18 December 2022

Opinion | The Fevered Anti-China Attitude in Washington Is Going to Backfire

JON BATEMAN

With little fanfare or public debate, America has embarked on one of its most difficult and dangerous international challenges since the Cold War. The task: reversing decades of economic and technological integration with its chief rival, China.

This technological decoupling, if done selectively, will help to preserve America’s military edge, protect key U.S. industries from unfair competition, and push back on Beijing’s human rights abuses. But if decoupling goes too far, it will drag down the U.S. economy, drive away allies, stymie efforts to address global crises like climate change, and increase the odds of a catastrophic war.

Balancing these grave risks is a high-wire act for U.S. leaders, but unfortunately, their policies have begun to teeter toward excess. Hawkish figures in the Biden administration, in Congress and in the foreign policy establishment who seek to lunge further and faster toward decoupling are leading the country’s current approach. This “restrictionist” camp is unfailingly confident in anti-China measures like sanctions and blacklists. Its rising influence can be seen in proposals for open-ended investment controls and extraordinary financial sanctions. Most recently, the White House spearheaded new export controls on semiconductors and chip-making equipment, the boldest U.S. leap toward decoupling so far.

Restrictions on Chinese technology make sense when they match the scale of specific threats and buy time for America to bolster its own tech base. But Washington seems intent on a grander crusade — to hobble China at a fundamental level — with little regard for the risks to global stability, the U.S. economy and American alliances. Many U.S. officials and analysts think that every Chinese firm is another Huawei, every Chinese technology is a loaded gun pointed at the heart of America, and every restrictive tool available to Washington is still much too underutilized. A righteous panic has set in, flattening complex uncertainties.

This fevered atmosphere all but guarantees an intensifying surge of new U.S. export controls, investment curbs, financial sanctions, visa restrictions and the like. While many will celebrate “tough” responses to China’s genuinely troubling behavior, Americans and others may soon find themselves experiencing carelessly broken supply chains and a fracturing economic order. They could face slower innovation, higher inflation, rockier trade among friendly nations and spiraling instability with an emerging Asian superpower. And the more decoupling accelerates, the harder it becomes to control. If anyone believes they know what kind of world will emerge from the maelstrom, they’re fooling themselves.

There is a better way forward: The U.S. government must strike a delicate balance between too much decoupling and not enough — a stance that requires agility, precision and a keen sense of the countervailing risks of any U.S. action. Unfortunately, Washington has mistaken this tightrope for a cakewalk. Such false certitude has led to terrible foreign policy blunders in the past, and it now threatens to do so again at a critical juncture in American history.

Richard Nixon’s seminal visit to China, 50 years ago, remains a useful prism for understanding the bilateral relationship. From the outset, U.S.-China ties have been built upon pragmatic calculations by both sides, not trust or affection. Washington was never at ease with China’s state-led economy, dismal human rights record and worrisome military intentions. Likewise, Beijing has always seen the United States as overly hegemonic and a potential threat to regime stability. Even so, the two countries chose to deepen their economic integration. Generations of U.S. leaders believed that trade, investment and people-to-people ties could make America more prosperous and push China to become freer and friendlier.

This strategic bargain led to a remarkable economic symbiosis. China became America’s biggest supplier of imported goods and its top source of international students, while the United States is now China’s number one export destination and its most important foreign financial partner. Technological links are particularly thick. China sends more STEM PhD students to the United States than any other country, and is second only to India as a source of foreign STEM workers and high-skilled H-1B visa holders in the United States. Interdependence is everywhere you look, from semiconductors (the U.S. chip industry gets one third of its revenue from China) to manufacturing (China is a critical hub for companies like Apple and Tesla) to science (Chinese and American scientists author more joint papers than any other country pair).

But in the last decade, the strategic foundations underpinning this economic relationship have steadily eroded. Contrary to U.S. hopes, China under President Xi Jinping grew more assertive abroad and more repressive at home. And as Chinese companies climbed the value chain — from manufacturing textiles to televisions to telecommunications equipment — longstanding U.S. concerns about unfair trade took on new urgency. The Obama administration, which at first looked forward to “a positive, constructive, and comprehensive relationship with China,” would eventually announce “the return of great power competition.”

This pivot coincided with Washington’s embrace of techno-nationalism — the idea, already long accepted in most other countries, that technology must be guided and harnessed by the state rather than global market forces. Decades of free-wheeling digital globalization had enriched Silicon Valley, projected American values around the world and enabled a “golden age” of U.S. intelligence collection. But a rising tide of foreign cyber threats — especially Chinese intellectual property theft and Russian election interference — caused Washington to see U.S. digital openness as a source of vulnerability. At same time, China’s breakout success in emerging strategic sectors like 5G and AI led U.S. policymakers to conclude that bilateral tech ties were no longer working to America’s advantage.

