Photo: ERIC THAYER, STR / NYT
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Sen. Marco Rubio argues that the escalation in the trade war with China stems more from corporate chieftains selfishly seeking big paydays for themselves by agreeing to bad deals with Beijing over the past several years than from President Donald Trump’s latest brinkmanship over tariffs.
“If you go to China, they promise you ‘X percent’ of their overall market share,” the Republican senator from Florida said in an interview Tuesday. “You make money, and you look good in front of your shareholders, but you’re also turning over your intellectual property, and eventually they’re going to replace you. But who cares? You won’t be CEO in 10 years when that happens.”
Rubio said Trump’s biggest problem right now is that Chinese leaders are unaccustomed to a president going to the mat this way and have therefore miscalculated his resolve. “They have traditionally been able to unleash the American corporate class to march up to D.C. and pressure their policymakers to back down because so many of these companies have established a market presence in China that in the short term is very beneficial but in the long term is probably suicide for those companies,” Rubio said. “That’s what’s happened in the past. This is the first administration that has not backed down.”
The senator’s comments on China came as he uncorked a broader critique of American corporate culture. Rubio, the chairman of the Senate Committee on Small Business and Entrepreneurship, said CEOs focus too much on the next quarter and not enough on the next generation. He blamed warped incentives from Wall Street and Washington for driving this shift. And he complained that the “shareholder primacy theory” – which is taught at business schools and accepted as gospel in the C-suites of most Fortune 500 corporations – has prompted too many business leaders to care more about returns for shareholders than the people who work for them.
His 37-page report is on the decline of business investment over the past several decades. It details how nonfinancial corporations, for the first time, now consistently spend more on acquiring financial assets than on capital development. “At its core, the problem is that, beginning in the 1970s, the primary objective for companies became maximizing return to shareholders, and that came at the expense of investing in new capacities and in innovation,” Rubio said. “In essence, it’s coming at the expense of the things that lead to growth. In key industries that are critical to our national security and our national interests, that’s even more problematic.”
He declined to offer specific instances.
“What it’s resulted in is that you can become a very profitable company that returns a lot of money to shareholders by taking your productive capacity and sending it to China or by turning over your intellectual property because they’re allowing you market access, which is generating new revenue,” he added. “That’s great for the short- to mid term. Your stock performance can be very good. Your shareholders are going to be very happy. But it’s devastating for American workers, and in the long term it’s devastating for America.”
The senator was scheduled to lead a hearing Wednesday afternoon on considering the reauthorization of the Small Business Administration’s innovation programs. He’ll question two administration officials, and he’s invited four outside witnesses to offer ideas for how government policy can spur additional business investment.
Amid calls for the dismantling of capitalism in the United States, the 47-year-old son of Cuban immigrants said he wants to save the economic system that made America exceptional by paying more attention to its excesses.
“Our economy today is really not working the way free enterprise works at its best,” he said. “I’m an enormous supporter of free-market capitalism because I’ve seen and know that it’s generated more prosperity than any other economic system in human history, but when it stops working the way it’s supposed to work, it creates the structural imbalances that lead to many of the problems that we’re seeing across not just the U.S. but across multiple developed Western economies. We are certainly doing well in the short- to mid term in our growth, but we also have an obligation to think about the structural challenges that will make it difficult to sustain that in the long term if we don’t make additional changes.”
To do that, he wants more rewards for long-term investments in workers and facilities. “We can’t force companies to be innovative, but we shouldn’t have tax provisions or policy provisions that incentivize against it,” Rubio said. “And we do.”
The senator said he tried to push for things that would advance this aim during the debate over the GOP’s 2017 tax bill, but he couldn’t get them all. The legislation made full expensing available to capital investment, except facilities, plus research and development expenses. Those provisions are scheduled to expire. Rubio wants to make them permanent and to expand the full expensing to cover facilities. He said he wanted to see the full refundability of the child tax credit because it would help workers.
“If we’re going to have preferences in our tax code, and the tax code always has preferences, they should be in favor of things that create strong and stable jobs,” he said. “Returns to shareholders should be treated equally, no matter which route you choose, whether it’s a buyback or a dividend.”
As a political matter, Rubio has concluded that the GOP focused too much in the past on catering to corporate executives at the expense of their consumers and their employees. This year, he’s rolling out a series of proposals aimed at restoring the balance between businesses and their workers. “We have a free market, but that free market operates under the conditions created for it by policymakers,” he said. “Those conditions should reflect our national priorities. And one of our top national priorities should be creating strong and stable jobs upon which strong families and strong communities can take root.”
Rubio’s emerging “pro-work agenda,” as he calls it, reflects the GOP’s broader embrace of populism during the Trump era. He recounted how his unsuccessful bid for the GOP nomination against Trump in 2016 opened his eyes to the number of people being left behind by the changing economy, especially in places like the industrial Midwest.
“Heading into 2014, I started to become very interested in not the daily ups and downs or twists and turns of markets but the broader structural challenges,” he said. “And then I ran for president and it gave me the chance to travel the country and meet people and interact with people of various backgrounds, which I had not been directly exposed to representing only Florida. . . . Someone working in an industrial city that’s been hollowed out isn’t necessarily going to move to Silicon Valley and work for a high-tech firm. And even if that transition eventually happens, in the interim period, these are real people and real communities that are left behind. So that stark reality, coming back to the Senate, led me to further explore this.”
Rubio added that he also came to understand why government must play a more muscular role in doing something. “We need to get back to a point where we don’t solely analyze the American economy on traditional economic measures,” he said. “GDP growth is important, but that alone doesn’t tell us the full story. It has to be not just growth that we care about, but the kind of growth that creates stable jobs that allow strong families and strong communities to develop, which are the backbone of a strong economy. Our public policy should reflect that.”
In the bigger picture, Rubio lamented that Americans in the modern era have become overly susceptible to the temptations connected to the pursuit of instant gratification. “We have a challenge that’s developed in our culture writ large in that we seek immediate returns, whether it’s in our own lives or in corporate life, and we oftentimes do so at the expense of long-term development,” he said. “That is best encapsulated by what’s happened in the private sector in this country.”
Defending Trump’s hard-line approach toward China, Rubio said it’s imperative to fight for a better balance in Sino-American relations. “I believe that the imbalance that has developed between our countries on economics and geopolitics is dangerous,” he said. “It will leave us with a world in which China grows emboldened and aggressive, and the U.S. will be forced to respond. And it could lead to conflict. It’s already leading to trade conflict, and it could lead to worse. For the sake of global stability, there has to be equilibrium in that relationship, and we don’t have it right now. At its core, this is very simple: China is allowed to do anything they want in our economy and in Western economies, but our firms are allowed to do very little of anything and pay a tremendous price over there.”
Rubio acknowledges that the trade war with China is harmful to the American economy in the short term and that the tariffs increase costs for U.S. consumers. But he says he believes it’s worth it.
“Surrendering to China will be devastating,” Rubio reasoned. “It will fundamentally alter our place in the world and the very nature of our economy for two generations or more.”
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The Washington Post’s Joanie Greve and Mariana Alfaro contributed to this report.