By Paolo von Schirach –
WASHINGTON – A recent White House Executive Order put all American investors on notice. From now on, they are forbidden to place American money into a large number of Chinese companies that are involved in building or strengthening the Chinese military and national security apparatus. This is an additional signal from the Biden administration that its “get tough on China” policy is not a momentary turn, a tactical move that could be easily reversed. This new Executive Order is additional evidence that Washington sees China as a serious threat.
China is subverting the rules-based system
Indeed, Beijing is openly accused by Washington of trying to subvert the rules based international political and economic system America contributed to build and preserve after World War II. According to the Biden administration, China is actively involved in undermining this system with the goal of replacing it with its own China-centric system, with Beijing as the de facto, unquestioned global hegemon. Washington has openly declared that it will resist these efforts, hopefully with the active support of a broad coalition of Western and non Western countries –The European Union, Canada, Japan, South Korea, Australia and India, among others– that want to uphold the existing system grounded on free trade and liberal democratic values. Therefore, this recently announced investment prohibition should be looked at as a part of a wider effort to contain —yes, containment is back— China’s influence.
Tensions emerged during the Trump presidency
We know that major tensions with China came out in the open during the Trump administration. In the Trump years the White House was fixated on the gigantic trade imbalance in China’s favor. Accordingly, the goal of US negotiators was to strike a new trade deal with Beijing that would substantially reduce and eventually eliminate this imbalance. In order to force China to negotiate terms more favorable to the US, President Trump at various intervals imposed substantial new tariffs on Chinese imports. Although the effectiveness of this trade war was and is debatable, the clash with China had the indirect but significant effect of allowing many China hawks in and out of government to come out in the open and finger China as a systemic threat to America and the West.
Not just trade
Indeed, beyond unfair trade practices, the hawks argued that China was involved in efforts aimed at subverting the existing world order. While Trump never articulated a comprehensive China policy, the hawks’ positions were supported within the administration by Vice President Mike Pence, Secretary of State Mike Pompeo and trade adviser Peter Navarro. Another key player was Deputy National Security Adviser Mark Pottinger who did his very best to articulate and gain official approval of a sustainable “tough on China” US policy to be carried out by the entire US Government, with some results.
According to the China hawks in and out of government, contrary to the still accepted and far more benign conventional wisdom reigning in Washington and Wall Street, China was not a watered down semi-communist country slowly but surely on its way to becoming a market economy, and possibly a more pluralistic society. No, none of that. China was and is a an unreconstructed authoritarian state aspiring to world domination. China would use blandishments, corruption, propaganda, (Confucius Institutes, sophisticated English language state broadcasting), investments in the US and emerging countries, student exchanges frequently turned into intelligence gathering operations, grandiose global infrastructure plans (Belt and Road) in order to replace America and the West as the focal point of the international political and economic system.
Biden is a hawk on China
Based on its public statements and its actions, the Biden administration would seem to agree with the positions of the Trump era China hawks. Furthermore, many Democrats and Republicans in Congress seem to agree on this assessment of China as a danger for America. Therefore, we may have a significant degree of bipartisan consensus in Washington regarding the seriousness of the China threat. In a highly polarized Washington where Republicans and Democrats agree on almost nothing, agreement on China means that this new policy can be sustained.
The Executive Order has symbolic value
Back to the recent Executive Order prohibiting US investments in a long list of Chinese defense companies, taken in isolation this move will not affect the targeted Chinese corporations in any significant way. However, if this US action will be followed by similar investment restrictions imposed by other Western countries, this may give an important signal to Beijing: “We know what you are up to, and we are watching you!” This new atmosphere as a minimum will enhance the level of international scrutiny on Chinese actions in many areas, from the murky financing terms of Belt and Road contracts to mining concessions in Africa or Latin America.
The short term damage to China of this White House announcement is not going to create real problems for the targeted companies. But China’s image may be affected negatively. This action may complicate Beijing’s sustained efforts aimed at presenting itself as a benign partner willing to promote development and prosperity with win-win agreements. Overall, because of this and other Washington actions, the time in which many questionable Chinese practices were explained away, or simply ignored is probably over. Assuming more international scrutiny, as a minimum China may find itself in the uncomfortable position of having to explain or justify many of its unorthodox practices before an increasingly skeptical international audience.
Containing China will not be simple
That said, containing or isolating China, today a world class economic giant with a wide network of trade and investments all over the world, will be extremely difficult. There are huge challenges. Indeed, looking at the bilateral US-China trade relationship, despite these new US tough policies and the serious concerns that inspired them, it is a well known fact that as of today the Chinese and American economies are tied together by a myriad of outsourcing deals worth tens of billions of dollars that make America a key buyer of made in China products. Every day Chinese cargo ships unload countless containers at the Ports of Long Beach and Los Angeles, among others. The big metal boxes are full of made in China products that will eventually find their way into Amazon warehouses, ready to be shipped to millions of US customers, or Walmart and Target shelves.
Indeed, China today is the focal point of complex supply chains. Thousands of products, from sneakers and toasters to appliances and complex electronics, are assembled in China and then sold to the United States, Europe and many other countries. This sophisticated China-centric manufacturing universe was created and refined over several decades. It is clear that the American administration is now trying to find ways to get out of this worrisome dependence. Still, even in the most optimistic scenario, this will take years. Indeed, if we no longer want to buy from China, what is the alternative? The US lacks the industrial base to make most of these items at home. Creating a new one from scratch is a daunting and probably unworkable proposition. Other countries may step in. But there is no other industrial economy that has China’s size and sophistication.
China is a long term problem
Going forward, it is very likely that the Chinese government will retaliate against American economic interests in some fashion. May be Beijing will create its own list of US companies no longer allowed to do business in China or impose new operating restrictions on companies already there. All this will disappoint the naïve hopes of Wall Street firms and US multinationals that to this day continue to look at China as a wonderful opportunity to enter a 1.4 billion customer market. Yes, China is home to 1.4 billion people. But it is not a “market” the way we understand it. Far from being a great business opportunity, China is instead the biggest challenge to US and Western security and future prosperity.
Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC.