuclear] reactors were completed.

—Financial Times

Just as Frodo could not resist the seductive lure of the lethal Ring, Westinghouse apparently cannot resist the Chinese nuclear power plant market. Oh, we get that: The Chinese nuke market is the largest and fastest-growing in the world, with 23 reactors under construction and plans to build over 100 more. But while grabbing a significant share of that growing market would certainly be a huge prize for Westinghouse, the worst possible way to compete for that prize is to do what its CEO Jack Allen has done: turn over to China everything it needs to build future reactors without Westinghouse’s help.

The situation is not without comic irony. On its website, Westinghouse Nuclear boasts that “nearly 50% of the nuclear power plants in operation worldwide...are based on Westinghouse technology.” Well, guess what, you corporate Candide? Now that you have surrendered those 75,000 documents to China, it’s likely that 50% or more of the nukes in China will also be based on Westinghouse technology; it will just be pirated Westinghouse technology.

Westinghouse’s naïveté is all the more surprising because, while it is a U.S. corporation, it is effectively controlled by Toshiba of Japan. And many a Japanese corporation has already been burned by China’s forced technology transfer conditions and the previously noted astonishing ability of Chinese manufacturers to rapidly digest foreign technologies and use them to turn themselves into fierce competitors. Just consider how a coterie of Japanese and European executives shot themselves in the head with their own bullet train technology transfers, as wryly noted by The Wall Street Journal:

When the Japanese and European companies68 that pioneered high-speed rail agreed to build trains for China, they thought they’d be getting access to a booming new market, billions of dollars worth of contracts and the cachet of creating the most ambitious rapid rail system in history. What they didn’t count on was having to compete with Chinese firms who adapted their technology and turned it against them just a few years later.

The Big Cat Kowtows to the Red Dragon

Now check out these two recent news stories. Their juxtaposition sums up Caterpillar’s global strategy: Shut it down in America and build it up in China.

Caterpillar on Tuesday announced plans to lay off69 more than 2,400 employees at five plants in Illinois, Indiana, and Georgia as the heavy equipment maker continues to cut costs amid the global economic downturn.... In response to the worsening conditions, Caterpillar in January announced job cuts that will ultimately eliminate 20,000 positions.

—Huffington Post

During the past three decades, Caterpillar has grown70 from a single sales office in Beijing to our cross-country footprint of today—which includes eleven manufacturing facilities, three research and development centers, nine offices, and two logistics and parts centers.

—Jiming Zhu, Vice President, Caterpillar

Driving the Big Cat’s strategy are the powerful rip currents of Chinese unfair trade practices that inevitably pull American companies like Caterpillar offshore. To see these rip currents in all of their inglorious suck, consider the company’s decision to produce mini excavators for sale into the Chinese market in Wujiang, China, rather than in Peoria, Illinois. Caterpillar opted for Chinese soil—and workers!—because if it were to produce its mini-excavators domestically and try to export them to China, it would face a stiff, protectionist 30% tariff upon entry into the market.

But that’s not all. The Big Cat would face an equally stiff, mercantilist tax in the form of a Chinese currency grossly undervalued by as much as 40%. These two beggar thy neighbor tariffs and taxes alone make U.S. production for export to China a nonstarter for many American companies.

What hurts the most about this particular offshoring decision is that Caterpillar is not just an icon in American industry. It has been a key source of jobs and income throughout the American Midwest for over a century. That manufacturing quite literally doesn’t play in Peoria anymore is truly an American tragedy.

Now here is a final laugh-out-loud tidbit: Even as Caterpillar was getting ready to create new jobs in China to build its mini excavators and send thousands of Americans to the unemployment line, it had both hands out grasping for benefits from the Obama administration’s fiscal stimulus program. Yep. That turns our stomach, too.

Evergreen Solar Offshores Our Energy Future for a Few Pieces of Silver

If you can’t beat China and can’t get the U.S. government71 to understand what you’re up against, then you may as well join them. That is what Evergreen Solar has decided to do, shifting production of solar fabrication and assembly from its factory in Devens, Massachusetts, to Wuhan, China.

—Manufacturing & Technology News

Evergreen Solar produces some of the highest efficiency solar panels in the world. If we are to believe President Barack Obama, it is precisely companies like Evergreen Solar that are supposed to be one of America’s best sources of new job creation. For shouldn’t America’s so-called “green industries” experience some of the fastest job growth in an age of dwindling oil supplies and global warming?

If we are to believe Evergreen’s CEO Rick Feldt, however, his company did everything possible to convince the Obama administration to help Evergreen keep its production facilities in Massachusetts. Feldt’s actions even included going to Washington to beg key administration officials like Energy Secretary Steven Chu and Commerce Secretary Gary Locke to fight back against the massive illegal subsidies that the Chinese government was throwing at its own solar power industry. But Evergreen’s political entreaties fell on deaf ears.

