That's not what's going on here. In a fiat money world, money doesn't move out of a country, it is held in correspondent accounts. E.g. there is a bank account here with your name on it. When you think you are moving your money, you sell that bank account to foreigner, and now their name is on it. They sell a bank account in their native country to you. No money has moved in the course of this transaction, rather you have entered into an ongoing financial relationship in a foreign nation without being subject to that nations laws (beyond a bare minimum of requirements) or tax obligations. That is what "unfettered cross border capital flows refers to". It is not so much something that needs to be stopped as something that needs to be actively allowed, because you need an entire system of international investor rights and banks with pairwise correspondent accounts in both nations to make such an arrangement work. There is a massive infrastructure needed to support this illusion that you can "move" money from one country to another with the click of a link.
And this system didn't exist even 30 years ago, it's a new system.
The question is whether the benefits outweigh the costs. If you allow this you are going to have lots of problems with tax evasion. But I'm not sure what the real upside is here. The only purpose of these foreign capital inflows is to finance trade deficits, and that doesn't seem to be in our interest, either.
Moreover, what we dinged China for is not preventing capital outflows but preventing capital inflows, and we rightly pointed out that this forces trade surpluses, which is kinda the point (see my comment about "only purpose"). So of course China, which is interested in running surpluses rather than deficits, is going to block inflows. The question is why do we allow them?
Thus we are back to the unstable equilibrium of trying to get everyone to agree to maintain this vast international system but promise not to try to tweak it to their advantage. Well, China has pretty clearly demonstrated that it's not going to play along -- neither is Korea or Taiwan, for that matter, so why are we still pretending the unstable equilibrium -- this dream of converting a world with sovereign fiat currencies into one that looks like the old specie flow model -- is a thing that can exist?
The only reason is because for a lot of influential people, these capital inflows are highly profitable -- e.g. for those who can skim a little off the top. Just like Bermuda's tax laws are beneficial to financial advisors and bank staff in Bermuda. But let's not let this minority set the overall national policy: yes, these capital inflows benefit the US financial sector, as US banks can now charge fees to customers all over the world who want to maintain accounts in the U.S, but they do not benefit the US economy nor the US tax base.