The Trump administration marked the decisive point when America’s new, China-focused techno-nationalism began to transform U.S. policy. Export controls targeting China were greatly intensified, most notably via the Department of Commerce’s Entity List that restricts foreign companies from importing U.S. products. The number of unique Chinese firms on this list quadrupled from 2018-2022. And telecoms giant Huawei — once the golden child of China’s tech sector — faced a supercharged Entity List designation that has crippled the company. Alongside export controls, a bevy of other U.S. measures worked to curb the flow of technology to and from China. The Trump administration tightened screening on Chinese investments, imposed broad-based tariffs on Chinese items, and restricted the use of Chinese equipment by federal agencies, contractors and grantees. Chinese students and researchers found it harder to get visas, and some faced criminal investigation and prosecution for downplaying ties to Beijing.

These actions were ill-coordinated and poorly communicated but, often, basically reasonable. Many of Trump’s moves addressed high-impact threats in proportional ways. China had been racing toward global dominance of telecommunications equipment — the ultimate strategic terrain in cyberspace — so the U.S. campaign against Huawei worked to buy precious time for alternatives to emerge. Core elements of the U.S. power grid were vulnerable to sabotage that might take months or years to repair, so Chinese equipment was banned from specific systems serving critical military bases. Several Chinese tech companies had actively facilitated Beijing’s genocidal repression of the Uyghur minority, so the Entity List was used to prevent U.S. exports from supporting these abuses.

In other cases, however, the Trump administration went too far. There were overzealous restrictions that threatened to do more harm than good, and unprincipled decisions whose logic seemed to lead toward broad-based decoupling. The Justice Department, for example, launched a quixotic quest to find Chinese moles on campus — resulting in a number of failed prosecutions and driving away many talented academics. Blanket bans on Chinese apps like TikTok were based on no real analysis, and the WeChat ban threatened to stymie U.S. firms’ communications in China. The Pentagon barred Americans from investing in Xiaomi, a consumer electronics maker, just because the company had a general interest in 5G and AI and was once praised by Beijing — criteria that could describe nearly any big Chinese firm.

President Joe Biden undid each of these errors. Better still, Biden sought to complement sanctions and blacklists with positive efforts on the home front. While Trump relied almost exclusively on restrictive measures to counter Chinese tech threats, Biden worked with Congress to secure huge investments in America’s own tech ecosystem. Defensive tools like export controls simply aren’t powerful enough to hold China at bay forever, but they can buy time for the United States to make long-term improvements in its technological leadership and resilience.

But the administration didn’t stop there. It also put in place a steady stream of new China-focused restrictions. Biden filled some important gaps — requiring proof, for example, that imports from Xinjiang weren’t made with forced labor. And he sought to discipline Trump’s chaotic processes — undertaking serious investigations of Chinese tech companies rather than knee-jerk bans, and publishing more detailed criteria for when such bans would be imposed.

Even so, there were growing hints of a more aggressive agenda. First came reports in May that America’s most severe sanctions list — populated with terrorists, drug lords and war criminals — might for the first time target a major Chinese tech firm. Then came the bombshell announcement in October of new export controls on semiconductors and chip-making equipment. This latest move represents the sharpest escalation of decoupling yet, and a clear example of the larger problems with overbroad restrictions.

The new U.S. export controls block China from importing high-end foreign semiconductors it needs to train artificial intelligence algorithms. At the same time, Washington sought to stop China from making homegrown versions of such chips, or even the mid-range chips that power the Internet of Things and other lesser devices. It therefore barred Chinese chip-makers from importing advanced manufacturing equipment and from working with U.S. personnel.

As usual when rolling out such measures, the White House said it had imposed “carefully tailored restrictions” based on “straightforward national security concerns.” Officials cited the fact that advanced processors can help Beijing model nuclear explosions and missile aerodynamics. But these military applications comprise a tiny fraction of the countless important uses for powerful semiconductors and AI. The vast majority are benign: business process automation, e-commerce, cybersecurity, disease diagnosis and much more. Some uses, like climate change research, would actually benefit the United States and the world. If the new controls succeed, they will hamper a broad range of commercial and scientific innovation throughout China — shaving up to 0.6 percent off its GDP, according to Barclays. The most hawkish U.S. officials will welcome this result, though they won’t publicly admit it. Other policymakers have said they simply don’t care.

Biden’s move was a triumph for the restrictionists. It dealt the most powerful blow yet to China’s technological ambitions, and it signaled that more harsh measures are coming. Alan Estevez, a senior official who oversees export controls, captured the gung-ho mood in late October: “I meet with my staff once a week and say, ‘Okay, what’s next? What are we going to do next? Who’s being bad? Where is the technology area that we need to address?” He said that future controls on biotech, quantum technology, and AI software and algorithms are likely.

But we cannot charge forward without first taking stock of the profound escalation already underway, and the burgeoning risks to U.S. interests. Most obviously, America’s own economy has much to lose. U.S. semiconductor firms have forecast billions of dollars of lost revenue from the latest round of export controls, reducing the funds available for R&D to sustain global competitiveness and improve the world’s computing power. Moreover, as technology progresses, the class of superior chips and equipment subject to control will become an ever-larger segment of the market, gradually widening the revenue hole for U.S. companies. Although Washington is showering the semiconductor sector with subsidies, analysts have warned that such sums won’t go as far as many expect. And Congress will not be as generous with every U.S. industry facing future export controls.

