Let’s not let geopolitics kill the world economy

At the 20th National Congress of the Chinese Communist Party (CCP) in October, China’s one-man rule under Xi Jinping took a deep entrenchment. Although communist China has never been a democracy, post-Mao leaders were always attentive to the opinions that circulated, paying attention to the voices coming from below and thus were able to reverse failed policies before they turned disastrous. Xi’s centralization of power represents a different strategy and this does not bode well for managing the country’s growing problems: the deteriorating economy, costly Covid-zero policies, rising human rights abuses and repression politics.

United States President Joe Biden has significantly compounded these challenges by launching what Edward Luce of the Financial Times ha qualified aptly as “a declaration of total economic war on China.” Just before the CCP Congress, the US announced a large package of new restrictions on the sale of advanced technologies to Chinese companies. As Luce observes, Biden has gone much further than his predecessor, Donald Trump, who had targeted individual companies like Huawei. The new measures are hugely ambitious and aim at nothing less than preventing China’s rise as a high-tech powerhouse.

The US already controls some of the most critical nodes in the global semiconductor supply chain, including “bottlenecks” such as advanced chip research and design. What points Gregory C. Allen of the Center for Strategic and International Studies, the new measures entail “an unprecedented degree of US government intervention not only to preserve oversight of checkpoints but also to initiate a new policy aimed at actively strangling large segments of of the Chinese tech industry (strangle with intent to kill).” According to Allen, Biden’s strategy targets all levels of the supply chain. The goals are to make China’s artificial intelligence (AI) industry without access to high-end chips; prevent China from designing and producing AI chips domestically by restricting access to software US-designed and US-built semiconductor manufacturing equipment; and to block Chinese production of its own semiconductor manufacturing equipment by preventing supplies of American components.

The strategy is motivated by the Biden administration’s view, which has a broad consensus between Democrats and Republicans, that China poses a threat to the US. But a threat to what? This is how Biden expresses it in the preface of his National Security Strategy recently disclosed: “The People’s Republic of China has the intention – and increasingly the ability – to reshape the international order in favor of one that tilts the global playing field to its own advantage.”

Thus, China is seen as a threat not because it undermines fundamental US security interests, but because it will want to influence the rules of the global political and economic order as it becomes richer and more powerful. Meanwhile, “the United States remains determined to manage competition between our countries responsibly,” which really means that Washington wants to remain the undisputed force that sets the global rules on technology, cybersecurity, trade, and the economy.

By responding in this way, the Biden administration is doubling down on US supremacy rather than adjusting to the realities of a world that is no longer unipolar. As the new export controls make clear, the US no longer makes any distinction between technologies that directly assist the Chinese military (and thus could pose a threat to US allies) and commercial technologies (which could generate benefits). economical not only for China but also for others, including US companies). Those who maintain that it is impossible to separate military applications from commercial ones have triumphed.

The US has now crossed a line. Such a blanket strategy itself poses significant dangers – although it can be justified in part because of the intertwined nature of China’s commercial and military sectors. Rightly seeing the new US restrictions as an aggressive escalation, Beijing will find a way to retaliate, escalating tensions and further heightening mutual fears.

The great powers (and indeed all countries) look after their interests and protect their national security, taking action against other powers as necessary. But how have we argued Stephen M. Walt and I, a secure, prosperous, and stable world order requires these responses to be well calibrated. That means they must be clearly linked to the damage inflicted by one party’s policies and aimed solely at mitigating the negative effects of those policies. Responses should not have the express purpose of punishing or weakening the other party in the long run. Biden’s announced export controls on high-tech products fail this test.

The new US strategy towards China also creates other blind spots. The National Security Strategy emphasizes “shared challenges,” such as climate change and global public health, where cooperation with China will be critical. But it fails to recognize that waging economic war undermines trust and prospects for cooperation in those other areas. It also distorts the domestic economic agenda by prioritizing the goal of overtaking China over more laudable goals. Investing in capital- and skill-intensive semiconductor supply chains—the focus of US industrial policy today—is the most expensive way to create good jobs in the US economy for those who need them most.

To be sure, the Chinese government is not an innocent victim. China has become increasingly aggressive in protecting its economic and military power, though its actions have been essentially confined to its neighborhood. Despite offering guarantees in the past, China has militarized some of the artificial islands it built in the South China Sea. It imposed economic sanctions on Australia when this country demanded an investigation into the origins of Covid-19. And their violations of human rights certainly deserve the condemnation of democratic countries.

The problem with hyperglobalization was that we allowed big banks and international corporations to write the rules of the world economy. It is good that we are now abandoning that strategy, given how damaging it was to our social fabric. We have the opportunity to develop a better globalization. Unfortunately, the great powers seem to have chosen a different path, and even worse. Today they are handing over the keys to the global economy to their establishments of national security, endangering global peace and prosperity.

© Project Syndicate, 2022. www.project-syndicate.org