Strategic competition demands action in 2023
Keeping an economic edge is essential in the strategic competition between America, its allies and their authoritarian rivals. Security priorities like concluding the Ukraine conflict in a manner that discourages similar hostility against Taiwan and accelerating military modernization to deter great power aggression are vital.
Yet security strength relies on economic strength. You cannot afford to fund the world's leading military without a strong economy. China's rise was unfairly accelerated by misappropriating technology. Its military buildup and aggressive actions - whether menacing Taiwan or its recent hypersonic missile test - are cause for concern.
With civil technology empowering today's weapons, targeted restrictions on high-tech exports or investments to avoid aiding capabilities used to threaten American interests can be justified. Yet unless other technologically advanced economies align with such restrictions, they will only result in diverting demand from American suppliers.
Given complex intertwined global supply chains, continuing collaboration with like-minded partners while preventing China from gaining access from diverted sources will require diligence to effectively monitor and enforce.
Countervailing subsidies may be necessary to neutralize other nations' efforts to gain commercial advantage if their subsidies cannot be restricted through trade negotiations. Any subsidies should be limited and for short duration to preserve America's competitive advantage as a market-driven economy. Every effort should be made to avoid political manipulation in their application.
Sometimes the justification is to ensure access to critical materials for security purposes. Given Taiwan's geopolitical vulnerability and its dominance in advanced chip fabrication, such was the justification for America's Chips and Science Act.
Climate related credits under the Inflation Reduction Act (IRA) were in part driven to counter China's subsidies seeking
corner the market on batteries and electric vehicles, as they have already done significantly with critical minerals and solar panels. Yet they were enacted with little regard to trade obligations or harm to nations whose cooperation is critical to the success of tech restrictions and more.
It is essential that any industrial policy actions are closely coordinated in advance with allies. With America facing a peer competitor, it must always remember that strategic competition is a team sport. Inattention to international infrastructure investment needs has allowed China to lay foundations which have long-lasting influence over governing principles and commercial ties. The U.S. agencies that provide such support regularly generate net revenue though still trail the scale of those of individual European nations and China. While recent actions have strengthened their capabilities, limitations remain. Collective action promised with the G7 to activate infrastructure investment has yet to be matched with sustained action.
China has focused for decades on locking up vital ingredients for its economy and in so doing has accumulated chokeholds on several minerals vital to electric vehicles and security applications.
For America's development and export finance agencies, any efforts to secure supply chains or blunt distortions of markets by other nations is secondary to their primary missions. Limitations on these agencies designed to ensure alignment with their original roles hampers their ability to address supply chains or counter abuse. One consequence - Huawei continues to capture global markets with unmatchable prices, putting digital security at risk.
Priority: America must bolster infrastructure support efforts further to address pressing global needs and meet competitive challenges.
America avoiding trade agreements benefits China. Trade agreements benefit the exports of countries within the agreement relative to nations not included. America shunning agreements for mutual market access as China joins an Asian pact and seeks to join the Pacific agreement America abandoned after leading its creation, allows China to define the rules of trade to America's disadvantage.
One in five jobs in America is supported by trade. As China is displacing America as other nations' leading trading partner, Chinese workers gain jobs that could instead go to American workers. China also gains influence at the expense of America. An unbroken string of U.S. presidents following WWII supported trade liberalization recognizing it as a net benefit, culminating with Barack Obama who issued a report in 2015 that attested to the benefits of expanded trade on wages, consumer costs, labor standards, the environment and closing the gender wage gap. Most recent labor market disruption is from technology's advance. A smaller portion is from trade. The answer to labor dislocations is better supporting job transitions, not sacrificing the benefits of trade.
Priority: America should seek to expand trade with other nations to reap mutual benefits and to reduce over-dependence on China for critical goods. As nations denied technology develop alternatives and market them globally, America will face more competition. This reinforces need to resume pursuit of trade agreements.
Targeted actions to avoid overdependence on China for critical materials or to address trade abuses are warranted.
“An unbroken string of U.S. presidents following WWII supported trade liberalization recognizing it as a net benefit, culminating with Barack Obama who issued a report in 2015 that attested to the benefits of expanded trade on wages, consumer costs, labor standards, the environment and closing the gender wage gap. Most recent labor market disruption is from technology's advance. A smaller portion is from trade. The answer to labor dislocations is better supporting job transitions, not sacrificing the benefits of trade.”