The U.S. Needs to Change the Way It Does Business With China

"In a recent speech, Commerce Secretary Gina Raimondo suggested an incremental shift in how the United States approaches “competitiveness and the China challenge.” She recognized the serious threat from China, explaining that the United States “will continue to press China to address its nonmarket economic practices that result in an uneven playing field.” She noted, though, that “we are not seeking the decoupling of our economy from that of China’s.”

America’s China policy does need to change. The ruthless repression of its Covid-policy protesters is the latest proof of that, but the greater urgency is that the status quo has things moving to the disadvantages of the United States as well as to the benefit of China. An incremental shift is not enough.

In order to truly ensure that economic relations between the two countries continue to be beneficial to America, it is time to adopt an explicit policy of strategic decoupling of our economy from theirs — not a total decoupling, but one that should be done over time and in an organized way.

There are two fronts in any contest with China: the economic front and the national security front. They are not entirely separate. One affects the other. And for policymakers, that is the point.

We must prepare in both spheres — economic and military — because the best way to avoid a military crisis is to maintain our economic superiority.

The purpose of strategic decoupling would be to benefit America, not to punish China or to hold it back. It has become clear that China is not a friend or a partner in development, but rather an adversary bent on world dominance.

In our economic competition, China is winning. We transfer well over $300 billion to the country annually in trade deficits, and China uses it to build its military, improve its competitiveness and buy our assets — increasingly our technology companies and even our farms. A recent report concluded that Chinese firms and investors own a controlling interest in almost 2,400 U.S. companies. China engages in technology theft, espionage and mercantilism to build what Chinese leaders believe will be the world’s dominant economy.

On the national security front, China is a big and rapidly expanding military power, and its objective is to have not just the largest but also the most sophisticated military in the world in the next decade. It is arming the South China Sea at a rate not seen since the Second World War and building military outposts in Africa and elsewhere. It is vastly increasing its nuclear arsenal and asserting territorial claims in India, the Philippines and Vietnam. It is threatening Taiwan. It has executed an agreement of friendship with “no limits” with Russia. It has a vast campaign to influence our country, and it is responsible directly or indirectly for much of the fentanyl that is destroying many of our communities.

China’s enterprises have purchased strategic assets in Asia, Europe and South America. The country is monopolizing crucial strategic materials like rare earths, lithium and cobalt.

As if China’s aggressive turn was not clear, candid translations of proceedings at the Communist Party’s 20th National Congress in October show that they de-emphasized phrases like “peace and development” and adopted phrases like “preparing for the storm” and “the spirit of struggle.”

The U.S. objective should be to continue trade and economic activity beneficial to us and to discourage any part that is not. For example, trade in agricultural products, raw material and some consumer and pharmaceutical goods can be mutually beneficial. Importing to the United States computers, automobiles and telecommunications equipment is not.

The objective of this strategic decoupling is simple — reciprocity. It is precisely what China does to us. China has always denied us equal access to its market and has for decades pursued a policy of technological independence. China’s “indigenous innovation” policy began in 2006, and “Made in China 2025” was announced in 2015. The report of the recent 20th National Congress called for China to “increase the security and resilience of China’s own industrial supply chains.”

Strategic decoupling has several aspects. First, we should progressively impose tariffs on all of China’s imports into the United States until we have balanced trade.

Second, we should disentangle our technology. Specifically, we must enhance our export controls to further limit the kinds of technology allowed to be exported and to whom it can go. We need to stop the integration of our advanced industries by discouraging U.S. high-tech manufacturing in China and enact more policies like the CHIPS Act (which authorizes billions of dollars to help companies pay for building or expanding American computer chip factories and for research and worker training) and smart tax and regulatory policies to ensure that advanced technology stays at home or with our allies.

We should support American companies that have begun to recognize the burdens of relying on Chinese manufacturing. For example, Apple has reportedly decided to shift some of its production outside China. The company said it will look to other Asian countries, particularly India and Vietnam, to assemble some Apple products. Likewise Microsoft and Google are moving some or all of their Xbox console and Pixel phone production. Amazon is getting many of its FireTV devices from India.

We should shut down TikTok and other social media platforms that mine our citizens’ data and serve as propaganda organs to influence our public discourse.

China has some of the strictest technology regulations in the world. It is impossible to invest in China at scale without government approval; the Chinese government almost certainly approves all outbound investment to the United States. The country’s policy is what the former Australian prime minister and China expert Kevin Rudd calls “decoupling with Chinese characteristics.”

Finally, we should limit U.S. investment going to China and China’s investment into our industries. Our investment there strengthens its economy and its military, and leads to offshoring of sometimes critical supply chains; its investment in the United States often leads to the loss of technology and sensitive data. This will prevent further economic integration and increase the availability of capital at home and in the West. No investment should be permitted in either direction unless it will strengthen America, not merely enrich a few Americans.

The Committee on Foreign Investment in the United States — a regulatory unit in the Treasury Department — needs to be greatly expanded so that it is not limited to national security concerns but can consider other economic consequences. Last year, the U.S.-China Economic and Security Review Commission recommended in its annual report to Congress that the United States pass a similar interagency review screening program for outbound investment to China. Senators Bob Casey, Democrat of Pennsylvania, and John Cornyn, Republican of Texas, have introduced legislation to this effect. It is needed.

In the Trump administration, we began the decoupling process by imposing billions of dollars of Section 301 tariffs on Chinese imports — a legal provision that allows a president to restrict foreign commerce that unfairly burdens the United States — and the expansion of export controls. We recognized the threat and acted.

That policy has been extended under President Biden: His administration kept the tariffs and further expanded export controls and is carrying out provisions of the CHIPS Act. Neither the tariffs nor the export controls have had an appreciable negative effect on our economy.

But they have begun the process of bringing manufacturing back to America and of decoupling our economies. We should do all we can to avoid a military confrontation, and we must continue to talk to and work with China in areas of mutual advantage.

But we must also act alone to begin this strategic decoupling. We cannot hide from the truth about China. Failure to act decisively now is no longer forgivable. It is dereliction.

Robert E. Lighthizer was the U.S. trade representative in the Trump administration and the deputy trade representative in the Reagan administration."

 

If Europeans will proceed trading with China then American companies will have a huge competitive disadvantage.  The ideas suggested in this writing do not address this predicament.