Biden Starts to Decouple Economy From China - Froma Harrop
Thursday, January 18, 2024
This is a potentially perilous time for our economy and the security of the West. Trade policy with China sits at the center. China is no longer just a trading partner with whom we have differences. It's become a global adversary using trade to dominate militarily as well as economically.
China's strategy is to flood the world with its cheap products. We're not talking about T-shirts. We're talking about electric vehicles, of which China commands almost 60% of the world market.
How are Americans and others to compete with manufacturers whose first objective is not to make money, but to put everyone else out of business?
"The weakness of Western companies is they have to be profitable," an executive at the TechInsights research firm told The New York Times.
When the supply of solar panels exceeds demand, U.S. factories lay off workers and lower their capacity, a spokesman for the Solar Energy Manufacturers for America Coalition explained. "That's not the way it works in China. They've just continued to build and build and build."
China now makes about 80% of the world's solar panels.
China's state-directed manufacturers do this with enormous state subsidies. They include direct investment and tax credits. Access to cheaper energy confers another advantage.
The Biden administration has put more than $2 trillion into U.S. manufacturing to build domestic capacity and protect jobs. It also wants American factories to lead the charge against climate change, hence concern over the deluge of Chinese solar panels.
In addition to pushing competition out of the way, China is using trade to obtain the sensitive American technology that can go into weapons systems. Computer chips are in the crosshairs.
Former President Donald Trump started some of the pushback on China, but Joe Biden's policy is more muscular. He is rewriting the trade rules in ways his predecessor never ventured.
Going beyond tariffs and sanctions, a Biden executive order would do much to close the money spigots that help finance Chinese development of advanced weapons. China is pushing ahead on making computer chips that go into high-tech products with strategic importance. These are semiconductors that the rest of the world wants to make as well.
The order would ban Americans in private equity, venture capital, joint ventures and other forms of finance from putting money in any Chinese entity involved in semiconductors, quantum computing or artificial intelligence.
The Biden administration's objective, Bloomberg News says, is "to asphyxiate entire industries key to China's capability on the battlefield and in cyberspace."
Brewing in the background is the growing fear that China is cozying up to America's adversaries. For a while, China seemed to be playing the useful role of peacemaker between Ukraine and Russia. But as time goes on, it's shown to be clearly in Russia's corner.
In April, the Chinese ambassador to France said in an interview that "ex-Soviet Union countries" are not sovereign states under international law. That would include Ukraine.
This did not sit well with the French, who fear further advances by Vladimir Putin's Russia could pull NATO into a war. And it sat even less well with Latvia, Lithuania and Estonia, the Baltic states perpetually feeling threatened by a Russian invasion.
A bipartisan group of House members wants the Biden administration to establish a new "component" tariff that would tax an imported Chinese chip located inside another finished product. Sounds like a solid idea.
China is clearly playing not only by different rules, but a different game altogether. One way to protect jobs and national security would be to withdraw from the game. Biden the diplomat denies that America is trying to "decouple" from China. Could fool us, and for many, not entirely displease.
Follow Froma Harrop on Twitter @FromaHarrop.
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