Patrick Semansky/AP Photo
President Joe Biden speaks during a news conference after attending the G7 summit, June 13, 2021, at Cornwall Airport in Newquay, England.
President Biden’s first G7 summit will be remembered for many things, including the restoration of normal relations with America’s allies. But one of the most important is the resolve to fashion a common Western policy on China.
This will be a tricky balancing act, because it is seemingly at odds with Biden’s own economic nationalism, which focuses on the United States. It will be doubly tricky to pull off because Europe has its own interests with China, which do not align perfectly with those of Washington. Europe’s most powerful economy, Germany, has extensive trade deals with Beijing—the Chinese love to buy BMWs—and has relatively balanced trade accounts, unlike the U.S.
At the end of the day, however, a common Western front against Beijing is likely because China, as a dictatorship that violates labor and human rights, increasingly threatens common Western interests. China controls vital technologies and materials, which it is willing to use politically; its Belt and Road Initiative gives it major spheres of influence throughout the developing world, and in unlikely places. Did you know, for instance, that the Port of Haifa is being managed and modernized by the Chinese?
China’s increasingly aggressive stance in the world, both economically and geopolitically, is what it took to finally dethrone the orthodox view of “free trade” as efficient for the world and beneficial to the United States. And Donald Trump, in his weird way, was a useful catalyst.
Under the last several Democratic presidents, the orthodoxy prevailed. Trade should be as free as possible. After the WTO was created in 1995, that meant free not just of tariffs, quotas, or cartels, but free of the kind of economic and social regulations that are normal in a managed form of capitalism at home. Trade became a terrific battering ram to destroy regulation generally and to make finance supreme.
This was the prevailing view when Bill Clinton and Robert Rubin let China into the WTO with no preconditions other than giving Wall Street a piece of the action; and it was the prevailing view right through the Obama administration. Meanwhile, free trade, as embellished by Chinese state-led capitalism (which was anything but a free market), was killing American industry and hollowing out entire regions.
The difference in U.S. policy toward the former Soviet Union and its China policy is instructive. In the case of the USSR, American geopolitical and economic interests aligned perfectly. The Social Union was a military threat, and there was absolutely no money to be made.
China’s increasingly aggressive stance in the world is what it took to finally dethrone the orthodox view of “free trade.”
But in the case of China, the geopolitical rivalry is palpable; however, lots of American capitalists are making fortunes, running low-wage factories in China, selling technology to Chinese “partners,” and underwriting deals. Right through the Obama years, America’s capitalistic interests trumped its security interests.
Two things at last changed the standard Democratic presidential view of free trade. One was Donald Trump, whose clumsy imposition of scattershot tariffs irrevocably ended the status quo. The other was the pandemic.
The COVID emergency threw into relief just how dependent the U.S. is on Chinese materials. That in turn made industrial policy something other than a dirty word. Now, the Biden administration is out with a superb 250-page blueprint on strategic supply chains.
The idea is to take back or develop and expand production in key areas such as semiconductors, large-capacity batteries, active pharmaceuticals, and critical minerals and materials, and to begin a planning process to secure production capacity in other key industries. Meanwhile, in a rare display of bipartisanship, the Senate has passed the complementary $250 billion Schumer bill to counter China’s technical and industrial strength, as well as its national-security threats.
Some free-traders view all this with mixed feelings. Our friend Paul Krugman wrote that he was “not entirely persuaded by these calls [for industrial policy].” But he conceded that “the rationales for government action are a lot smarter this time around than they were in the 1980s—and, of course, immensely smarter than the economic nationalism of the Trump era, which they superficially resemble.”
And what of Europe? Biden went out of his way to call for an alliance of the democracies, of which China is clearly not one.
Economic nationalism has two meanings. One is that it’s OK, and necessary, for the state to involve itself in the economy. The other is jingoistic—my country at the expense of others: America First, Trump-style. The first one makes sense, the second doesn’t.
At the end of the day, we can expect a kind of economic nationalism that includes other democracies that play by comparable rules. This is a welcome shift from the Clinton-Obama era, when ideologues tried to make everyone play by laissez-faire rules—and paradoxically made us sitting ducks for China’s state capitalism.
