OPINION:
American policy toward China is 80% correct, but in the other 20% lies America’s great vulnerability.
Even with its problems — real estate debt bubbles, waning investor and consumer confidence, and the paradox of a declining labor force with record youth unemployment — China still boasts the world’s second-largest economy.
China has accomplished parity or superiority in manufacturing process technologies, supercomputers, artificial intelligence, solar panels, electric vehicles and batteries.
It boasts the world’s largest navy. With hypersonic and carrier-killing missiles, it threatens the U.S. capacity to defend Taiwan and keep lanes of commerce open in the South China Sea.
The Biden administration has taken bold steps to shore up U.S. competitiveness in semiconductors, electric vehicles and green energy technologies. But those are terribly expensive, bloat the federal deficit and threaten to tax Americans through inflation.
Despite Treasury Secretary Janet Yellen’s denials that we are not seeking to constrain China’s development, cutting off exports of leading-edge technologies — including the machine tools used to make the most advanced chips — and maintaining the Trump tariffs partially have that effect.
It’s a rework of Walter Kennan’s 1947 containment policy — this time with China as the target. This will require nonaligned nations — especially those in Indochina and the South Pacific — to choose between China and the West.
Despite increasing U.S. defense spending to $858 billion in 2023, the Pentagon lacks the resources to definitively deter aggression in Taiwan and the South China Sea — in no small measure because we are tied down defending Europe and maintaining a muscular presence in the Middle East.
Europe can’t afford to defend itself against Russia and support Ukraine alone and contribute assistance to Israel, because its economies and national budgets are strapped by decarbonization and dealing with the loss of cheap Russian natural gas.
In the wake of record pandemic spending, the European Fiscal Board is pushing European Union members to rein in deficits. Failure to comply will force much higher interest rates to contain inflation.
Our joint U.S.-European policy of not provoking Vladimir Putin by giving Kyiv the weapons needed to completely push Russia out of occupied territory and establish secure borders almost guarantees the war will grind on endlessly.
By not giving Kyiv what it needs to deliver a knockout punch now, Europe and the U.S. have made the long-term financial drain of the war much greater and invited the Iran-supported Hamas attack on Israel.
Also, Europe can’t afford to defend itself because U.S. industrial and trade policies have turned protectionist against our friends.
In Germany, for example, manufacturers are forced to relocate operations to China and the United States by the loss of cheap natural gas from Russia and the attraction of subsidies provided by CHIPS and Science Act and Inflation Reduction Act.
The U.K., our strongest and most steadfast ally, banked on negotiating a free trade agreement with the United States to complement its free trade arrangement with the EU to accommodate Brexit. But the Biden administration is convinced all new free trade agreements are a threat to America’s middle class and denies the U.K. an agreement.
In Asia, similar reasoning keeps the U.S. out of the Trans-Pacific Partnership, which only pushes nations such as Malaysia and Indonesia closer to China.
U.S. trade with China continues to grow, even though its share of U.S. imports has declined. And this robust commerce supports China’s growth and America’s vulnerabilities — we are terribly dependent on the Middle Kingdom, for example, for the processing of the minerals and metals needed to build EV batteries.
It’s time to abandon the notion that Ukraine can oust the Russians and stop bleeding U.S. and European munitions’ stockpiles without the aircraft and missile systems necessary to establish control of the skies over Ukraine and destroy critical targets in Russia. We have lots of options if Moscow threatens nuclear retaliation.
We must also abandon our “one size fits all” approach to trade and industrial policy.
The U.S. should embrace free trade with the U.K. and Europe and reenter the TPP while imposing a more robust tariff regime on China.
We can’t end import dependence overnight, but we could require import licenses that gradually rebalance trade.
U.S. imports from China exceed exports by 2.3 to 1. The Commerce Department could auction licenses equal to 2.0 of U.S. exports for 2024 and gradually reduce the ratio to 1-to-1 over several years. The revenue could be used to support industrial policies aimed at developing domestic production in industries where China is now the dominant supplier.
The rising cost of imports from China would also accelerate the growth of U.S. imports from alternative sources in Asia and strengthen their ability to purchase U.S. products through the TPP.
This would slow China’s growth and shift that progress to domestic industries and more friendly nations — that’s what de-risking trade should be all about.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
Please read our comment policy before commenting.