With the rise of China as an economy, a question hangs in the air: Can America beat state capitalism? The evidence is not encouraging. The U.S. has lost millions of jobs to the Chinese. It will lose millions more if China, as it proposes, turns itself into a high-tech giant in critical industries ranging from telecommunications to aviation.

The rise of state capitalism has put the U.S. at a competitive disadvantage. State capitalism operates with zero-sum rules, in which one country gains as another loses. This is hardball competition, dog eat dog. And the Chinese dog is eating the American one in products ranging from cell phones to steel.

Zero-sum capitalism is not the form of capitalism U.S. policymakers see as the challenge in global markets. U.S. policymakers are guided instead by the idea of a win-win world. When everyone trades freely, business expands across the board. Every country wins. This free-market, open-trade approach is enshrined in the World Trade Organization.

But policymakers awkwardly straddle a gap in logic. A win-win is possible only if everyone wants to cooperate. China doesn’t. True, trade negotiators issue press releases hailing cooperation. But on the ground China keeps foreign companies from competing freely. It appropriates technology from foreign joint-venture partners without compensation. It regulates foreign firms with rules not faced by domestic ones. It bestows goodies on its firms—free land, cheap loans—to give them an edge.

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