Mark Schiefelbein/AP Photo
Secretary of State Antony Blinken meets with Chinese President Xi Jinping at the Great Hall of the People, April 26, 2024, in Beijing.
Secretary of State Tony Blinken returned from Beijing late last week before he refueled and headed back out to the Middle East. His five-hour meeting with Chinese leader Xi Jinping was a combination of well-choreographed minor conciliatory gestures coupled with tough warnings. “Russia would struggle to sustain its assault on Ukraine without China’s support,” Blinken said at a predeparture news conference on Friday. “I made clear that if China does not address this problem, we will.”
U.S.-China conflict is in a new phase where the Biden administration has recognized that the two countries are in a protracted struggle for economic primacy and military advantage. It’s about time. This has been China’s view for centuries.
There are two core problems standing in the way of any sort of U.S.-China rapprochement. One is that China has become more authoritarian under Xi, not less. Militarily, China has ended democracy in Hong Kong, engaged in expansionist provocations in the South China Sea, and made menacing noises against Taiwan.
China uses nominally private companies as instruments of the state. It spies on its citizens. The idea that the U.S. can trust China not to spy on U.S. companies and U.S. citizens as part of a general entente is an illusion.
(The U.S. government also spies on its own citizens, but in a far more limited way. Domestically, the bigger menace is corporate surveillance capitalism.) Congress’s recent bipartisan enactment of the requirement that TikTok find a new, non-Chinese owner, or be banned from operating in the U.S., is just the beginning of a broader crackdown against Chinese spying.
THE SECOND OBSTACLE TO ENTENTE is increased Chinese mercantilism, specifically the pattern of excess production across a broad range of industries. Against these state-led activities, even Biden’s trillion-dollar industrial policies cannot do very much.
Take the case of cars. China’s production capacity is currently about 40 million autos a year, but China sells only about half of them domestically. Of the remainder, some cars go to Russia but the rest are dumped on global markets at far below the cost of production. Chinese auto exports have roughly quintupled, to about five million cars annually, over just the past three years. This has led to a price war with Tesla and other EV makers in export markets such as Europe.
Chinese subsidies range from interest rates of zero or below, and subsidized steel and batteries for electric cars, to direct government support. According to The Wall Street Journal, BYD, China’s largest automaker and the world’s largest producer of EVs, received $3.5 billion in government subsidies between 2018 and 2022.
Biden is the first president since Franklin Roosevelt to embrace explicit industrial policies to promote domestic technological advances and production. But the U.S. will never match the extent of explicit subsidies used by China.
The necessary measures to prevent China from dominating global markets with policies that violate any definition of free trade or fair trade will need to be more aggressive trade policies, such as higher and more consistent tariffs. But unless other nations embrace similar measures, China’s subsidized excess capacity will end up underpricing unsubsidized U.S. exports, such as Tesla, in third-country markets.
Resisting Chinese mercantilism, case by case, is a game of whack-a-mole.
Look at almost any industry and it’s the same pattern. China already makes 55 percent of the world’s steel. It produces far more than it can consume domestically, and as a result its steel exports keep surging. According to the Financial Times, China’s steel exports are up 38 percent over a year ago.
In the first quarter of 2024, as domestic demand fell in the face of the property development collapse, China shipped 26 million tons, according to Bloomberg. Exports to Brazil, itself a major steel producer, were up 29 percent.
Unlike China’s steelmakers, Western steel companies are privately owned and need to earn a profit. The consequences of this lopsided competition with a giant, state-subsidized producer have led U.S. and other steel companies to idle production facilities and lay off workers.
Biden has promised to triple tariffs against Chinese steel exports, but the U.S. receives only a small fraction of Chinese steel. Unless there is a coordinated strategy among major steel-producing and -consuming nations, China’s subsidized output will just go to other countries.
In principle, the World Trade Organization is supposed to harmonize permissible subsidy policies and remedies for dumping. But because the WTO treats China as a developing nation, it provides no useful common strategy.
In all of these industries, China tries to end-run the rules of the system by using third countries. China has moved some auto assembly of Chinese cars to Mexico, where exports to the U.S. can qualify for reduced tariffs under the U.S.-Mexico-Canada trade agreement (USMCA). Chinese cars assembled in Mexico are also another way of exporting subsidized Chinese steel.
