"Economic war crimes."

Kneecapping China seems the best Biden can do.

Where China gets it done. Ningbo Institute of Technology. (Nbfreeh, cc SA 4.0/ Wikimedia Commons.)

This is the third of a three-part series on China and the West’s obsession with its emergence as a regional and global power. Part 1 can be read here and Part 2 here. 

4 OCTOBER—Gina Raimondo, the Biden administration’s commerce secretary, made a strikingly revelatory remark last Tuesday, a day before she was to meet European Union officials to inaugurate something called the U.S.–E.U. Trade and Technology Council. Hardly could a bureaucratic event sound any duller, but Raimondo’s preview comments, delivered in an interview with CNBC, were certainly otherwise. Here is the pith of them:

America is most effective when we work with our allies. If we really want to slow down China’s rate of innovation, we need to work with Europe.

Gina Raimondo was a two-time governor of poor little Rhode Island from 2014 to 2019, during which period she ran things rather badly and achieved, if this is our word, a solid place among the governors with the lowest approval ratings in the nation. Gina Raimondo has zero experience in any dimension of international relations. But sometimes the most interesting things middling bureaucrats such as Gina Raimondo have to say come when they do not grasp the implications of what they are saying.

A nation that wants to slow another’s rate of development is on the face of it prone to diabolic behavior. Such a nation is indifferent to the wellbeing of the other’s population and, at bottom, stands as an impediment to any serious notion of human progress.

Such a nation is the United States, it seems. Far from being the leader of the Western world, Joe Biden has inherited precisely the role his predecessors at least as far back as Bush II carved out in global affairs—the role of spoiler.

In the first piece in this series, we identified the new U.S.–British–Australian security pact as the effective declaration of Cold War II and an indication of who will wage it and how. Gina Raimondo has just announced that the economic side of Cold War II is now formally commenced, too. One way her side of this war will be fought is by acting to debilitate the economy of a nation that, with astonishing determination and discipline, has lifted itself most of the way out of poverty in a matter of a few decades. Its policy errors notwithstanding, China has achieved one of the greatest quantum leaps in living standards in economic history.

Gina Raimondo sees nothing to admire in the People’s Republic’s accomplishment. She wishes instead to damage this accomplishment to the fullest extent her nation can get this malign task done.

For the sake of a little more perspective, the budget the U.S. passed for the 2022 fiscal year, which commenced 1 October, includes $180 billion for research and development in the technologies of the future. This amount is to be spread over eight years, for an annual R&D expenditure of $22.5 billion.

O.K.

The budget Beijing passed last year provides for annual expenditure on R&D in new technologies of $560 billion—slightly more than triple, each year, what Washington just allotted for eight years.

Rather more than O.K., we would say.

Considered one way, these numbers reflect different economic models and the effectiveness of each in the 21st century. China has and probably always will have a strong state sector. By contrast, for the past 40 years the U.S. has been given to the supremacy of free markets and has aggressively proselytized this economic gospel accordingly. Remember Reagan’s magic-of-the-marketplace moment? Via the so-called “Washington Consensus,” the U.S. has invested markets with supernatural powers such that they are supposed to know more than the human beings who created them.

There are fundamental social values and philosophies reflected in these different economic models. Understood properly, all economic institutions and structures—tax regimes, stock markets, regulatory environments, labor laws, and so on—reflect the values of the societies in which they exist. This is a problem for the U.S. in our time. We find that free markets and a weak state sector put Americans at a critical disadvantage next to models such as China’s. The problem is compounded because our religious devotion to supposedly free markets prevents us from even recognizing our circumstance.

We cannot compete, in short—we with our radical individualism, our free-for-all economy, and our countless social and economic casualties. And now we come to Gina Raimondo’s home truth: Because we cannot compete, we will do our best to cripple the nation against which we cannot compete.

You do the subs, I’ll do the sabotage. Raimondo with unidentified officer. (Air National Guard, Janeen Miller/ Wikimedia Commons.)

The New York Times published a pair of pieces on page one the other week that we found striking to read next to one another. One was headed, “Xi eyes richest in bid to build a middle class.” The other headline was, “Democrats’ vision for aid: From cradle to grave.” These two pieces can be read respectively here and here. (The China item carried an alternative headline in The Times’s online editions: “Warning of income gap, Xi tells China’s tycoons to share wealth.”)

