US President Joe Biden rightly makes China his first foreign policy priority. But his proposed first step to speak to US allies before taking any action is very wrong. While it is generally better to seek help from allies to achieve goals, this principle only applies if the help is genuine and the goals are shared.
Washington’s allies in the European Union like Germany and France have already disregarded Biden by entering into an investment deal with China. They ignored his team’s polite request that they delay at least until after talking to him after his inauguration. Even more worrying is the fact that the EU-China agreement is of questionable value to Europe. On paper, it offers expanded investment opportunities both ways. The reality of the deal became clear, however, when EU negotiators claimed they were successfully persecuting Beijing for “sustained efforts” to sign the International Labor Organization Protocol against Forced Labor. One wonders whether EU leaders will hold their breath until this signature appears.
This smells of failed attempts by previous US presidents from Ronald Reagan to Barack Obama, whose advisors assumed that the merger of China with the global economy would lead to China becoming a responsible stakeholder in the liberal, rule-based global system. Instead, Biden and his allies urgently need to reduce the West’s reliance on China’s economy and technology.
That China is not interested in becoming a stakeholder in the liberal order should now become clear from experience – and from Beijing’s own statements. In 2013, the Chinese Communist Party distributed Document 9, which highlighted the party’s basic opposition to constitutional democracy, civil society, universal values, and any media that did not adhere to the party’s discipline. In the 2015 five-year plan, Beijing announced the Made in China 2025 program, which aims to use industrial policy to achieve Chinese supremacy over high-tech sectors such as aircraft, semiconductors and artificial intelligence. This is an excellent explanation for what is called globalization with Chinese characteristics.
In response, Trump’s US sales representative Robert Lighthizer tried a different route, challenging China with import tariffs and other measures. One can argue about its success, but what should be clear is that any attempt to 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 the involvement of allies means more talks to convince China to change its policies and actions, it will be a complete waste of time. Perhaps there was a time after the massacre of Chinese Communist Party students demonstrating for democracy in Tiananmen Square in the early 1990s or when China joined the World Trade Organization in 2001 when allied pressure would have been on Beijing’s economic policy can change. 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 huge impact if they worked together to improve production in the free world, strengthen technological performance, and reduce reliance on China.
Take a small example first: Beijing is currently reducing its imports from Australia, including coal, barley, lobster and wine. It is doing this to take revenge on Australian Prime Minister Scott Morrison’s call for an international investigation into the origins of the COVID-19 virus. These measures by Beijing are completely in violation of World Trade Organization rules and other trade agreements. But Beijing knows it’s Australia’s biggest customer, and it’s taking advantage of Australia’s vulnerability to teach it a political lesson. One concrete step for Washington and its allies would be to form a consortium that would offset Australia’s lost export sales by stepping in as a buyer. This would not be a charity; Australian wine is excellent and easily found outside of China.
On a larger scale, it is imperative that the United States and the rest of the free world significantly reduce their economic and technological dependence on China in order to avoid the kind of coercion Australia suffers and to maintain their own productive and inventive vitality . Further talks will never convince the Chinese Communist Party to give up power or to give up its urge for forced domination. Only a significant decrease in reliance on China will diminish that power. Such a reduction in dependency does not have to happen immediately or across industries. However, for the sectors targeted by Made in China 2025, it is imperative that the free world remains or becomes a leader in both technology and manufacturing.
How this works is not a mystery. The United States conducted the greatest industrial policies of all time as 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 US industrial policy, not Apple’s Steve Jobs or Facebook’s Mark Zuckerberg, that developed semiconductors and the Internet – as did aerospace and many other key industries that are still dominated by US manufacturers. Biden should imitate China by adopting a “Made in the Free World 2030” project and inviting US allies to participate in order to secure the leadership of the US and the free world in innovation and manufacturing in the essential technology industries of the future. Made in the US, EU, India, Japan and elsewhere in the free world should be the overall goal.
Proponents of free trade and the globalization institute will no doubt cavill. However, when all costs are counted, global supply chains are often not the best economic solutions. They are a major contributor to greenhouse gas emissions and are extremely fragile in the face of unexpected disruptions, as we all saw during the pandemic. The cost of unemployment, social upheaval, and the loss of skills that lead to over-reliance on global supply chains have been grossly underestimated in the past, such as the stagnation of middle class incomes over the past 40 years and the rise of populism in the US USA and Europe have shown.
An example of such a supply chain in the free world could be shown in 5G telecommunications, where China’s Huawei has become the world leader and no US company is seriously involved. Biden should propose putting US support behind the two European companies – Ericsson from Sweden and Nokia from Finland – with cutting edge technology that could be the suppliers of the free world if they were backed up against Chinese dumping and Beijing’s other methods of order To put pressure on countries and push Huawei forward.
Of course, there will inevitably be some adjustment cost going down this path – but we have to remember that it is not really about cost. Rather, it is about values: freedom of speech, the rule of law and representative democracy, against which the Chinese Communist Party has spoken out loudly and explicitly. Every iPhone that rolls off the 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, harass its neighbors in the South China Sea, and the Uyghurs in Xinjiang wipe out. Biden should aim to reduce those flows – which means, among other things, curbing Wall Street – and to lessen the leverage that the Chinese Communist Party has already gained on the free world.
This would, of course, entail some actions and strategies that the United States could unilaterally pursue – and others that would involve allies. Washington alone could run programs similar to those it pursued prior to the era of offshoring and hyperglobalization, such as the SEMATECH (Semiconductor Manufacturing Technology) project that helped revitalize the U.S. semiconductor industry in the late 1980s. It worked then and there is no reason not to work today. This time around, however, the program could not be limited to the semiconductor industry, but could be expanded to include industries such as robotics, artificial intelligence and biotechnology.
The United States continues to lead the way in artificial intelligence, but China is catching up quickly thanks to the enormous flow of data generated by its vast population. To live up to this advantage, the United States could set up joint projects with the EU, India and other countries to agree to share certain amounts of data. The EU single market, the agreement between the United States, Mexico and Canada, and the comprehensive and progressive agreement on the trans-Pacific partnership establish free trade between mainly democratic countries. They could potentially be summed up into a huge “free world free trade deal” that dwarfs everything that China could achieve. None of this has to be terribly difficult to achieve. It just requires leadership and clear goals in Washington and the allied capitals.
In short, Biden and his allies must stop asking how they can transform China. Rather, you have to ask yourself how the free world can organize itself to face Beijing.