China plays the same game with solar, routing exports through other nations in Southeast Asia to evade U.S. sanctions. Last year, after an extensive investigation, the Commerce Department found that “certain Chinese producers are shipping their solar products through Cambodia, Malaysia, Thailand, and/or Vietnam for minor processing in an attempt to avoid paying antidumping and countervailing duties.”
However, the Commerce Department ruling delayed payment of duties until June 2024. Last week, the American Alliance for Solar Manufacturing Trade Committee, representing leading U.S. solar manufacturers, filed yet another petition with the U.S. International Trade Commission and the Commerce Department for anti-dumping and countervailing duties.
Earlier this month, a Massachusetts-based company, CubicPV, announced it was abandoning plans to invest $1.4 billion in domestic production of solar wafers, a project stimulated by the Inflation Reduction Act. The company cited price declines of 70 percent, the direct result of a surge in Chinese exports.
The global market share of Chinse solar companies is now around 80 percent. Much of this is the result of having driven U.S. and other producers out of the industry with selective subsidy and pricing strategies over the past two decades.
Resisting Chinese mercantilism, case by case, is a game of whack-a-mole. Stronger across-the-board remedies such as higher tariffs and quotas are needed, as well as greater collaboration among the U.S. and other nations. “We could work harder to get a common strategy with our European allies on both tech transfer and on limiting Chinese investment in Western companies generally,” says China scholar James Mann.
Some have argued that these patterns make the opposite case—for greater U.S.-China collaboration. Writing in The New York Times, Jacob Dreier contends that China already has such a lead in the entire range of green technologies that the U.S., rather than resisting China, should embark on partnerships with the Chinese. But that ideal requires a heroic level of trust that the Chinese government has shown no signs of reciprocating.
Part of the remedy to China’s strategic mercantilism is the effort to deny China the advanced technologies developed in the West. But that strategy will only work for so long, since China will soon develop all the technology it needs with or without Western help.
In his meetings with Xi Jinping, Secretary Blinken gave special emphasis to the U.S. demand that China pull back from its support of Russia, especially China’s support of Russian military production. As leverage, there have been leaked reports that Washington is drafting sanctions that threaten to cut some Chinese banks off from the global financial system.
IRONICALLY, MORE DISTANCE BETWEEN PUTIN AND XI would take us full circle to the era of the Kissinger-Nixon opening to China. It was in the interest of both the U.S. and the Chinese leadership to limit Russia’s influence on China. And given that China had almost nothing to learn from failed Stalinist economics, it was also in China’s economic interest to begin some commercial links with the U.S. On both geopolitics and geoeconomics, Kissingerian realism trumped ideology.
There is a very good reason for Xi to want at least the beginning of a modus vivendi with the U.S. Its name is Donald Trump. Joe Biden may be taking a harder line on China than previous Democratic presidents. But compared to Trump, Biden is a model of coherence and restraint.
To get a sense of China policy under a second Trump administration, have a look at the cover package on the May-June issue of Foreign Affairs. In it, Matt Pottinger, who was Trump’s senior national-security adviser for Asia, and Mike Gallagher, former Republican chair of the House Select Committee on the Chinese Communist Party, have a piece titled “No Substitute for Victory: America’s Competition With China Must Be Won, Not Managed.” The title, if anything, understates the details of the proposed policies.
So there’s a second key difference between Russia and China that Biden can perhaps exploit. For Putin, a Trump victory is something to be sought and promoted, both overtly and by stealth. The worse Biden looks on Ukraine by November, the better for Trump and Putin.
But for Xi, a second Trump term would be a catastrophe.
Another historical figure worth invoking here is George Kennan, the father of the policy of containment. Kennan, beginning in 1947, successfully promoted the idea that the right strategy against Soviet communism was to be patient, contain military excesses by the Russians, avoid war, and wait them out. Eventually, the USSR would fall of its own weight, either politically or economically; or, as it turned out, both.
Containment is also the right policy on China. Xi’s dictatorship has its vulnerabilities, as does China’s economy of overproduction. Yet as a global player, China keeps getting stronger.
If anything, containment of China will be even trickier.