Each in its way, these pieces described a turn in Beijing and Washington toward redistributionist economic policies. How shall we think of these? It would appear that the world’s two largest economies are headed toward one or another form of social democracy—the one from the left, the other from the right. Could this be?

The Chinese press described the new regulatory campaign Xi Jinping’s government has introduced in recent months as “a profound transformation.” Its slogan is “Common prosperity.”

Here, courtesy of Moon of Alabama, is how a very loyal Chinese commentator described this policy shift:

This is a return from the capital group to the masses of the people, and this is a transformation from capital-centered to people-centered. Therefore, this is a political change, and the people are becoming the main body of this change again, and all those who block this people-centered change will be discarded.

China is currently facing an increasingly severe and complex international environment. The U.S. has implemented military threats, economic and technological blockades, financial strikes, and political and diplomatic siege against China.

This analysis is rudimentary but has the virtue of historical awareness. The piece veers into some quite strange rhetoric—nostalgic for the Maoist years, hyper-nationalistic. But the point is plain: Beijing now recognizes the social and economic imbalances that inevitably come with extremely accelerated development as problems in two ways. One, they will weaken the nation’s social vitality and resilience if allowed to continue; two, they are a liability in the context of America’s just-declared Cold War II, a multi-front proposition.

Xi Jinping has been very clear that the intent of his new reform campaign is to avoid the mistakes America has made, as ideology and greed make a mess of the American polity.

Xi’s recent crackdowns are much lamented—and of course misunderstood—by the Western press as a setback for reforms of the sort American ideologues have long dreamed of. In fact, they are intended to rid the country of longstanding pathologies that have afflicted Western economies such as America’s for decades.  Beijing is trying to address what fund manager Yuan Yuwei (cited in Moon of Alabama) described as China’s “three big mountains”: the rising costs of housing, health care, and education, which  have been suffocating Chinese families and crowding out their consumption.  

As Xi presciently noted in a speech to party members in July:

Realizing common prosperity is more than an economic goal. It is a major political issue that bears on our Party’s governance foundation. We cannot allow the gap between the rich and the poor to continue growing—for the poor to keep getting poorer while the rich continue growing richer. We cannot permit the wealth gap to become an unbridgeable gulf.

Of course, common prosperity should be realized in a gradual way that gives full consideration to what is necessary and what is possible and adheres to the laws governing social and economic development. At the same time, however, we cannot afford to just sit around and wait. We must be proactive about narrowing the gaps between regions, between urban and rural areas, and between rich and poor people. We should promote all-around social progress and well-rounded personal development, and advocate social fairness and justice, so that our people enjoy the fruits of development in a fairer way. We should see that people have a stronger sense of fulfilment, happiness, and security and make them feel that common prosperity is not an empty slogan but a concrete fact that they can see and feel for themselves.

A successful polity, Xi argued, cannot remain viable if the fruits of its prosperity are increasingly funneled to a smaller and smaller cohort sitting at the top of the economic pyramid, or if its government becomes detached from the people and turns into a group of privileged bureaucrats who encourage and facilitate nothing but rent-seeking capitalism that only protects their own interests and those of their donor class.

Doubt not for a single second Xi’s new policies reflect the revulsion the Chinese leadership harbors as it gazes across the Pacific to the leader of the free world.

It now appears America has belatedly come to the same realization, much as Franklin Delano Roosevelt did when he initiated the New Deal nine decades ago.

What, then, of the Biden administration’s two-plank program, a bill worth $1.2 trillion to fix the country’s long-degraded public infrastructure, along with a “social infrastructure” bill. The latter started with a $3.5 trillion baseline (over 10 years) but now appears set to be negotiated down to $2 trillion if President Biden’s most recent public comments are anything to go by.  The social welfare bill, in particular, is intended to restore at least minimal parts of the system lawmakers and presidents have systematically dismantled since the Reagan administration’s open attack on it in the 1980s; these have continued through all subsequent administrations, Republican and Democratic alike.

Biden’s “Build Back Better” is supposed to be a corrective to that drift. The plan is intended and pitched as a series of nationalist steps to invest in American businesses, infrastructure, and clean-energy production, to increase economic security for all families, and, perhaps most significantly, to put the U.S. in a stronger position in the economic fight against China. In this last connection, we think the true driver of the Biden program is less the improvement of Americans’ lives than it is the defense of American hegemony.

