To Face Off Against China, Copy Its Playbook

Foreign Policy, 06.03.2021
Clyde Prestowitz, fundador y presidente (Economic Strategy Institute)
Biden should unite allies with a giant “Made in the Free World” project

A transparent model car is displayed at the Huawei booth during the Beijing International Automotive Exhibition. (Lintao Zhang/Getty Images)

U.S. President Joe Biden is right to make China his first foreign-policy priority. But his proposed first step of talking to U.S. allies before doing anything is very much the wrong way to start. While it’s generally better to have help from allies to achieve objectives, that principle only holds if the help is genuine and the objectives are shared.

Washington’s European Union allies, such as Germany and France, have already disrespected Biden by completing an investment agreement with China—ignoring his team’s polite request that they delay at least until after speaking with him following his inauguration. Even more disturbing is the fact that the EU-China deal is of questionable value for Europe. On paper, it offers expanded opportunities for investment in both directions. But the reality of the deal became clear when EU negotiators claimed success in pursuading Beijing to make “sustained efforts” to sign the International Labour Organization’s protocol against forced labor. One wonders if EU leaders are going to hold their breath until that signature appears.

This smacks of failed approaches by past U.S. presidents from Ronald Reagan to Barack Obama, whose advisors presumed that melding China into the global economy would lead it to become a responsible stakeholder in the liberal, rule-based global system. Instead, what Biden and his allied counterparts must urgently do is reduce the West’s dependence on China’s economy and technology.

That China is not interested in becoming a stakeholder in the liberal order should now be clear from experience—and from Beijing’s own statements. In 2013, the Chinese Communist Party circulated Document 9, which emphasized the party’s fundamental opposition to constitutional democracy, civil society, universal values, and any media not adhering to the party’s discipline. And in the 2015 Five Year Plan, Beijing announced the Made in China 2025 program, which aims to use industrial policy to achieve Chinese domination of high-tech sectors like airplanes, semiconductors, and artificial intelligence. This is an excellent explanation of what might be called globalization with Chinese characteristics.

It was in reaction to all this that Trump’s U.S. trade representative, Robert Lighthizer, tried a different tack, challenging China with import tariffs and other measures. One can argue about its success, but what should be abundantly clear is any attempted return to engagement, with or without allies, will lead to a dead end. As a 50-year veteran of negotiations in Asia, I can assure Biden that if engaging allies means more talks aimed at trying to persuade China to change its policies and actions, they will be a complete waste of his time. There may have been a time in the early 1990s—following the Chinese Communist Party’s massacre of students demonstrating for democracy in Tiananmen Square—or in 2001, when China joined the World Trade Organization—when allies’ pressure could have changed Beijing’s economic policies. But that is simply no longer the case. Mere talks, whether bilateral or involving allies, will not change the direction or method of China’s economic development.

On the other hand, a united coalition of allies could have a major impact if it cooperated to improve free-world manufacturing, strengthen technological performance, and reduce reliance on China.

Take a small example to start: Beijing is currently slashing its imports from Australia, including coal, barley, lobsters, and wine. It is doing this to retaliate against Australian Prime Minister Scott Morrison’s call for an international investigation into the origins of the COVID-19 virus. These actions by Beijing are in complete violation of World Trade Organization rules and other trade agreements. But Beijing knows it is Australia’s largest customer, and it is using Australia’s vulnerability to teach it a political lesson. One concrete step would be for Washington and its allies to establish a consortium that would offset Australia’s lost export sales by stepping in as the buyer. This would not be charity; Australian wine is excellent and will easily find buyers outside of China.

On a larger scale, it is absolutely imperative that the United States and the rest of the free world substantially reduce their economic and technological dependence on China to avoid the kind of coercion Australia suffered and to maintain their own productive and inventive vitality. Further talks will never convince the Chinese Communist Party to yield power or give up its drive for coercive dominance. Only a significant lessening of dependence on China will reduce that power. Such a reduction of dependence does not have to occur instantly or across all industries. But for the sectors targeted by Made in China 2025, it is imperative that the free world remains—or again becomes—the leader in both technology and manufacturing.

How to do this is not a mystery. The United States ran the greatest industrial policy of all time when it built the economy that won World War II. It responded to the Soviet Union’s Sputnik challenge by going to the moon. It was U.S. industrial policy, not Apple’s Steve Jobs or Facebook’s Mark Zuckerberg, that developed the semiconductor and the internet—ditto for aviation and many other key industries still dominated by U.S. producers. Biden should imitate China by adopting a “Made in the Free World 2030” project—and inviting U.S. allies to participate—to assure U.S. and free-world leadership in innovation and production in the essential technology industries of the future. Made in the United States, the EU, India, Japan, and elsewhere in the free world should be the overriding objective.

Proponents of free trade and the globalization establishment will doubtless cavil. But when all costs are counted, global supply chains are often not the best economic solutions. They add substantially to greenhouse gas emissions and are highly fragile in the face of unexpected disruption, as we all saw during the pandemic. The costs of unemployment, social dislocation, and lost skills to which overreliance on global supply chains give rise have been greatly underestimated in the past, as demonstrated by the stagnation of middle-class incomes in the last 40 years and the rise of populism in the United States and Europe.

An example of such a free-world supply chain could be demonstrated in 5G telecommunications, where China’s Huawei has become the world leader and no U.S. company is seriously in the game. Biden should propose putting U.S. support behind the two European companies—Sweden’s Ericsson and Finland’s Nokia—with cutting-edge technology that could be the free world’s suppliers if supported against Chinese dumping and Beijing’s other methods to pressure countries and advance Huawei.

Of course, this path will inevitably entail some adjustment costs—but we must remember that it’s not really about costs. Rather, it is about values: free speech, rule of law, and representative democracy, which the Chinese Communist Party has loudly and explicitly declared it stands against. Each iPhone rolling off a Chinese assembly line and every dollar, euro, or yen invested in the country strengthens the party and its ability to crush freedom in Hong Kong, bully its neighbors in the South China Sea, and extinguish the Uyghurs in Xinjiang. Biden should aim to reduce those flows—which means, among other things, reining in Wall Street—and lower the leverage the Chinese Communist Party has already acquired over the free world.

Of course, this would entail some actions and policies the United States can pursue unilaterally—and others that would involve allies. On its own, Washington could undertake programs similar to those it pursued before the era of offshoring and hyperglobalization, such as the Semiconductor Manufacturing Technology (SEMATECH) project that helped revitalize the U.S. semiconductor industry in the late 1980s. It worked then, and there is no reason for it not to work today. But this time, instead of being limited to the semiconductor industry, the program could be extended to industries like robotics, artificial intelligence, and biotech.

In artificial intelligence, the United States is still the lead player, but China is catching up fast thanks to the enormous data flows generated by its vast population. To match that advantage, the United States could establish joint projects with the EU, India, and other countries that agree to share certain levels of data. The EU’s single market, the United States-Mexico-Canada Agreement, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership all establish free trade among mainly democratic countries. They could conceivably be combined into one giant “Free World Free Trade Agreement” that would dwarf anything China could accomplish. None of this needs to be terribly difficult to achieve. It just requires leadership and clear objectives in Washington and allied capitals.

In short, Biden and his allied counterparts must stop asking how they can change China. Rather, they must ask how the free world can organize itself to face off against Beijing.

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