Second, the United States runs the risks of alienating the very allies and partners it needs to achieve larger economic and technological aspirations. Key parts of the new export controls have extraterritorial scope — restricting Taiwanese, South Korean, Japanese and Dutch sales and work in China — but were imposed unilaterally. Having failed to secure the support of these governments, the United States went ahead without them, and not for the first time. This has elicited grumbles at an already-sensitive time in economic diplomacy. U.S. allies are enraged at America’s discriminatory new subsidies for electric vehicles, semiconductor manufacturing and other sectors. Washington hopes to align subsidies with its friends, but it risks triggering a wasteful, uncoordinated subsidy race, if not a full-blown trade war. Right now we need to unify allies, not antagonize them.

Finally, Washington’s embrace of a quasi-containment strategy will intensify the downward spiral of U.S.-China relations, making cooperation even harder and increasing the odds of crisis. The Biden administration protests the word “containment,” but how else to describe an embargo on what the White House itself calls “the foundational technologies of the 21st century”? Whatever the label, the U.S. government is clearly comfortable with inflicting broad damage on China’s economy in pursuit of narrow national security objectives. (China’s military modernization poses a serious threat, but these export controls don’t have much obvious relevance to a potential Taiwan strait conflict in the medium term.) Xi has, of course, come to expect tough U.S. actions. Yet their severity and timing still matter. Ever-harsher U.S. economic penalties add another unpredictable element to an increasingly dangerous rivalry.

To be sure, the United States faces genuine threats from China, and the Biden administration confronts real dilemmas in addressing them. No risk-free options exist to manage interdependence with a strategic competitor. The most we can ask are realistic assessments and reasoned decisions based on the best information available. Unfortunately, U.S. policy debates often fail this test. Analysis of China-tech issues has become increasingly one-sided and simplistic, leading to obvious miscalculations.

One problem is that real Chinese tech threats are routinely exaggerated. For example, there is some reason to worry that Beijing might spy on sensitive American military facilities by co-opting Chinese-made drones, but it is absurd to fear Chinese surveillance of U.S. national forests and parks. Yet the Department of Interior has refused to fly drones made with Chinese components, hindering its own efforts to monitor and fight wildfires.

Additionally, the costs of U.S. restrictive measures are commonly underestimated. In 2020, for instance, the Department of Justice arrested six Chinese researchers on security grounds. This crackdown prompted more than one thousand other Chinese academics to leave the country — something U.S. officials hadn’t predicted. The department eventually dropped charges against five of the six academics and mothballed its larger China Initiative. We’ll never know how much legitimate scientific research was lost in the process.

Perhaps the biggest problem for U.S. decisionmakers is groupthink. Tough anti-China measures now receive broad bipartisan support in Congress, think tanks and beyond. Uncritical assent from progressive voices has been particularly striking. For example, Ezra Klein and Matt Yglesias have both called for banning TikTok — though neither of them seriously considered regulatory alternatives. The Washington Post has editorialized in favor of unprecedented sanctions on the Chinese surveillance firm Hikvision — even while admitting “the move could accelerate a broad-scale technological decoupling for which this country isn’t prepared.” (The Post helpfully offered that preventing such an outcome “shouldn’t be too difficult a task.”) Every week brings fresh proposals for China-focused restrictions. Yet the reverse isn’t true. No American political figure has prominently highlighted the risks or costs of decoupling. Even business leaders have largely retreated from public debates for fear of political blowback.

Students of history, take note. Hegemons often suffer more from their own overreach than from any foreign adversary. The United States, too, has been down this road before. This isn’t the first time that American leaders have become preoccupied with a poorly defined threat, overconfident in a muscular U.S. response, and dismissive of doubting citizens and allies. It hasn’t ended well. Much of today’s China commentary bears an uncomfortable resemblance to the writings of New York Times reporter Judith Miller, whose failure to interrogate the case for war in Iraq came to symbolize the nation’s heedless march toward our greatest modern blunder.

The China fever in Washington won’t be easily broken. What’s needed is political space to question the current trajectory and conduct more rigorous cost-benefit analysis. Leaders like Secretary of State Tony Blinken and Secretary of Commerce Gina Raimondo, who often profess no intent to decouple from China, must go further and articulate a robust, positive vision for the economic relationship — citing specific linkages worth preserving and explaining their importance to the American people. Businesspeople, state and local officials, and universities must help make the case that overreach has costs, as a handful of voices have recently begun to do. Think tanks and journalists should place a higher priority on filling gaps in our lopsided discourse than on cranking out the unmpteenth report highlighting China-tech threats. And everyone should listen more attentively to America’s allies and partners, who share U.S. concerns about China but favor more temperate responses.

A partial American decoupling from China was both inevitable and warranted. But there must be some stopping point. With each new restrictive measure, the risks of interdependence diminish and the odds of overkill grow. Yet U.S. restrictions are speeding up, not slowing down, and calls for caution have gotten quieter, not louder. This is dangerous. If Washington doesn’t take a breath and steady itself, it might tumble over the edge.

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