There are many specific parts of the program that are almost certain to change or be eliminated as we reach the final negotiations between the Democratic Party’s moderate and progressive wings—things such as prescription drug regulation,  more equity in the tax system, universal pre–K schooling, the Green New Deal, and the expansion of Medicare. These are all important domestic considerations. But our intent here is to consider one aspect in particular: How do these policies reflect Biden’s foreign policy objectives, specifically as they relate to China?

As noted in Part 2 of this series, “After long months of confusion, misfires, apparent indirection, and messes in its trans­–Pacific relations, the Biden administration at last has a China policy and a policy toward East Asia altogether.” But are the policies outlined in the domestic agenda consistent with this foreign policy goal?

President Biden has said flatly that he considers China America’s “most serious competitor.” Another president could once have said this of the Soviet Union, and almost certainly one or more did, but there is a key distinction to note: The Soviets never presented the U.S. with a serious economic challenge. China does. The So­viet goal was to catch up with the United States and become a genuine second super­power—a goal it ultimately failed to achieve. At best it was a half-hegemon, even as its model retained considerable appeal for a time in parts of the developing world (hence, the ostensible rationale for waging Cold War I). By contrast, China is already a world-class economy which in many areas already equals or has surpassed the U.S. in areas as diverse as electric cars, shipbuilding, and 5G telecommunications. 

It seems curious in this context that the Biden administration’s most notable trans–Pacific policies to date have not focused on re-establishing some degree of domestic economic resilience but instead on augmenting various military and intelligence alliances, notably the newly promulgated tripartite security agreement with Australia and Britain, “AUKUS,” and the enhancement of the so-called “Quad Four,” the dialogue among the U.S., Australia, India, and Japan. Both of these endeavors are intended as counters to China despite protestations to the contrary.

In theory, Build Back Better is supposed to be the domestic dimension of these efforts. Weakening the so-called “Chimerica nexus,” which has allowed China to recycle its vast savings surpluses back into the U.S. capital markets, (contributing and sustaining the increased trend toward financialization) is a project the Trump administration started. But Trump was a destroyer, temperamentally unsuited to contemplate anything remotely approaching a robust national industrial policy.

And an industrial policy is precisely what is required right now. For decades, the U.S. has relied on globalization to deliver ever-cheaper goods and cheap labor from emerging markets. The idea that national resilience was nothing to worry about became a weird consensus. It was rooted in an influential set of neoliberal ideas, a “just in time” mindset dominant for the past 40 years—and whose shortcomings the Covid–19 pandemic has brutally exposed.  The aftereffects of the virus continue to manifest via shortages of food, energy, and other essential goods, even as businesses continue to work toward reconstructing the old supply chain lines that created these problems in the first place.

Unfortunately, Biden’s actions on the economic front to establish a degree of national resilience have been paltry. Secretary Raimondo’s comments suggest that the U.S. has already given up, indeed. Rather than reëstablish competition via a robust national industrial policy, the goal, as Raimondo just announced, is to degrade China’s abilities. It’s akin to the infamous Nancy Kerrigan–Tonya Harding feud in ice-skating competition, whereby Harding’s team hired a hit man to club Kerrigan's right knee so as to impair Kerrigan’s ability to compete in the 1994 Olympics.  The Kerrigan–Harding affair was tawdry times ten. Is the strategy Raimondo just disclosed any less so?

And then we picked a loser. Andy Grove, 1969. (Intel Free Press, cc SA 2.0/ Wikimedia Commons.)

Let’s consider the specific example of semiconductors, which Raimondo cited as one sector in which the Europeans and Americans could make common cause to deny Beijing industrial primacy. This is a clear case of how the “fruits” of America’s longstanding policy of offshoring manufacturing—primarily to fatten quarterly profits and goose stock prices, the key component today in executive compensation and a major contributor to America’s growing inequality—has come back to haunt the country. Offshoring not only degraded the quality of employment on American shores; it also ceded a key industrial advantage that had hitherto contributed to America’s overall economic prosperity. 

