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Joe Biden’s China strategy is not working

The Economist | August 10, 2023

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On August 9th President Joe Biden unveiled his latest weapon in America’s economic war with China. New rules will police investments made abroad by the private sector, and those into the most sensitive technologies in China will be banned. The use of such curbs by the world’s strongest champion of capitalism is the latest sign of the profound shift in America’s economic policy as it contends with the rise of an increasingly assertive and threatening rival.

For decades America cheered on the globalisation of trade and capital, which brought vast benefits in terms of enhanced efficiency and lower costs for consumers. But in a dangerous world, efficiency alone is no longer enough. In America, and across the West, China’s rise is bringing other aims to the fore. Understandably, officials want to protect national security, by limiting China’s access to cutting-edge technology that could enhance its military might, and to build alternative supply chains in areas where China maintains a vice-like grip.

The result is a sprawl of tariffs, investment reviews and export controls aimed at China, first under the previous president, Donald Trump, and now Mr Biden. Although such “de-risking” measures would lower efficiency, the thinking goes, sticking to sensitive products would limit the damage. And the extra cost would be worth it, because America would be safer.

The consequences of this new thinking are now becoming clear. Unfortunately, it is bringing neither resilience nor security. Supply chains have become more tangled and opaque as they have adapted to the new rules. And, if you look closely, it becomes clear that America’s reliance on Chinese critical inputs remains. More worrying, the policy has had the perverse effect of pushing America’s allies closer to China.

Much of the decoupling, then, is phoney. Worse, from Mr Biden’s perspective, his approach is also deepening the economic links between China and other exporting countries. In so doing, it perversely pits their interests against America’s. Even where governments are worried about the growing assertiveness of China, their commercial relationships with the biggest economy in Asia are deepening. 

All this carries important lessons for American officials. They say that they want to be precise in how they guard against China using a “small yard and high fence”. But without a clear sense of the trade-offs from their tariffs and restrictions, the risk is that each security scare makes the yard bigger and the fence taller. The fact that the benefits have so far been illusory and the costs greater than expected underscores the need for laser focus.

3 key takeaways from the article

1. On August 9th President Joe Biden unveiled his latest weapon in America’s economic war with China. New rules will police investments made abroad by the private sector, and those into the most sensitive technologies in China will be banned. 
2. The use of such curbs by the world’s strongest champion of capitalism is the latest sign of the profound shift in America’s economic policy as it contends with the rise of an increasingly assertive and threatening rival.
3. At first glance, the new policies look like a smashing success.  Dig deeper, though, and you find that America’s reliance on China remains intact.  Worse, from Mr Biden’s perspective, his approach is also deepening the economic links between China and other exporting countries. In so doing, it perversely pits their interests against America’s.

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Topics:  China, USA, Globalization