During a weekend phone call with former President Jimmy Carter, President Trump expressed concern that China was leapfrogging the United States as an economic superpower. This insecurity about America’s privileged place in the world has been a common theme throughout the Trump presidency. Attorney General Barr’s recent suggestion that the United States government should acquire a controlling stake in the European companies Ericsson and Nokia to counter China-based Huawei in the race to develop 5G infrastructure is the most recent manifestation of this fear. Although other officials quickly shot down Barr’s idea, the fact that a leading figure within a Republican administration would advocate such a heavy-handed measure reflects the mild panic brewing in Washington over China’s growing economic clout.
It has become fashionable in Washington to describe current tensions as the prelude to a second Cold War similar to the one fought with the Soviet Union. During an event last year, Newt Gingrich declared that “we are in a competition at the end of which either we will either be doing what the Chinese want or we will be sufficiently strong that the Chinese will avoid fighting with us and avoid trying to put pressure on us because we will be too dangerous.” While we are certainly competing with China on several fronts, Mr. Gingrich’s claim exaggerates the degree to which that competition is military.
The Soviet Union saw the United States as an existential threat and built nuclear weapons to counter that perceived threat. In their country’s twilight, Soviet leaders allocated as much as 30 percent of their country’s budget towards defense. Given the Soviet Union’s high level of military readiness, military considerations motivated American policy toward the USSR until it collapsed in 1991. China, however, does not see the United States as an existential threat. If it did, then it too would have spent billions of dollars on building nuclear weapons. Instead, it spends nearly 20 percent more on its internal coercive apparatus than external defense. For the ruling Communist Party (CCP), the greatest threat to its power comes from within.
Moreover, China’s five-year plans since 1980 have generally prioritized economic development. In its most recent five-year plan, the Communist Party introduced “Made in China 2025”, a detailed roadmap for transforming the country into an innovative, advanced economy. Far from building weapons of mass destruction, China has ruthlessly pursued economic development by using every tool at its disposal. In addition to funding startup incubators and making sensible investments in infrastructure, China conducts corporate espionage on American companies and doles out subsidies to the tune of $22.4 billion a year to companies listed on the Shanghai and Shenzhen stock exchanges. Although China plays according to its own set of rules, it is first and foremost a commercial rival.
Although political bigwigs like Newt Gingrich fear that Chinese economic strength would undermine American military superiority, such fears are unfounded. The Western Pacific is the only region of the world in which the Chinese military engages in direct competition with the United States. American strategists are particularly concerned about China’s military activities in the South China Sea, which have strained relations between the two countries. However, further attempts by China to expand its military’s sphere of influence appear unlikely. Because the United States is allied with many of China’s neighbors in the Pacific, any attempt to establish a military presence outside of its immediate waters would face stiff resistance. To avoid a devastating conflict with the United States for control of the Western Pacific, China would have to deploy overwhelming military force against the world’s most capable navy. To build a navy that powerful would take decades, giving the United States more than enough time to adjust its military presence accordingly.
Policymakers and politicians should view our competition with China as primarily commercial. Chinese leaders want to shift the center of global economic activity away from the United States to China by the end of this decade. To achieve this goal, they will make legitimate investments in industries and businesses to transform China into a high-tech economy. It will also engage in anticompetitive behavior by subsidizing national champions and protecting them from foreign competition. Huawei, China’s much-touted 5G juggernaut, may have received as much $75 billion in state support through subsidies, cheap financing, and tax breaks.
An economic arms race, however, has far less destructive potential than a nuclear one. Fierce competition benefits consumers, and the race to develop new applications for AI, robotics, and other cutting-edge technologies would generate unprecedented material prosperity. Nearly 30 percent of all heavily-cited research papers on AI, for example, were written in China. Given the interconnectedness of today’s research environment, increased Sino-American cooperation in business and research would accelerate technological achievements. Rather than entertaining existential hysteria, public figures should discuss ways of increasing engagement with China while hardening infrastructure against Chinese attempts to conduct industrial espionage.
Conventional logic that authoritarian regimes only respond to strength does not apply to China. Unlike the Soviet Union, Russia, Iran, and North Korea, China has a dynamic economy capable of withstanding external pressure. For this reason, the ongoing trade war has failed to elicit any meaningful concessions. While the Phase I deal signed in January will reduce the trade deficit, it did not address contentious issues such as subsidies, forced technology transfers, and corporate espionage. The Trump administration’s failure to reach an agreement with China on these issues suggests that tariffs and export controls cannot persuade China to reform its industrial policy. Instead of launching trade wars in a futile attempt to change Chinese domestic behavior, the United States should focus on cultivating new partnerships and strengthening old ones with countries in China’s neighborhood, a goal that the TPP would have accomplished. Had President Trump signed the agreement, it would have allowed the United States to set the rules for economic engagement in the Pacific.
To stay ahead in its competition with China, the United States must first and foremost remain a dynamic economy. Concurrent with renewed diplomatic efforts to strengthen American influence, the United States should invest in domestic security infrastructure as well as areas that promote growth in development. This warrants improvement to the country’s education system and support for researchers developing cutting-edge technologies. Faced with intense economic competition from China, the United States should prioritize long-term investments in its human capital that will allow it to compete more effectively.
Most importantly, the United States should not lose faith in the ability of free markets and open societies to triumph in the face of authoritarian alternatives. China’s attempts to silence doctors that issued warnings about the coronavirus as well as its ballooning corporate debt illustrate authoritarianism’s flaws. Given the clear risks of adopting China’s economic model, Attorney General Barr’s suggestion that the United States government select a national 5G champion is worrying. Legitimate concerns about America’s competitiveness should not give way to paranoia.
Categories: Foreign Affairs