No less a figure than former Intel chief executive officer, the late Andy Grove, long recognized this. As early as 2010 Grove, then retired, had warned that Silicon Valley risked “squandering its competitive edge in innovation by failing to propel strong job growth in the United States,” according to a New York Times opinion column by Teresa Tritch, written shortly after Grove’s death in 2016.

Tritch explains Grove’s belief that the lower cost to companies that outsourced to Asia actually “masked the high price of offshoring as measured by lost jobs and lost expertise. Silicon Valley misjudged the severity of those losses, he wrote, because of a ‘misplaced faith in the power of start-ups to create US jobs.’”

She continues:

Mr. Grove contrasted the start-up phase of a business, when uses for new technologies are identified, with the scale-up phase, when technology goes from prototype to mass production. Both are important. But only scale-up is an engine for job growth—and scale-up, in general, no longer occurs in the United States. ‘Without scaling,’ he wrote, ‘we don’t just lose jobs—we lose our hold on new technologies’ and ‘ultimately damage our capacity to innovate.’

Grove’s prophecy has of course been borne out. 

While it is true that the U.S. is now belatedly seeking to restore dominance in the semiconductor industry, it is doing so less, it seems, for economic reasons, and more on the grounds that the country which controls this industry can throttle the military and economic power of others.  That was Donald Trump’s rationale for limiting Huawei’s ability to outsource its in-house chip designs for manufacture by Taiwan Semiconductor Manufacturing Company, a world-competitive chip foundry. It’s a policy that the Biden administration is seeking to expand by incorporating Europe into this grand strategy, as Raimondo made plain in her call for the U.S. to work with Europe to slow down China’s rate of innovation. Here is more from Raimondo’s interview with CNBC:

We have to work with our European allies to deny China the most advanced technology so that they can’t catch up in critical areas like semiconductors.

Pitiful. We wonder if readers may have another word for this.

Will Europeans join the crusade to crash the Chinese economy? We very seriously doubt they are on for this dimension of Cold War II any more than they are any other. Let us not forget: In the final days of 2020 the European Union entered a trade and investment accord with China that is the most extensive Beijing has ever signed. The Biden administration, pre-inauguration at that moment, was shocked, readers will recall, but the agreement stands.

It’s also difficult to imagine the French government enthusiastically backing any American-led initiative in the wake of Washington’s secretly negotiated nuclear submarine deal with Australia, which induced Canberra to drop a $66 billion agreement to buy 12 French diesel-powered submarines. Hardly a glorious moment for Biden’s promised “relentless diplomacy.”

Nor will Beijing play ball. While it lags the U.S. in some industries, chip manufacturing and civil aviation among them, Xi’s China is determined to compete at the level of advanced technology. Its days are done as a provider of cheap labor and consumer goods for American, German, Japanese, and South Korean multinationals, as if it were some Asian version of a Mexican maquiladora.

Think about Gina Raimondo’s trade and technology council in this context. Are we the only ones who come to conclude that Biden’s China policy (or the China policy developed by those acting in his name) rests on fundamental delusions as to what is going on in 21st century international relations and economics?

A truly effective policy re-establishing a degree of national resiliency will require years of industrial reconfiguration and hundreds of billions of dollars, money now deployed wastefully in our bloated defense budgets (which both Democrats and Republicans remain determined to feed), all the while needlessly provoking China via pointless posturing and incoherent “diplomacy.”

To put the America’s national priorities in context, at best Biden’s social infrastructure package will contribute a net increase of some $200 billion to $250 billion a year, depending on the result of negotiations on Capitol Hill. We may get nothing at all if Democrats fail to come together with a viable compromise. (The Republicans are not a factor here.) This is in the context of a $22.5 trillion economy. By way of comparison, Congress is authorizing around three times that amount for national defense expenditures.

If there is indeed to be an economic competition between the U.S. and China, as opposed to a staged military confrontation (or a series of proxy wars in other parts of the globe), this is hardly the way to do it. Biden’s orientation must rapidly shift toward ways of enhancing his country’s economic position in a positive, proactive way. And taking down China is the wrong objective if this is to get done. This means putting greater weight on access to advanced research and technologies, such as the collection, transfer, and storage of data and the quantum computing power to process it, not further building up a naval presence in the Indo–Pacific, which could well turn today’s Cold War II into a hot war very quickly.

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