Google's announcement that its moving its servers to Hong Kong, along with China's harshly worded response, is indicative of a brewing trade war between open, Western countries and China. With Baidu (BIDU) stock pushing toward $600, it's pretty clear who the main beneficiary is here: the leading Chinese portal. Meanwhile, Google is losing influential business partners in China. Billionaire Li Ka-shing's Tom online shopping service pulled Google search from its Web site, and many others are following suit, according to BusinessWeek. The media is describing this as a technology soap opera with implications for other Internet companies in China, but I'd look at it in even broader context: This is a watershed moment in relations with China for global business. With Chinese trade being one of the main drivers of International commerce, this means trouble. It could be the beginnings of a crippling trade war. The Google-China row is just the latest in a series of warning signs that a trade war is brewing. U.S. Congress has been stepping up its complaints about the Chinese currency peg. It's clear to many business executives, including those in the  automobile industry, are worried that China is accelerating its protection of national markets. And now the Google moment, which is de facto protectism on behalf of China, which refuses to back down on censorship. It leads me to ask: How can this have a happy ending? Western companies are trying to negotiate with Chinese authorities on Western terms, where the markets are open and the human rights more universal. But the rules are lopsided, as China is still a totalitarian state using a command-and-control economy. Do we really think this can end well for Western business. Beijing will continue to do what's good for Beijing, and they can, because their the ones with a billion people and the fastest growing markets in the world. Google's move is probably just the first in a series of trade disputes that are likely to heat up.

There are lots of things to worry about these days, among them plummeting bank credit, high unemployment, pollution, corrupt politicians, terrorists, and natural disasters. But things could get worse: Tensions appear to be rising between the United States and China. If you think things are bad, contemplate a trade war with China. The U.S. government has called for a "probe" into the recent hacks on Google's servers. And Secretary of State Hillary Clinton said that companies operating in China should refuse to support "politically motivated censorship." These are strong statements, and exactly the kind of statements the Chinese government doesn't like. Imagine us, a country subsumed in massive debts, lecturing our biggest creditor on what to do. Hmmm. Is it just me, or has anybody noticed that China happens to be a totalitarian regime? That they've funded trillions of dollars of our economy by buying Treasury bonds? And suddenly it's time for the "freedom" lecture. You're not going to make them be "free." Their government is not based on freedom. America can be incredibly arrogant and condescending on the world scene. But it's not the time to be beating our chests. The fact is, right now we are a nation of many weaknesses, owing trillions of dollars of debt to other nations. We should actually be looking to strike more conciliatory tones with our trade partners, rather than going on the attack. I believe it's helpful to understand the other point of view. I think this article in China Daily is very good at framing the Chinses mindset . If you think you understand China, read the article, rather than just listening to Hillary Clinton's propaganda.

 The Chinese Government has been learning to introduce free market mechanism into its economic system and society for the last thirty years. The Chinese government believes that it has succeeded in its efforts in introducing the free market into its economic system and asked other countries in the world to recognize its free market economy status. Some countries have already recognized China as a free market economy and others have not. I think that the Chinese government should allow Google the freedom to leave, just as it allowed its freedom to come into China, in order to demonstrate that China is practicing free market in managing its economy.

Interesting prespective, no? Starting a trade war with China now would be a total nightmare. The world economy has largely been driven by growth in emerging markets in the last 10 years, with a large part of that coming from China. The growth in China has actually been beneficial to us, as we outsource many tasks to them including the contruction of many electronic gadgets such as iPhones. That keeps prices low. But at what cost? We clearly have been supporting a totalitarian regime and encouraging slave labor in sweatshops. And it's caused extreme economy inbalances with our trade deficit, as China stubbornly maintains the peg on their currency. Source: Economywatch.com But it's a funny time to suddenly get a moral concience about this. We're in a global recession, and reviving trade with Asia is central to the recovery. As for problems with censorship and personal freedoms,  it's not like this these problems in China are a sudden revelation. Remember that thing called Tianamen Square? The economic relationship we have with China have been based on us keeping one eye on business and looking the other way when it comes to things like personal freedom and free markets. If we start taking the moral high ground now and escalating the rhetoric, we risk plunging into a trade war... or worse. We either need to shut up and accept the fact that China is a totalitarian and mercantalist nation and allow political change to come from within China, or we need to pull out. Now is probably not the time to be picking fights. With the bulk of trade in the world economy coming with China, a full-scale trade war would lead us to even more dark economic times than we're already accustomed to.

It's Google-China Wednesday here at the Rayno Report! So exciting. Perhaps the biggest market action today comes in the stocks of Baidu Inc. (BIDU) and Sohu.com (SOHU), the leading Chinese Internet companies, which are taking off on Google's threat to "do less evil" and pull out of China because of censorship and possibly hacking by the Chinese government. Baidu was up $42, or 11%, in early morning trading, and Sohu.com was up .85, or 1.5%, in early trading. Google was down $12, or 2%. Google is operating in China with special permission as long as it continues to censor search results, as instructed by the Chinese government. With Google's threat to pull out, the Chinese Internet companies have the opportunity to split the bulk of the Chinese market share, not giving anything to Google. The conflict doesn't merely threaten Google's business in China, though. It's also likely to become a high-level diplomatic issue between the United States and China. Google is saying that there was an sophisticated, complex hack attempted on its servers and specifically the accounts of gmail accounts of human-rights activists. The obvious speculation is whether the Chinese government may be involved. Incidentally, other companies have weighed in, saying they were also the victims of attempted hacks. Reuters has a nice chart here on "Google's rocky road into China."