US-China Competition Still One-Sided

Last week brought more evidence of bipartisan consensus on China. Unfortunately, the consensus is do very little, while pretending otherwise. There has been concern about dangerous tensions between the US and PRC. If there are dangerous tensions, they weren’t caused by American economic actions, which border on trivial.

The Senate in July passed multiple China-related provisions as part of this year’s defense authorization. One bans funds for the Wuhan Institute of Virology—barn door, horse. Another bans oil sales to the PRC from the strategic petroleum reserve. If this ever mattered, it would only raise Chinese energy costs slightly. If China needs that particular oil for some odd reason, they’ll buy it from those we sell to.

The Senate also voted to tighten reviews of farmland purchases by adversarial nations. Some states are moving to outright bans. China does not let its citizens own Chinese farmland, so arguing they must be able to do so here is odd. However, Chinese investment in American farmland is small, as its land ownership share. This is an aggressive solution to a meek problem.

The Senate mandated corporate notification of certain American investments in the PRC. It’s not clear this does anything. The Department of the Treasury began in late 2020 to annually report nationality data, correcting for money routed through offshore financial centers. This is only possible with notification of some sort. The amendment may add to that but it’s not obvious, nor is it obvious Congress will receive additional information.

The amendment names industries of concern, but firms don’t seem obliged to be specific. And it’s unclear Treasury is required to report data by industry. The Department is further allowed a waiver for “transactions in the national interest,” which is absurdly broad. Treasury has opposed any meaningful policy on outbound and would decide how to implement a vague notification bill. This is as close to nothing as it gets.

The Biden administration’s endlessly delayed executive order (EO) on outbound investment won’t help much, if at all. Secretary Yellen’s priority seems to be assurance the EO won’t do anything. She defends delays in the name of transparency, which is nonsense. Treasury could at any time provide more clarity on outbound investment and always refuses. It will likely decline to say how much investment the EO even covers.

Are President Trump’s tariffs important? They led to an agreement in January 2020 where the PRC conned Trump into signing, praising, and sticking to a deal Beijing never had any intent to fulfill. Trade effects? The tariffs haven’t been touched by President Biden. In 2022, goods and services imports from China broke the record set in 2018, under Trump. The 2022 deficit was the second-largest ever, after Trump’s 2018.

The Biden administration’s best candidate for a China economic action that might matter is the October 2022 interim rule limiting semiconductor exports. This came, however, with exemptions for three large companies (at least). The rule is not final and Secretary Raimondo last week declined to say whether licenses would be extended. If they are, the rule will be useless, with chips simply routed through exempted companies.

Semiconductors are also involved in the most vital issue: supply chains. If more chips are made here but rely on Chinese materials or packaging, they leave the US even more vulnerable. The political mistake is confusing any production and jobs with resilient production and jobs. Chip-makers encourage this mistake by stressing how much they need China. In fact, they’re a few years from being pushed out by a flood of Chinese chips.

Intellectual property (IP) may be the worst American failure. We loudly complain about huge losses due to Chinese IP coercion and theft but have never even identified the firms using the IP, much less punished them. The New York Times recently portrayed some recent Chinese cyber activity as looking like war preparation. The administration focuses on communication—does China need to be told we don’t want our infrastructure destroyed?

That the US is being provocative is Beijing’s line. It’s picked up here by those who don’t understand how minor American actions are, or don’t want to. Congress just had the opportunity to take serious measures and didn’t. The administration falls over itself trying to be unthreatening. On the other side is a dictator for life who has repeatedly targeted his own people. But the US should reduce the tension. This isn’t competition, it’s farce.