If there is anything that is common across the political spectrum in the United States today, it is China-alarmism married to an instinct to use unilateral trade retaliation as a cudgel response. More broadly, nearly everyone is over-reacting to China’s rise. Though the Chinese government is a despotic regime, they are also much weaker than they appear.
Most of the essays in this series have focused on domestic politics, but there are important compatibilities between progressives and libertarians in foreign policy matters as well. Progressives generally favor placing human rights more at the center of American foreign policy. Libertarians, though appropriately skeptical of regime change and intervention, also prize liberalism and the ideals of freedom as positive things. Both are skeptical of the over-militarization of foreign policy as well as the mission creep whereby every square yard of the globe is treated as a vital strategic interest. Both see the value in an open international system and both are alarmed at nationalists’ saber-rattling. With regards to U.S. policy toward China, these instincts are sorely missing but could be quite beneficial.
The case for a libertarian-progressive foreign policy vis-à-vis China it rests on four arguments. First, China is not as economically threatening as is commonly believed. Second, America’s unilateral over-reactions do more harm than good. Third, China is hitting its high-water mark now. In the long term, they are a paper tiger. Fourth, though there is no need for another Cold War, human rights and Taiwan are the places to make a stand.
China is Less Economically Threatening Than You Think
Much has been made of the so-called “China Shock” which argues that China’s labor-intensive manufacturing growth in the late 1990s through the 2000s constituted a big supply shock for manufactured goods that undermined manufacturing employment in the United States, with detrimental effects for manufacturing-oriented places. There has been a lot of pushback on this research. Just on empirical grounds, other research has found that Chinese manufacturing has had much smaller or even positive effects for the American economy. Even if everything about the China Shock literature is correct (doubtful), it is simply inaccurate to attribute Chinese import penetration of labor-intensive goods to the reduction in capital-intensive manufacturing jobs. Automation rather than trade is responsible for the vast majority of the decline in manufacturing jobs. The China Shock arguments also ignore the benefits of trade with China. According to one Federal Reserve study, for every lost job due to the China Shock, there were approximately $400,000 in consumer benefits. From 2000 to 2006, the peak years of the China Shock, the price of manufactured goods fell by over 7 percent. This was not only good for consumers. Because over a third of Chinese imports were intermediate goods, this was also good for producers as well. China’s intellectual property rules are not to American standards but they are improving, at least in some areas, and they are less damaging than the common narrative suggests. Even apart from trade, the Belt and Road Initiative is likewise not as threatening as people think. As a 2020 article notes, it’s “a mess, not a master plan.” Meanwhile, its solar panels subsidies predictably make solar panels cheaper, thus accelerating their adoption, thus helping fight climate change. These are but a few of the ways in which economic engagement with China is good for the United States.
Unilateralism Backfires
Not only is China not that much of an economic threat, unilateral overreactions are counterproductive. Just for the year 2020, President Trump’s trade war with China was estimated to cost the average American family over $1200 in higher prices and lost productivity.[1] According to the IMF, the trade war lowered global GDP by around 0.8 percent.[2] Meanwhile, the U.S. dragging the semiconductor industry into its fight with China did it no favors either. More broadly, decoupling would have severely negative impacts on tech in America, cars in Germany, banking in Britain, luxury goods in France, and mining in Australia. In a geopolitical sense, much of the world, and particularly countries in Southeast Asia wants good relations with both China and the United States and so are unlikely to welcome U.S. actions that force them to choose between one or the other. One of the greatest risks to the United States from China is the risk that we over-react, that we indulge in xenophobia, zero-sum drawbridges up thinking, and that we blow up good things like trade and student exchange and that we try to match China’s idiotic mercantilism with idiotic mercantilism of our own.
The proper response to the rise of China is firm but patient co-existence. We can carefully use some trade tools but more crucially we can make domestic policy changes like increasing immigration and bolstering STEM education that help us outcompete China. We should undo Trump’s sabotaging of the WTO, scrap the baseless national security tariffs on our allies, not force other countries to pick sides, and join the CPTPP. Even where there are problems, a multilateral approach is the best way forward. China’s subsidies are excessive and do distort markets but the best way to take those on is through the WTO, not a counterproductive trade war that undermines global growth and alienates allies.
Long Term, China is a Paper Dragon
It is crucial that public officials and analysts keep in mind that China is hitting its high-water mark right about now. Virtually all of its domestic problems- aging demographics, environmental degradation, and a shaky financial system- are likely to get noticeably worse over the next decade. Later this decade, a huge bulge of Chinese workers will start to retire but, because of China’s multidecade one-child policy, there won’t be as many people in the younger age cohorts to support them. China’s aging problems will be like Japan’s, only worse and more sudden. On top of that, there are the severe environmental problems. In many Chinese cities, the smog is so bad that the air is practically chewy. With China’s reliance on coal, that is not likely to ease, and with more Chinese citizens being able to afford cars, it will likely get worse. China’s financial system is opaque and much more brittle than many people realize. The real estate sector is so riddled with imbalances that it poses a systemic risk to the entire Chinese economy. It’s not exactly the same as Japan in the late 80s/early 90s but there are echoes there.
In addition to all that, China has some of the highest economic inequality in the world and massive urban-rural divides exacerbated by its hukou system. It’s probably stuck in a middle-income trap. It’s a net exporter of talent. It has virtually zero soft power. Its neighbors are wary of it. It is hemmed in by Japan and South Korea to the east, Russia to the north, and India to the southwest. To the northwest is Central Asia, an unimportant economic backwater (sorry Kyrgyzstan). Except for to the south and southeast, there is nowhere for it to go. At the same time, its authoritarianism is plain for all to see. Everyone wants to profit from China, but no one actually wants their country to feel like Xinjiang.
Human Rights and Taiwan
Speaking of Xinjiang, the first of two policy areas that the United States and other liberal democracies should be more vocal about is China’s appalling human rights record. We should bury China with their own tyranny. We should defend liberal values (and live them out at home). We should give any Uighur or Hong Konger asylum. And then give them all microphones and platforms.
The great risk that China does pose geopolitically is that it may, in a spasm of aggressive nationalism, attempt to retake Taiwan. That cannot be allowed to happen. It is one thing to say (probably correctly) that the United States should not go around trying to make everywhere a democracy. It is quite another to stand by as a despotic regime swallows a free country. Everyday that Taiwan exists as a free country, that is another daily demonstration that a Chinese civilization can flourish without the Chinese Communist Party. On that basis alone, Taiwan must be defended.
In sum then, China is illiberal, nationalist, and authoritarian but it’s also aging, polluted, unequal at home, and unloved abroad. The smart response to their mercantilism is patience not panic, containment not bravado, and multilateralism not unilateral lashing out.
[1] Congressional Budget Office. 2020. “The Budget and Economic Outlook: 2020 to 2030.” p. 33.
[2] Congressional Research Service. “Escalating U.S. Tariffs: Affected Trade.” January 29, 2020. IN10971. p. 3.