Are Biden’s China policies advancing or harming US interests?
Published Fri, Aug 18, 2023
AT FIRST glance, US President Joe Biden’s China policies, aimed at de-coupling the two economies’ tech sectors, make a lot of sense, if you see Beijing (indeed, as most of Washington does) as America’s leading geo-strategic adversary.
There was a time before the start of the Cold War II between China and the US, when American policymakers and legislators could argue that it was possible to draw a line between the geo-economic ties and geo-strategic relationship between the two countries.
So it was conceivable, in theory at least, to promote close US trade and investment ties with China, while at the same time take steps in the diplomatic and military arenas to contain potential Chinese threats to the strategic interests of America and its allies in the Pacific Rim.
Based on that old assumption, America, not to mention its economic partners in South-east Asia, could maintain close economic ties with China and become close trade and investment partners, aka “engagement”, while ensuring that any Chinese military expansion in the region was constrained.
Hence American consumers could enjoy the benefits of low-cost Chinese imports while businesses were rewarded by access to a low-cost workforce. The Pentagon was expected to take care of China’s alleged threats and even prepare for a possible military confrontation over Taiwan.
We now may recall with nostalgia those good old days of globalisation and engagement with China, as America’s geo-strategic and geo-economic policies are melding into one.
The current logic is clear: Indeed, it doesn’t make sense to allow American capital, technology and know-how to sustain the military power of its leading strategic rival.
Hence in one of the latest and probably most controversial US moves against China, President Biden announced early this month (August) new rules in the form of an executive order, that would monitor – and in some cases, prohibit – investment by American companies into China’s technological sector where “strategic” businesses are considered to be “sensitive” from the perspective of US national security.
This step is the latest in a series of US policies that include tariffs, export controls and now, investment reviews, meant to ensure that China doesn’t have access to the kind of technology (such as semiconductors, quantum computing and artificial intelligence) that could strengthen its military position in a possible confrontation with the US.
At the same time, and also based on national security considerations, Washington and its allies are expected to establish alternative supply chains in areas where China maintains an advantage and which it could apply during future crises in its relationship with the American and other Western economies.
The long-term goal of this US strategy, referred to as “de-risking” as opposed to “de-coupling”, is to encourage American companies to move their investments and operations away from China to economies that supposedly operate in line with American interests, such as Vietnam, India and Mexico. Or what is known as “friend-shoring”.
“The implicit presupposition of most authors of these policies is that ‘it’s all about us’,” said retired US diplomat Chas Freeman Jr who served as the US ambassador to Saudi Arabia and worked as the main interpreter for former president Richard Nixon during his 1972 China visit.
Ambassador Freeman agrees with the conclusions made by The Economist magazine in a recent issue, that President Biden’s China strategy wasn’t working and, if anything, could prove to be “costly and dangerous” in terms of US interests and the stability of the international trade system.
An approach like President Biden’s that is based on opaque and unworkable rules “completely misses the fact that US sanctions and supply chain disruptions are accelerating the trend towards China-centred sub-globalisation”, he told The Business Times.
Yes, direct economic ties between China and America are shrinking as more imports come to the US from South-east Asia, India and Mexico, and American direct investment in China is decreasing.
But the bottom line is that America may be re-channelling its demand from China to other countries. The way Freeman sees it, the problem is that production in these same economies now relies more than before on Chinese inputs.
In fact, as Freeman points out, “Chinese outsourcing of labour-intensive industries was already tying key countries in the ‘Global South’ to China”.
The reason for that is that “accelerated offshoring of Chinese companies’ production is now increasing the pace at which those countries open to Chinese investment are industrialising, raising their domestic prosperity, and increasing their weight in international trade”.
From that perspective, “we are inadvertently creating a global trade subsystem that promises to further erode industrial employment in the United States and reduce our competitiveness”, said Freeman.
Hence “there is little to no reshoring going on and even less in prospect”, he insisted. “Instead, our neo-mercantilism is benefiting countries like Bangladesh, Ethiopia, Indonesia, Mexico, Thailand, and Vietnam while creating tensions in our relations with the EU, Japan, and South Korea.” That benefits neither American geo-economic nor its geo-economic interests.
Clyde Prestowitz Jr, who formerly served as counsellor to the Secretary of Commerce in the Reagan administration and is the founder and president of the Economic Strategy Institute, has been a long-time critic of US free trade policies, and believes that the executive order issued by President Biden limiting US investment in the area of technology makes a lot of sense from both national security and economic perspectives.
In fact, in an interview with BT, he said that the Biden administration is trying to market its policy to domestic and international audiences by suggesting that it was pursuing selective de-coupling, or drawing a line around what technologies such as artificial intelligence can be used for, mimicking the voices of pop stars or trying to assault the US financial system. Or what the Biden administration calls a “small yard, high fence” approach
But he stressed that, in reality, once a de-coupling decision is made, “it is silly to believe that small, discrete segments of the Chinese economy can be neatly roped off”.
Indeed, with China’s “declared policy of military/civilian fusion, there simply can be no discrete pieces of the Chinese economy available for roping off”. The notion of dual technology is meaningless from a Chinese point of view.
Prestowitz disagreed with the assertion by The Economist and observers such as Ambassador Freeman, that the de-coupling would only spur a resurgence of the “Global South” and thereby increase China’s global manufacturing dominance.
“The off-shoring of production from the US, the EU, and Japan to China has not resulted in an extension of their manufacturing dominance globally – in fact, quite the opposite has occurred,” he said.
He noted that, based on his conversations with Mexican officials, he concluded that “they do not envision becoming merely new cogs in the Chinese machine”, adding, “nor can I imagine that others like Brazil, India or Indonesia are thinking any differently”.
“Just as did China, so will all of these players seek to do more and more of the value-added production in their own backyard,” Prestowitz said. “This is the inevitable experience of off-shoring from the beginning of time.”
And contrary to what some expected, some major American companies, including the Business Roundtable, have welcomed the Biden administration’s new executive order. “CEOs like, say Tim Cook of Apple, will surely be happy to be able to have their companies producing in countries whose politics are a bit more relaxed than those in China,” he said.