So it was that when the Chinese government offered Evergreen low-interest loans on 65% of the cost of building its new plant in China instead of Massachusetts, Evergreen’s CEO believed he had no other choice other than to accept China’s 30 pieces of silver and send his company’s production offshore. Said an exasperated Feldt, “The United States keeps talking about keeping jobs.72 You go to the President’s State of the Union Address and he said, ‘I want to keep jobs in the United States.’ It’s easy if you say it, but you’ve got to do something to do that.” That’s exactly right, Mr. Feldt, but America will surely miss your new factories being offshored to China.

In fact, America, and particularly Massachusetts, will miss your American factory as well—and the 800 workers it employed. That’s because shortly after promising to maintain a factory presence in Massachusetts, Evergreen announced it was closing its plant in the Bay State altogether. And yes, that’s the same state-of-the-art plant built in 2007 that Massachusetts taxpayers shelled out $52 million to support. And here’s the final insult: Evergreen will also force U.S. taxpayers to pay for the closure as it takes a $340 million write-down on the closed plant. You just can’t make this kind of stuff up.73

General Electric: Would You Like a Spoon with That Forked Tongue?

A pattern is developing.74 One [foreign] company cedes its intellectual property to a Chinese State Owned Enterprise (SOE), and then all of them are squeezed to the margins of China’s domestic market and face a new competitor. None of this is accidental or a case of over-eager SOEs crossing the line. China wants to transform from being the factory of the world to an advanced economy and is using its market power to take a short-cut by “digesting” others’ intellectual property.

—John Gapper, Financial Times

In shining bright spotlight on America’s Corporate Turncoats, it is useful to cycle back to the company that opened this chapter: General Electric. At least on the surface, GE’s dance with the Dragon doesn’t look like a bad gamble. GE now has over 15,000 (mostly Chinese) workers in more than 50 locations in China, and each year, it is deriving an increasing amount of revenue from its China operations. Still, GE continues to experience revenue shortfalls relative to the pots of gold that its expansion in China is supposed to provide.

The bigger issue with GE, however, is the schizophrenic behavior of the CEO Jeffrey Immelt. On the one hand, Immelt has lashed out at Chinese protectionism and gone so far as to opine, “I really worry about China.75 I am not sure that in the end they want any of us to win, or any of us to be successful.”

On the other hand, Immelt, doing his best impression of Vichy France President Marshal Pétain, has surrendered a staggeringly large array of new technologies to China in exchange for what Immelt apparently considers is the high honor and privilege of doing business in the People’s Republic. For example, in one of the most disturbing of Immelt’s giveaways, GE transferred its entire global avionics business just so it could participate in the development of a Chinese passenger jet. GE has also handed over important pieces of technology in industries as diverse as rail locomotives, wind energy, and antipollution equipment.

That’s incredibly shortsighted because, as the earlier words from John Gapper of the Financial Times reinforce, once Chinese companies digest GE’s existing technologies and newer technologies are developed in GE’s research and development facilities sited on Chinese soil, GE will be “marginalized” in the Chinese market—and face even fiercer Chinese competition in international markets.

The Political Calculus of Divide and Conquer

On behalf of the undersigned organizations and their members,76 we write to express our strong opposition to H. R. 2378, the Currency Reform for Fair Trade Act.

—Letter to Congress by 36 American companies and groups

It’s not just manufacturers like Caterpillar, General Electric, and Westinghouse that have turned their backs and coats on America. As the above excerpt from a letter to Congress illustrates, many other American companies and industries that stand to benefit in the short term from the parasitic relationship that China has with the United States have switched sides in the China debate. In fact, every time the subject of trade reform with China comes up now, these companies come right out of the woodwork.

Just consider powerful agricultural groups like the American Soybean Association, American Meat Institute, Corn Refiners Association, and USA Poultry & Egg Export Council. They regularly oppose constructive trade reform with China because they fear retaliatory tariffs. While such fear may be justified, it doesn’t excuse lobbying actions that materially harm the broader interests of the United States and its workers as America tries to come to grips with one of the worst economic dilemmas this country has ever faced.

A critical second part of America’s “divide and conquer” pro-China coalition includes retail groups like the American Apparel & Footwear Association, the National Retail Federation, and the Sporting Goods Manufacturers Association. These groups fear a rise in prices and a collateral hit to their bottom line if China were to take steps such as fairly valuing its currency and eliminating its illegal export subsidies. What these groups fail to understand—and what many American citizens have yet failed to grasp—is this: The flood of artificially cheap Chinese goods putting America out of business has merely been a down payment on this country’s present and future unemployment. Furthermore, more unemployed Americans just means less purchasing power for consumers and less business for these American retailers over the longer run.

And here is one lobbying group that is particularly troubling: the American Chamber of Commerce in Shanghai. This group was last seen lobbying against key provisions in a proposed Chinese law that would have expanded protections for Chinese workers—and thereby given American workers a better chance to compete.

What all of these American business groups and corporate executives now doing business with China must come to grasp is this variation on John Donne’s famous poem: No American business is an island entire of itself; every business is a piece of this country, a part of the broader economy. If a job be washed away by Chinese mercantilism, America is the less... And therefore never send to know for whom the bell tolls; it tolls for thee.