For China, Economics Issues Are Security Issues

J. Tedford Tyler, Kedar Pandya

Source Link

On April 20, Treasury Secretary Janet Yellen delivered some notable remarks at Johns Hopkins University. In discussing sanctions on Chinese companies, Yellen noted that, “our goal is not to use these tools to gain competitive economic advantage.” She tried to emphasize that a U.S.-China decoupling was not on the horizon. A week later, on April 27, National Security Advisor Jake Sullivan spoke at the Brookings Institution, where he echoed Yellen by saying that the Biden administration is “looking to manage competition responsibly and seeking to work together with China where we can.” But Sullivan also criticized China’s overuse of industrial policy and indicated that U.S. policymakers would respond in kind.

Both Yellen and Sullivan are misguided about China’s views on economic and security policy.

For China, economic issues are security issues. Chinese president Xi Jinping stated in 2014 that economic security is the “foundation” of his “comprehensive security concept.” For Xi, military power protects economic development, and economic growth is critical to national security. Since 2014, Xi has only hardened his position, remarking at the “Two Sessions” in March 2023 that “security is the foundation of development.”

In this, Xi is borrowing from Deng Xiaoping, the architect of the “Reform and Opening-Up Era.” From the late 1970s onward, Deng pursued economic modernization, which used market incentives to support the “Four Modernizations” of agriculture, defense, industry, and science and technology. China’s economy responded by averaging double-digit growth between 1980–2010.

In the early days Xi’s presidency, concepts such as “strategic emerging industries” and “Made in China 2025” were announced. They signaled an inward turn in economic policy, concerning Washington. Chief among these concerns was intellectual property theft and the potential for advanced technology to fall into the hands of the Chinese military.

2

U.S. policy responded by seeking to blunt the rollout of China’s new economic system. The Committee on Foreign Investment in the United States (CFIUS) began blocking more Chinese acquisitions of foreign technology companies. For example, CFIUS blocked the purchase of Magnachip, a South Korean semiconductor business, by Wise Road Capital, a Chinese company. Capital controls combined with the reformulation of U.S. export controls under the Export Control Reform Act of 2018 signaled an increased focus on U.S. economic security.

The White House also continued the trade war started by President Donald Trump. It maintained those tariffs and passed the CHIPS and Science Act of 2022—a $50 billion dollar investment in U.S. semiconductor manufacturing that aims to revitalize a perceived dwindling lead in the sector.

The Biden administration wants to reduce economic tensions with China and fix underlying problems. But as reported by Politico, Biden officials may have competing ideas. To make matters worse, the Chinese are not returning U.S. phone calls, though Katherine Tai, the U.S. trade representative, is reportedly meeting with the Chinese commerce minister later this month. Hopefully, this meeting will be the prelude to higher-level, follow-on meetings.

But making macro-level improvements in U.S.-China relations begins with reframing the problem. It should be recognized that economics are security are intertwined. For great powers, economics is a foundational element of national power, allowing for the build-up of military capabilities. But it also serves more fundamental security concerns.

China faces major demographic changes and a slowing (but still steady) rate of economic growth. As Beijing grapples with these challenges, technological development is viewed as the sustaining driver of long-term economic prosperity. This makes science and technology imperative to China’s advanced development path, meaning that any policy that attempts to stall or cut-off China’s technological growth is going to make diplomacy especially challenging.

Beijing does not see U.S. economic countermeasures as narrow and limited; it perceives its national interests as being infringed upon. In an anarchical, self-help world, Beijing has no incentive to believe that coercive American economic statecraft will cease. This causes them to engage in an “action and retaliation” cycle, responding with coercive measures of their own.

So what can the United States do?

First, U.S. policy towards China needs more coordination between the security and economic portfolios. Planning and high-level visits should include officials from both areas.

To represent the economic portfolio, we recommend Commerce Secretary Gina Raimondo, who views technology and economics as deeply connected. Raimondo also sees the connection between international trade and the U.S. domestic economy, stating that “we need to continue to do business with China, and trade with China supports American jobs.” Additionally, it is evident from the battery of laws passed in the last year that the Commerce Department will lead the United States in organizing and executing its own science and technology policies and executing U.S. responses to China’s policies. As such, the Department’s secretary is the natural lead on a new approach.

Second, more bilateral meetings need to be set up. Trust can be built with lower-level bureaucrats who can elevate communications to higher levels. In terms of location, a third-party country would allow both Washington and Beijing to maintain some of their pride. Previous meetings at Bali and Geneva indicate the value of a third-country meeting point, as does the Vienna meeting between Sullivan and Wang Yi, director of the Central Foreign Affairs Commission.

Lastly, the United States should take more meaningful actions, rather than just verbalize reassurances to China. The ambiguity of state-business relations in China and whether the end-user of technology is a military or commercial one is Washington’s real concern. But too often “national security” is a blanket term. A better route would be to explicitly state the conditions that make something a real national security threat.

In terms of the Commerce Department’s Entity List, clear rules should be established for being removed. Clarifying that transparency on the part of Chinese firms and state organs would go a long way in developing guardrails in a spiraling economic relationship.

Sullivan’s speech rightly emphasized making the economically competitive domain a place of “small yards, high fences.” But this is more of a philosophy than a specific policy. A better policy would view economics and security together, paving the way for real progress in U.S.-China relations.

J. Tedford Tyler is a Foreign Policy Associate at the Charles Koch Foundation.

Kedar Pandya is a Research Assistant at the Texas A&M University Economic Statecraft Program.

The views expressed here by the authors are their own.