Skip to content
Skip to content
Bloomberg the Company & Its ProductsBloomberg Terminal
Demo RequestBloomberg Anywhere Remote LoginBloomberg Customer Support
Bloomberg Businessweek
Sign In
Subscribe
Thank Beijing for Overdue Changes to U.S. Economic Policy
The Senate’s “China
bill” marks a return to state intervention motivated by fear of America’s
biggest rival.
By
June 16, 2021, 5:01 AM GMT+1
With the Chinese government oppressing Uighurs in Xinjiang,
jailing democracy advocates in Hong Kong, and harassing Taiwan, gratitude isn’t
something you’d think the U.S. owes its most threatening competitor right now.
But credit should go where it’s due. Americans
should give China their heartfelt appreciation—for fixing U.S. economic policy.
The U.S. Innovation and Competition Act, co-sponsored by
Senate Majority Leader Chuck Schumer and Republican Senator Todd Young of
Indiana, passed the Senate on June 8 by a 68-32 vote. It’s known as the “China
bill” for good reason: It was inspired and made possible by Beijing. The
legislation mimics aspects of the Chinese state-led economic model, with
$250 billion to fund scientific research and support semiconductor
manufacturing. Only China’s rise and hostile foreign policy, and the fear
and concern they are fomenting in Washington, could have bonded otherwise
irreconcilable Democrats and Republicans into bipartisan action.
Chinese officials, of course, blasted the bill, though they
have no one but themselves to blame. It was probably inevitable that the U.S.
and other countries would respond to China’s extensive subsidization of
cutting-edge industries—including electric cars, artificial intelligence, and
chips—with similar state programs of their own. Unable to pressure the Chinese
into curtailing their largesse through talks or tariffs, the U.S. has
effectively decided that if you can’t beat ’em, join ’em. A spokesperson for
China’s Ministry of Foreign Affairs complained that the Senate bill “slanders
China’s development path.” In fact, it’s high praise.
It’s also a major
breakthrough in American economic policy. China has succeeded where many
economists and policymakers have failed: It convinced an ideologically
paralyzed Washington that the state can play a positive role in economic
progress. U.S. politicians used to believe that. Taxpayer cash helped build
the Transcontinental Railroad, the Interstate Highway System, and the U.S.
semiconductor industry. But since the Reagan Revolution, metaphysical
certitude in the free market has dominated policymaking, and state
investment in the economy has withered. Anyone who has recently navigated the
crumbling New Jersey Turnpike understands the consequences. Yet despite these
obvious detriments, many politicians have insisted that every and any economic
problem can be solved with a tax break.
Now the state is back. On top of the Senate bill, which
heads next to the U.S. House of Representatives, President Joe Biden’s American
Jobs Plan also envisions an activist government, with a China-like $174 billion
earmarked to jump-start a U.S. electric-vehicle industry. Such lofty,
state-promoted goals represent a significant shift from the notion that man
cannot outthink the market. Some diehard conservatives may squirm, but thanks
to China, the ideological tide is turning against them.
This shift in U.S. policy reveals China’s growing influence
in the global economy. Its power has already been felt in trade and technology;
now it is entering the critical realm of ideas. For much of the past two
centuries, China has borrowed them from the Western powers—everything from
constitutions to dating habits. Modern China is built to a great degree on the
imported philosophies of Marxism and capitalism. When China opened to the world
in the 1980s and introduced free-market reforms, its policymakers were heavily
influenced by Western economists and economic theory.
Now the flow is beginning to reverse. President Xi Jinping’s
administration has generally spurned calls for deeper market liberalization
in favor of greater state control. Policymakers around the world,
meanwhile, have watched China’s astronomical ascent and figured Beijing has
concocted some kind of special sauce to promote prosperity—a recipe worth
copying. The Senate bill is a result.
Although China has reminded the U.S. that government action
isn’t all bad, its example also warns against too much of it. The free-market
guys are right that state intervention can distort as well as develop.
Despite persistent American fascination with Asian state-led industrial
policies going back to the 1970s, their beneficial effects have often been
exaggerated.
In Japan, where government
ministries tried to “pick winners” and nurture them with protection and
financing, the record is, at best, spotty, with a long list of failures
as well as successes. As with China today, the rise of Japan in the 1980s
convinced many U.S. experts that Washington policymakers had to adopt similar
state-led industrial policies, and that more competitive Japanese companies
would continue kicking American butt until they did. Back then, Washington
demurred, and based on the divergent fates of the two economies, it’s hard to
say that wasn’t the wise choice.
China’s extensive state programs also expose the deep
downside to intrusive bureaucrats. Government support may have accelerated the
development of certain industries, such as solar panels and electric cars, but
it also generated tremendous excess capacity and waste, and produced uncompetitive
companies. China’s mania for electric vehicles, for instance, spawned 119
manufacturers, according to a November 2020 study by the Center for Strategic
& International Studies—obviously an unsustainable horde. Many of the
country’s most severe economic problems—its high debt, low productivity,
property bubbles, and endemic corruption—can be traced to the overly heavy
hand of the Chinese state. And the verdict is still out on its current batch of
industrial policies. It’s not at all clear that expensive efforts to create
world-beating technologies will succeed. Despite much energy and many billions,
China remains as dependent on imported chips as ever.
A better approach for the U.S. is to avoid the penchant of
Chinese technocrats to target certain industries and national champions in
favor of setting broad goals that
can reshape the economy and its direction. Jake Sullivan, now Biden’s national
security adviser, and Jennifer Harris, a Roosevelt Institute fellow, explained
it well last year in Foreign Policy: “Rather than focusing on picking winners
in specific sectors, there is an emerging consensus that suggests governments
should focus instead on investing in large-scale missions—like putting a man on
the moon or achieving net-zero emissions—that require innovations across many
different sectors.” Biden just happens to have embraced both those projects.
Perhaps we should thank China twice over, for alerting us
not only to the potential economic benefits of state intervention but also to
its dangers. As Clyde Prestowitz, author of the book The World Turned
Upside Down: America, China, and the Struggle for Global Leadership, wrote me:
“It is a case of the Chinese putting too
much faith in the state and the U.S. too little.” Both sides have a lot
to learn.
Read next: Hackers Thrive in Putin’s Russia as U.S. Seeks
New Strategy
No comments:
Post a Comment