One Billion Americans — now more than ever
Joe Biden’s economic war on China needs a bigger strategy
The Biden administration recently took sweeping action to try to hobble the Chinese semiconductor industry. If you have no idea what I’m talking about, I’d recommend this post from Noah Smith or this and this from Ben Thompson.
But for our purposes, what I think you need to know is that while reasonable people disagree as to how effective Biden’s economic war is going to be, everyone who follows this topic closely thinks it’s a big deal. The United States is blocking the export of key inputs to Chinese chip-making, and we’re doing so not as sanctions to retaliate for a specific Chinese misdeed, but as a generalized economic competition measure. The idea of “we should do X so we remain the leader in Y industry” has moved from the realm of vague rhetoric to concrete policymaking, with real economic costs borne by both American companies (who will lose exports and sales) and Chinese companies (who will lose access to components they want).
This type of policy move seems reasonable on its own terms. But it also represents a striking decline in U.S.-China relations, or at least a strikingly rapid turnaround in U.S. elite sentiment about a situation where the signals from Beijing have been unpromising for years.
Barack Obama’s administration was largely bought-in on the big picture idea, inherited from George W. Bush and Bill Clinton, that openness to trade with China would be beneficial. Donald Trump fiercely challenged that bipartisan consensus on a rhetorical level, and he brought a strong belief in the merits of protective tariffs into government. But even under Trump, the ultimate goal of the trade war was to adjust the U.S.-China balance of payments. Trump spent the early months of 2020 downplaying the growing coronavirus crisis because he was trying to strike a deal with China to lift tariffs in exchange for guaranteed purchases of soybeans and other American agricultural products. That’s a more controversial approach to China, but also one that construes the U.S.-China divide in pretty minimalist terms.
Biden, with the support of most Republicans and Trump-era national security figures, is doing something much more dramatic — the chip war is part of a multi-faceted strategy to try to deny China access to the commanding heights of global technology.
And that’s an approach I worried about a lot when writing “One Billion Americans.” I think the United States’ reluctance to pass the torch of global leadership to the People’s Republic of China and the Chinese Communist Party is understandable and correct. But significantly reduced Chinese economic growth is not an acceptable outcome to Chinese leaders. If that’s our only strategy, a dangerous conflict is inevitable. An overt U.S.-China conflict could potentially kill tons of people and is one we might lose. We need a credible strategy to stay number one that doesn’t rely on kneecapping China: we need to neutralize their population advantage with population growth.
Engagement has failed
In 2000, Congress passed legislation to grant Permanent Normal Trade Relations to China, clearing the way for China’s entry into the World Trade Organization and its integration into the U.S.-led economic system. Then-speaker Dennis Hastert, a Republican, hailed the legislation’s economic benefits, of course, but he also said the arrangement was about more than money: “you know what — we open it up so that we can exchange ideas and values and culture. And that's an important thing.”
Bill Clinton, who signed the bill, agreed:
Of course, opening trade with China will not, in and of itself, lead China to make all the choices we believe it should. But clearly, the more China opens it markets, the more it unleashes the power of economic freedom, the more likely it will be to more fully liberate the human potential of its people. As tariffs fall, competition will rise, speeding the demise of huge state enterprises. Private firms will take their place, and reduce the role of government in people's daily lives. Open markets will accelerate the information revolution in China, giving more people more access to more sources of knowledge. That will strengthen those in China who fight for decent labor standards, a cleaner environment, human rights and the rule of law.
This legislation was controversial at the time and became more so during the mid-Bush years when the economic impact of PNTR turned out to be larger and faster than anticipated. By Obama’s second term, the bipartisan free-trade agenda had shifted to the Trans-Pacific Partnership, which was conceived in part as an anti-Chinese trade pact. But China Shock Backlash doomed TPP, which was opposed by both Hillary Clinton and Donald Trump and wound up dying in Congress.
But even more important than the economic miscalculation was the political miscalculation. The China Shock, whether mishandled or not, was a one-off event. But Clinton’s forecast that economic integration would lead to political liberalization was an ongoing matter. And while plenty of people insist this was a bad faith notion propounded by business-friendly elites for no good reason, I think that’s wrong. The leading policymakers of the turn of the millennium were not technical experts with deep knowledge of the extent to which internet technology would turn out to enable censorship and surveillance. Looking at commentary from 20 to 25 years ago, the notion that the internet would lead to decentralization was everywhere — not just in the China context. People make mistakes, especially when asked to offer snap judgments on topics they have no prior experience with.
