China’s Long March through the Global South
US should combine with Japan, South Korea, and Germany to compete; together we have more resources, more capital
Asia Times Deputy Editor David P. Goldman delivered these remarks on July 8 at the National Conservatism 4 Conference in Washington, D.C.
The “Long March” analogy isn’t my idea. Chinese policymakers talk of Mao’s civil war strategy of encircling the cities from the countryside.
Why is this important? The working-age population of high-income countries will fall by a quarter this century due to low birth rates. In the case of Taiwan and South Korea, it’s more like three-quarters.
That’s why I doubt China will invade Taiwan; the Chinese don’t fight for what will fall into their laps sooner or later like ripe fruit. But the working-age population of so-called Middle-Income countries will rise by half.
The world’s scarcest resource is young people who can work in a modern economy. Empires of the past fought over territory. China’s goal is to control people.
In 1979 China took a nation of farmers and turned them into industrial workers, and multiplied GDP per capita 30 times. Now it plans to turn a nation of factory workers into a nation of engineers — think of South Korea. That’s a messy and costly transition. But China is doing it.
In 2020 I wrote of China’s plan to Sino-form the Global South. It knows a lot about getting people who make $3 a day to make $10 or $20 a day.
China’s population has been in decline, but its highly educated population is growing:
Ten and a half million university graduates, up 60% in 10 years, 2X our total – and a third are engineers. That’s more engineering graduates than the rest of the world combined.
South Korea quintupled industrial production between 1990 and 2010 while its factory workforce fell by a fifth.
Will China collapse? Compare the US and China aggregate debt burden: the US is 262% of GDP, and China is 278% of GDP –
But China lends the world a trillion dollars a year and we borrow a trillion dollars a year. Countries with positive growth and big current account surpluses don’t have financial crises.
China has gotten many things wrong, but it got two big things right.
The first is AI applications to manufacturing. It can produce a $9,000 electric vehicle at a profit, or 2,400 5G base stations a day in a plant with 50 workers – I saw this. It also claims to have a factory that can make 1,000 cruise missile motors a day.
We can’t produce enough artillery shells to supply Ukraine. China can make as many ship-killer missiles as it wants. That’s the biggest change in relative firepower since muskets replaced crossbows. A US destroyer can carry 100 missile interceptors. There’s no limit to how many missiles China can launch from the mainland. We talk about prioritizing China: With what?
We’re just rearranging the deck guns on the Titanic.
China has 3 million 5G base stations. We have 100,000. China dominates key industries—telecom infrastructure, EVs, solar power, drones, steel and shipbuilding — and it’s aiming at semiconductors. Biden’s Treasury Secretary goes to China and says, “Please, you’ve got too much industrial capacity, don’t export so much!” What about OUR capacity?
The other big thing China got right is the transformation of the Global South. It doubled exports to the Global South since Covid – now exports more to the Global South than to all developed markets. Assimilates billions of people into its economic sphere. It did this with 200 soldiers deployed outside China versus our 230,000.
We spent $7 trillion on forever wars. China spent $1 trillion on Belt and Road Initiative investments. Who got more influence?
Forty countries have applied to join the BRICS group.
This isn’t about authoritarianism versus democracy. China’s exports to democracies like India grew as fast as exports to Russia. The Chinese are incurious about how barbarians govern themselves. They want to make the world dependent on Chinese technology and supply chains.
This is a gigantic undertaking: Four out of five workers in the Global South are immured in the so-called informal sector. They pay no taxes, receive few services, have no access to capital and world markets.
China is assimilating them with digital and transportation infrastructure. That connects people to world markets. Huawei and ZTE now deliver more than half the world’s telecom infrastructure and more than two thirds of the market in the Global South.
BYD is building EV plants in Mexico, Brazil, Thailand, Turkey and Hungary. The $9,000 EV is today’s equivalent of the Model T for the Global South – a car the average family can afford. That’s as big as the Model T was for the United States.
Meanwhile our position deteriorates.
When Donald Trump left office, our trade deficit in goods was $800 billion a year. Now it’s half again as big, at $1.2 trillion a year.
Most of the new imports come from the Global South. We put tariffs on goods from China, so China instead shipped components to Mexico, Vietnam, India and a dozen other countries, which sold the finished goods to us. We import less from China but we’re more dependent on Chinese supply chains.
Like the Sorcerer’s Apprentice, we smashed the enchanted broom that was flooding us, and now we have a dozen.
The Fed’s Industrial Production Index is lower than it was before COVID. Capital goods orders are down more than 10% after inflation.
Worst of all: We now import more capital goods — the goods that make other goods — than we produce at home. To produce more and import less, we need more capital goods, but we’ll need to import more capital goods today in order to import less in the future. That’s why across-the-board tariffs may do more harm than good.
We cut off China’s access to advanced chip technologies, but China has worked around most of these barriers. It can produce the chips it needs for industrial automation, 5G telecom, and other real economy applications. Again and again, we overestimated the impact of our sanctions and underestimated China’s ability to adapt.
Taking potshots at the elephant hasn’t done much good. We have to get our own elephant.
We need a national effort on the scale of the Kennedy Moonshot or the Reagan Strategic Defense Initiative. In 1965 12% of all federal outlays went to R&D. Today it’s 2.4%.
We get industrial policy right when we have a national emergency.
Trump’s missile defense is the way to go. Reduce our forward deployment and concentrate resources on high-tech defense.
We have faster chips. But it’s not just about processing speed: It’s know-how, education, an industrial culture and industrial communities, and we’ve let these slip. Trump is right to impose high tariffs on Chinese EVs – we have to protect our manufacturing base. He’s also right to invite Chinese auto companies to build plants in the US. China is ahead of us in industrial automation. Let’s appropriate some of China’s IP.
Two simple proposals:
We should combine with Japan, South Korea, and Germany to compete with China’s Long March through the Global South. Together we have more resources and more capital.
We should invite our NATO partners to join us in creating the technologies that will determine the outcome of the 21st century. We won’t persuade them to rebuild conventional armies. But joining us at the cutting edge of technology is an offer they can’t refuse.
As a young researcher for Reagan’s National Security Council, I produced a study saying that SDI would pay for itself through civilian spinoffs. I was wrong: It paid for itself ten times over. This isn’t our first rodeo. We can do it again. We are more in need of reminder than of instruction.