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Confronting the Dragon

Decoupling from China will require changes to both policy and personnel.

China Slowly Recovers From Coronavirus Outbreak
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The attempt to integrate the economies of the United States and China—one a republican superpower, the other a dictatorship—has no parallel in world history. In the past, trade and mutual investment among hostile nations would either have been impossible or unthinkable. The authors of a new report from American Compass, the powerhouse New Right think tank, argue that "American theorists and policymakers never considered the implications of integration with an authoritarian peer." The result has been entanglement with a communist superpower that threatens both our national security and long-term prosperity.

In "A Hard Break from China: Protecting the American Market from Subversion by the CCP," American Compass sketches an approach to decoupling the American economy from China's. The authors recognize that the word "decoupling" implies a level of cooperation between the U.S. and China, but claim that cooperation is more unilateral than bilateral. The Chinese have programmatically disentangled their economy from ours, instituting whole-of-society efforts to build up their domestic industries. In the first year of the Made in China 2025 initiative, China's plan to support domestic industry and disentangle from the world's economies, the value of Chinese acquisitions of American firms increased more than 370 percent. Between 2015 and 2021, the CCP set aside an estimated $500 billion to invest in domestic research and development.


The U.S., for its part, has unilaterally disarmed, wringing its hands about the propriety of tariffs and domestic-content requirements while the CCP builds an economic empire. In response to the Made in China 2025 initiative, the U.S. Chamber of Commerce fretted that the Chinese government's plan "could substantially distort domestic and global markets," as if the effect on global price signals were the foremost concern.

The goal of our decoupling efforts, as the report notes, should not be "to make a 'Chimerican' market work better," but "to obstruct and discourage operation of such a market altogether." And to effect that goal, the report argues that America should take a three-pronged approach to decoupling from China.

The first step involves cracking down on Chinese investment and economic imperialism. Compass proposes banning Chinese companies from acquiring American firms, both to protect domestic industry and to hurt Chinese expansion efforts. The entanglement problem runs both ways: American companies such as Apple have pledged to invest hundreds of billions of dollars in the Chinese economy, while Chinese-based firms have acquired at least eleven American aviation companies. To combat both rapacious acquisitions by Chinese tycoons and capital flight from American fat cats, Compass proposes a ban on engaging in various economic activities with “Disqualified Foreign Investors,” which would include any non-U.S.-resident Chinese national.

The second prong suggests imposing tariffs on Chinese imports and investing in domestic industry to make decoupling feasible. American companies operate in highly competitive domestic and international markets, and often rely on cheap inputs available from Chinese suppliers to remain price competitive. To decouple effectively, America must make it possible for companies to use non-Chinese inputs and still sell their goods at a competitive price. If Congress revoked China's Most Favored Nation Status with the World Trade Organization, as the report proposes, America would be able to implement "column two" tariffs on the Chinese and, with congressional approval, expand its tariff regime further to address the unique challenges posed by Chinese manipulation.

The third and final leg of the Compass proposal addresses the cultural rot caused by Chinese influence. From Confucius Institutes infiltrating American universities to prominent celebrities kowtowing to the CCP, the Chinese government has used its economic might to change American culture. While think tanks are often tempted to address these types of cultural problems with abstruse non-solutions, Compass lays out a policy roadmap for combatting Chinese cultural sway. They propose revoking the tax-exempt status of any university that accepts funds from entities based in China, banning any federally funded research in the PRC, and designating American cultural exports—music, movies, and entertainment—as a class of products with specific intellectual property protections that bars them from being exported to China.

The Biden administration has taken some steps in Compass's proposed direction, including instituting export controls on U.S. chip-making equipment. But figures throughout the Biden cabinet have distanced themselves from efforts to break from the Chinese economy. National Security Advisor Jake Sullivan, for example, advocated "de-risking and diversifying, not decoupling" the U.S. economy from China's. And Treasury official Jay Shambaugh stressed that in interactions with the Chinese, the U.S. should make "clear [that] we do not seek to decouple from China or seek to limit China’s growth in any way" and is not seeking "to benefit the U.S. economically vis-a-vis China."

Disentangling the American economy from China's will require concrete policy changes like the ones proposed by American Compass. But without a political class willing to effect those changes, and an army of bureaucrats willing to see those policies through to fruition, any attempt to decouple from the PRC is doomed to fail. The extent of Chinese influence on American life, economically and culturally, is too vast for half-measures.


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