Google's

(GOOG) - Get Report

censorship struggle with Beijing crystallizes the challenge China poses to American global leadership.

Until the Google imbroglio, we heard much about China's undervalued currency and subsidized exports, rough treatment of foreign investors and purchases of U.S. debt, but not enough about Beijing's restrictions on unfettered access to information, expression and self-determination.

Americans believe individuals, free to think, speak and chart their own lives, best guide the progress of nations. Governments draw legitimacy from collective approval, because the people, collectively, are sovereign.

Democracy and markets are as essential to what is America as words and paper are to books. Our political and economic institutions organize competition among individual ideas and enterprise that define our civic and material lives.

Democracy and markets are mutually reinforcing. Markets work best when personal freedoms are protected. Democracy best safeguards those freedoms.

Championing these values, the U.S. has worked tirelessly with allies in Europe and elsewhere to create international institutions that protect human rights and foster free markets.

China is not a democratic nation as, for example, Japan and Taiwan have become, nor is it in transition to becoming one.

China has an authoritarian government with no plans or timetable for relinquishing power. By word and deed, the Communist Party assumes parental authority over Chinese citizens, and asserts sovereignty without their consent.

China embraces market reforms only as necessary and seeks to participate in global markets only on its own terms.

China accomplishes rapid growth by exploiting its working class and by appropriating other people's technology. It openly embraces as a development strategy a hugely undervalued currency that imposes unemployment on Western nations and keeps living standards of ordinary Chinese workers artificially low. China's prosperous middle class is built on the backs of factory labor paid less than the value it creates.

For foreign companies to sell in China, Beijing requires them to produce in China through joint ventures and then transfer prized technologies to local partners. Now, having extracted the know-how it needs, China is tightening the noose on foreign companies, causing them to consider withdrawing and leaving behind formidable new competitors.

During the Cold War, the U.S. engaged the Soviet Union, believing the Russian people would see, through example, the power of individual liberty and compel change from within. Applying that strategy to China is folly.

The Soviet Union collapsed, not because Russians bought into Jeffersonian ideas, but because the Soviet economy failed. China's economy is succeeding. Don't look for its leaders to call for free elections any time soon.

Beijing boasts that China soon will be making the international rules of the game. To sustain the Communist Party's grip, Beijing has a strong interest in selling its brand of authoritarian capitalism to its neighbors and making international institutions much less supportive of human rights and free markets.

To secure oil and other resources and extend influence, China is building a blue-water navy and spending massively to modernize its military. Seen in this context, the present policy of merely engaging China is unwise.

Rather, plainly acknowledging what China is and imposing explicit costs when its actions harm others makes more sense.

For U.S. industries harmed by subsidized imports, countervailing duties can provide redress and better promote trade and jobs creation based on comparative advantages.

It is high time to confront the reality that China is not evolving into a democratic society with a market economy, and it easily could morph into a fascist menace with global reach.

To do otherwise is appeasement, and history has taught us the harsh wages of such a policy.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.