The U.S. Won't Beat China by Being More Like China
Biden's argument about a strategic competition with China ignores America's advantages.
President Joe Biden's first 100 days in office saw the executive using the COVID-19 pandemic to push for a huge and largely permanent expansion of the federal government.
But in his speech to a joint session of Congress on Wednesday, Biden gave a preview of how his administration is going to justify the ever-greater growth of government power even after the pandemic wanes. The next crisis is all about China.
"We're in a competition with China and other countries to win the 21st century," he said. "And we're falling behind in that competition."
Later, invoking that competition again, Biden warned that China "is closing in fast." Biden recalled telling Chinese President Xi Jinping that "we welcome the competition" and later promised that America would stand up to "unfair trade practices that undercut American workers," and "won't back away from our commitment to human rights and fundamental freedoms."
The troubling thing about all this isn't that Biden is calling attention to the abuses of the Chinese communist regime. Certainly, what is happening in Hong Kong and in Xinjiang and in Chinese-controlled cyberspace deserves the strongest condemnation from America's political leaders and anyone who cares about human freedom.
No, the troubling thing is that Biden's prescription for dealing with China often sounds like a plan for copying China's economic policies. His address on Wednesday contained a long list of ways to give the government a firmer hand on the economy—raising taxes, removing choices from employers and workers, and sending power to Washington bureaucrats.
Since taking office, Biden has called for the passage of a bill that would revoke workers' right to refuse to join a union in certain professions. He has refused to repeal former President Donald Trump's tariffs that are a burden on the U.S. economy—in fact, Commerce Secretary Gina Raimondo has argued that "the data shows that those tariffs have been effective." And on Wednesday he promised to double down on protectionism and industrial policy, paid for with higher taxes on corporations.
This is misguided at best. At worst, it is tantamount to an admission of defeat. One doesn't usually seek to copy those who are less successful, after all.
"Ultimately, the United States needs to outcompete China and the way we do that is through open markets and immigration—our traditional strengths," Clark Packard, trade policy counsel for the R Street Institute, a free market think tank, tells Reason. "We're not going to outcompete Beijing by hiding behind tariff walls, deploying sclerotic domestic subsidies to politically favored industries, and choking off immigration. In fact, that is a recipe for decline and stagnation."
To be fair to Biden, he's hardly alone in doing this. Far from it. Sen. Ted Cruz (R–Texas) blocked the admission of refugees from Hong Kong last year because he believed it was an anti-China maneuver (in fact, it was quite the opposite). Sens. Marco Rubio (R–Fla.) and Josh Hawley (R–Mo.) have become the faces of the GOP's new economic nationalism and its embrace of industrial policy. China is a convenient pretext for just about any pet policy, it seems.
And of course it was Trump who steered America toward this resurgence of industrial policy in the name of combating China. He imposed tariffs on steel and aluminum imports that were supposed to protect American metal manufacturers from foreign competition, supposedly causing a rebirth of steelmaking in America. Trump often claimed, without evidence, that his policies were responsible for six or seven (he has never been good at being consistent with his lies) new steel plants being built.
How's all that working out now? American steel has become significantly more expensive since Trump's tariffs were imposed, but those higher prices aren't resulting in more plants being built or workers being hired. U.S. Steel announced Friday that it was canceling plans for a new manufacturing facility in Pennsylvania.
Biden and his advisers are more policy savvy than Trump's team—though that's not a high bar—but there's little reason to think that the current administration will be able to make industrial policy work any better.
Take Biden's "Buy American" plan—a pseudo-populist idea that he almost literally stole from Trump. It will guarantee that "American tax dollars are going to be used to buy American products made in America that create American jobs," Biden said Wednesday.
That's not a bad bumper sticker, but it is lousy policy. Buy American rules force the government to spend more money for the same products, effectively shortchanging taxpayers. The Buy American rules already on the books—Biden's plan mostly amounts to tightening loopholes in them—increased costs for taxpayers by $94 billion in 2017.
On Wednesday, Biden said he wants America to have more wind turbines as a way to combat climate change. But he also said he wants those wind turbines to be built in Pittsburgh, not Beijing—in which case he'll get fewer wind turbines to combat climate change. Which priority should prevail?
Markets do a fantastic job of sorting those priorities. Government has a much less impressive track record.
The very notion of defeating China is somewhat silly on its face, considering the many, many economic links between the world's two largest economies. Neither America nor China would be as prosperous in a zero-sum world where the two have decoupled from one another.
So when Biden pumps up China as a foil or rival to the United States' economic might, what he's really doing is playing to populist feelings and stoking another crisis in the hopes of smashing opposition to his proposals. And as long as those proposals amount to "beat China by being more like China," they will continue to deserve serious opposition.