Cold war with China changing everything

So I guess we’re in a new cold war. Leaders of both parties have become China hawks. There are rumblings of war over Taiwan. Xi Jinping vows to dominate the century.

I can’t help wondering: What will this cold war look like? Will this one transform American society the way the last one did?

The first thing I notice about this cold war is that the arms race and the economics race are fused. A chief focus of the conflict so far has been microchips, the little gizmos that not only make your car and phone work, but also guide missiles and are necessary to train artificial intelligence systems. Whoever dominates chip manufacturing dominates the market as well as the battlefield.

Second, the geopolitics are different. As Chris Miller notes in his book “Chip War,” the microchip sector is dominated by a few highly successful businesses. More than 90 percent of the most advanced chips are made by one company in Taiwan. One Dutch company makes all the lithography machines that are required to build cuttingedge chips. Two Santa

Clara, Calif., companies monopolize the design of graphic processing units, critical for running AI applications in data centers.

These choke points represent an intolerable situation for China. If the West can block off China’s access to cutting-edge technology, then it can block off China. So China’s intention is to approach chip self-sufficiency. America’s intention is to become more chip self-sufficient than it is now and to create a global chip alliance that excludes China.

American foreign policy has been rapidly rearranged along these lines. Over the last two administrations, the United States has moved aggressively to block China from getting the software technology and equipment it needs to build the most advanced chips. The Biden administration is cutting off not just Chinese military companies, but all Chinese companies. This seems like a common-sense safeguard, but put another way, it’s kind of dramatic: Official U.S. policy is to make a nation of almost a billion and a half people poorer.

I’m even more amazed by how the new cold war is rearranging domestic politics. There have always been Americans, stretching back to Alexander Hamilton’s Report on Manufactures in 1791, who supported industrial policy — using government to strengthen private economic sectors. But this governing approach has generally been on the margins.

Now it is at the center of American politics, when it comes to both green technology and chips. Last year Congress

passed the CHIPS Act, with $52 billions in grants, tax credits and other subsidies to encourage American chip production. That’s an industrial policy that would leave Hamilton gaping and applauding.

Over the next years and decades, China is going to pour immense amounts of money into its own industrial policy programs, across a range of cutting-edge technologies. One analyst from the Center for Strategic and International Studies estimates China already spends over 12 times as much of its gross domestic product on industrial programs as the United States does.

Over these coming years, U.S. leaders will have to figure out how effective that spending is and how to respond. Even more than the last cold war, this one will be waged by technological elites.

Already you can begin to see a new set of political fissures. In the center are the sort of neo-hamiltonians who supported the CHIPS Act — including the Biden administration and the 17 non-trumpy Republicans who voted with Democrats for the act in the Senate.

On the right, there are already a range of populists who are superhawkish on China when it comes to military affairs but don’t believe in industrial policy. Why should we spend all that money on elites? What makes you think the government is smarter than the market?

On the left are those who want to use industrial policy to serve progressive goals. The Biden administration has issued an incredible number of diktats for companies that receive CHIPS Act support. These diktats would force businesses to behave in ways that serve a number of extraneous progressive priorities — child care policy, increased unionization, environmental goals, racial justice, etc.

One would hope that as the cold war atmosphere intensifies our politics will get more serious. When Americans went to the polls during the last cold war, they realized their vote could be a matter of life and death. It may feel like that again.

Governing during this era will require extraordinary levels of experienced statesmanship.

Miller was asked what were the odds that over the next five years a dangerous military clash between the United States and China would produce an economic crisis equivalent to the Great Depression. He put the odds at 20 percent.

That seems high enough to focus the mind.

This standoff may transform American society like last one did.