To Beat China, US Should Stop Acting Like China

The US and China are both racing to insulate their economies from dependence on or coercion by the other, regardless of the costs. Whoever wins that contest might well lose their unfolding superpower rivalry.

China has led the way, prizing security above economic efficiency at least since President Xi Jinping took power in 2013. The government is pursuing a comprehensive program of “deleting-A” — removing or replacing US information technology in large state-owned enterprises by 2027. The country has also passed strict data security and anti-espionage laws that have made doing business difficult and potentially hazardous for foreign companies and executives.

Starting with former President Donald Trump’s administration and continuing into President Joe Biden’s, the US has increasingly sought to beat China at its own game. Under Biden, there are plans to invest billions of dollars to replace Chinese cranes in US ports, for fear that they could be used to spy on sensitive cargo flows. The White House has also imposed sweeping export controls on advanced semiconductor exports to China, cutting into the revenues of some of the most innovative US companies.

Citing security concerns, Congress is now deliberating a bill that would block Chinese biotech firms from supplying major US pharmaceutical companies, even though a ban could cause serious disruptions. Security-related fears have also led to the recent passage of a law ordering the Chinese tech firm, ByteDance Ltd., to divest its TikTok app or face a total ban in the US.

The Biden administration insists it is striving to strike a balance between security and other vital interests, such as maintaining economic competitiveness and the moral high ground. The president and his advisers describe theirs as a “small yard, high fence” strategy — limiting controls only to the most strategically vital sectors, technologies and supply chains.

More importantly, key US institutions can in theory prevent the government from going too far. A free media and powerful business groups should be able to curb the counterproductive exercise of state power in pursuit of ill-defined security objectives. By contrast, the combination of a paranoid one-party regime and absence of independent social and economic actors in China predisposes its government to policies that deliver marginal security at enormous economic and moral costs.

However, it would be a mistake to take US advantages for granted and dismiss China’s capacity to adapt.

America’s oft-trumped checks and balances tend to be far less effective or even to break down completely when Democrats and Republicans have an overwhelming consensus on a given policy, backed by public opinion. Today, even though they can agree on little else, both political parties support a tough China policy. Meanwhile, over 80% of Americans hold unfavorable views of China (with 42% regarding the country as “an enemy”), according to the latest survey by the Pew Research Center.

Such political conditions have produced an unending stream of initiatives proposed or enacted ostensibly on security grounds. Florida has banned Chinese nationals from buying homes or land (the law is being challenged in courts). Other states are trying to pass similar laws, despite the fact that Chinese buyers account for less than 1% of all of foreign-owned land in the US.

Citing unspecified dangers posed by China, Virginia Gov. Glenn Youngkin has blocked a deal that would create a joint venture between Ford Motor Co. and China’s leading battery maker, Contemporary Amperex Technology Co. (CATL), although the proposed plant could increase his state’s competitiveness in clean energy. The “small yard” is growing bigger and its fences ever taller.

At the same time, pressured by ongoing economic struggles, China may be raising its risk tolerance. At the end of April, Tesla Inc. unexpectedly received approval to test its self-driving technology in partnership with Baidu Inc., China’s equivalent of Alphabet Inc.’s Google, even though this would allow the US company to gather a huge amount of potentially sensitive data on Chinese transportation networks and traffic patterns.

For China, the potential payoff could be equally big. If successful, the project could help the country become the leader in autonomous driving, much in the same way Tesla helped make it a global powerhouse in manufacturing electric vehicles.

Although China’s move caught many by surprise, the Chinese Communist Party (CCP) has long had an opportunistic streak. The party has repeatedly reverted to pragmatism after suffering setbacks caused by ideologically inspired policies. The best example is former leader Deng Xiaoping’s embrace of capitalism to save the party after Mao Zedong’s calamitous Cultural Revolution.

It is too early to tell whether the CCP has concluded that its agenda of securitizing the economy is too costly. But if the party keeps making pragmatic adjustments in policy, it may prove a far more formidable rival than the US anticipates.

On the other hand, Washington’s own paranoia could lead to policies that produce marginal gains in security while eroding economic efficiency and innovation, not to mention American soft power. Indeed, it is hard to imagine that the US — which is probing whether Chinese electric vehicles pose a national-security threat — would allow BYD Co., China’s biggest maker of EVs, to partner with Google for a pilot project similar to that struck between Tesla and Baidu.

The US has the technological, economic, and political advantages to prevail over China in coming decades. But those strengths won’t last long if it continues to act more like its rival than its best self.

More From Bloomberg Opinion:

• China’s Struggling Entrepreneurs Deserve a Break: Editorial
• The US Can’t Be Protectionist and World Leader: Andreas Kluth
• Whether Xi or Trump, the EU Looks Vulnerable: Lionel Laurent

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