And by the same token, if you watched Jiang Zemin undertake a peaceful handoff of power to Hu Jintao, who in turn orchestrated a phased succession to Xi Jinping, you could see China evolving in a democratic direction. You might have said the Maoist cult of personality had given way to Deng Xiaoping’s personal dictatorship, which in turn had given way to an institutionalized oligarchy similar to Mexico in the PRI “perfect dictatorship” era. Mexico democratized without violent clashes or even the extirpation of the PRI as a political force, and perhaps China would go the same way.
Today we know that didn’t happen. But we shouldn’t let that fact delude us into thinking that policymakers always knew this approach would fail. It had surface-level plausibility, and I think very few of us — including people like Hastert, Clinton, or the Bush or Obama economic policy teams — actually had the detailed knowledge of Chinese politics and institutions to assess it. What we can say today is that Xi is not orchestrating a peaceful transfer of power. Unlike his predecessors who gambled on development at the cost of potential elite instability, Xi spent his first 10 years in office neutralizing rivals and centralizing power. He’s now set for a third term in which he’ll be more powerful than ever, with his closest colleagues from the Hu era sidelined and the entire government dominated by personal loyalists.
Beyond the specifics of Xi’s ascent, we’ve also seen clearly over the past 20 years that integration has had the reverse effect — big-time industrialists, Hollywood movie studios, and major sports stars import Chinese speech norms to the West on subjects like Hong Kong, the Uyghurs, and Taiwan in order to preserve access to the Chinese market. Nobody likes to admit they were wrong, so recognition that the prior policy course hadn’t worked out came with a bit of a delay. But it’s now arrived fast and furious — announced by Trump’s demagoguery but confirmed by Biden’s lower-key but ultimately more consequential actions.
A dangerous rivalry
Graham Allison has given the annoying name “Thucydides’ Trap” to the emerging dynamic, which I think is better explained without reference to the history of Ancient Greece.
The issue is that if the U.S. sees China’s rise as threatening, then we will seek to hobble them. But if China thinks we are trying to hobble them, then China will feel compelled to overthrow our hegemony. This can lead to very negative-sum outcomes, even if absolutely everyone involved acknowledges that peaceful coexistence would be a better option. And that’s the position I find myself in, too. Reading Gregory Allen’s detailed technical report on Biden’s war on Chinese semiconductors, I am both glad that we are doing this and also alarmed by the implications. As he writes, “these actions demonstrate an unprecedented degree of U.S. government intervention to not only preserve chokepoint control but also begin a new U.S. policy of actively strangling large segments of the Chinese technology industry—strangling with an intent to kill.”
China is obviously not going to sit there and take that. And patriotic Chinese people, even those who may have qualms about Xi’s personal rule or other aspects of his decision-making, aren’t going to be happy about it either.
These specific actions target high-end GPUs used in artificial intelligence applications. But the basic principle that we are prepared to use our existing economic strengths to try to strangle Chinese technological progress is quite broad. And it could easily end up in one of two failure modes. On the one hand, it might just not work. Allen describes the new semiconductor sanctions are breathtaking in their scope, but they’re not perfectly airtight. As he explains, “there is every reason to suspect that Russia and China are massively increasing” their investment in “export control evasion activity.” But the other problem is that if it seems like it’s working, that gives Xi and the PRC motive to start doing rash things to try to preempt strangulation at American hands.
What we really need are ideas to maintain a lead that don’t hinge on crushing China.
One Billion Americans
This is where One Billion Americans comes in.
It feels like only yesterday that I was promoting the book, and the main skeptical questions I got were about the necessity of developing a strategy to compete with China. Today it seems like we have a consensus on that. But what we’re doing to compete is pursuing a strategy that any Chinese leaders — including relatively friendly and benign ones — would have to push back against. And it’s a strategy that could potentially infect almost any effort to cooperate on pandemic risk, geoengineering, or anything else. Even an American proposal offered in total good faith is going to be read through the lens of potential economic strangulation.
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