Walter Lohman On Taiwan: You can be a China-hawk and also a believer in economic freedom

Mon, Sep 09, 2019 - Page 6

There is a dominant train of thought in Washington policy circles — perhaps even a consensus now — that the US is engaged in a great power competition with China. It is explicitly stated in the Trump administration’s strategy documents. It is bi-partisan. And it is well-reflected in a frenzy of China-focused legislative proposals over the last couple years — some of which are actually good ideas.

Indeed, the US and China do have fundamental disagreements about the shape of the international order, and several diametrically conflicting regional interests — most notably over the future of Taiwan, but also the South China Sea, East China Sea, the Mekong and other areas.

Taken as a whole, very clearly, the Chinese are pursuing a hegemony in the Western Pacific that the US cannot and will not abide.

What’s more, the rivalry is compounded by opposing founding philosophies involving the relationship between man and the state/party. For this reason, Americans and their government are always going to have something to say about the rights of the Chinese people. This extends, then, the tension to areas like Tibet, Xinjiang, and Hong Kong. It makes religious liberty an issue.

The US must challenge Beijing across the full range of these interests and values. Not only this, but the US must marshal and deploy its resources across domains — diplomatic, information, and military — to best position it to do so.

Those who believe this we can fairly call “China hawks.”

However, one domain often listed among these three, “economic,” doesn’t belong. It doesn’t fit because in the American system, economy is not a function of government. It belongs to individuals making investment decisions and trading with one another, within borders and beyond them. It involves risk which these persons willingly take for gains they are entitled to for their trouble.

When the government interferes in these decisions, it compromises the virtue of the free market and arbitrarily distorts its outcomes to deleterious, often unintended effect.

Let’s look at a few examples:

1) The US government today is aggressively pursuing a trade offensive against China. The expressed objective is variable. It is one of the following: Curbing the theft of intellectual property, a geopolitically-motivated decoupling of the US and Chinese economies, correcting the budget deficit, or increasing federal revenues.

The first, protecting intellectual property rights, is a laudable cause with a policy approach that is failing. After two years, there is still no agreement to stem China’s abuse.

The second, decoupling, is not possible. Note the latest report by Rhodium that American investment in China is actually up this year. Perhaps this is behind President Trump’s misguided demand that American companies disinvest. It’s like wage and price controls. Once the government starts trying to dictate economic outcomes, the effort assumes its own freedom-sapping logic.

The third, the budget deficit, is principally attributable to structural problems in America’s own economy and should otherwise not be a cause for concern.

The final, raising money for the government, is actually working. But, like anytime taxes are raised, money is being taken out of the pockets of Americans who could better spend it on their own. Not incidentally, it is also provoking retaliation that is hitting certain sectors harder than others, and in fact, pushing farmers onto the dole.

2) The BUILD Act signed into law in just last year combines government business support and financing services into one new wholly-owned government corporation, the IDFC. Most notably, the act doubles to US$60 billion the liability available for government loans, guarantees, and investment insurance, and permits the government to take minority equity positions alongside private investors. The purpose is to leverage the American private sector into places of strategic importance that would not otherwise attract investment.

This is like “mom and apple pie” to American geopoliticians. There is virtually no dissent among them. Yet, nowhere in the statute is the word “China” even mentioned. Moreover, the BUILD Act’s biggest selling point is that it costs nothing because it does not spend money; it just incurs liabilities. This is dubious. If the purpose of the BUILD Act is to compete with China, the IDFC is going to have to compete in riskier places. It’s very likely, therefore, that it’s either going to throw good dollars after bad yuan or just add gravy to company bids in areas of little strategic importance. This, in a world full of private credit options.

3) The third example, action taken against leading Chinese tech companies like Huawei (華為) and ZTE (中興), is more complicated. The US government is absolutely right to ban genuine security threats from its procurement processes. It is right to prevent these same companies from participating in the buildout of the nation’s 5G network, as well, if it has good reason to suspect a serious threat to its communications network. And it is right, for security reasons, to control American exports to these same companies. That’s what export controls are all about.

It has to be kept in mind, however, that these moves all come at a cost to Americans — in the availability of market-enabling telecommunications technology and in domestic economic impact. The US should stay open to the possibility of a compromise that can fully address security concerns while minimizing consequences for American businesses and consumers. Technology changes. US policy should be prepared to change with it.

Look, there is no question that China and the US are competitors. Any doubt about this should have been resolved many years ago. However, when the Administration and Congress bring economics into the strategic competition, they tread on ground that should be left to individuals. Those who think the US must restructure its own economy by government fiat because that’s what the Chinese do should have the courage of their convictions. The contradictions inherent in “market socialism” will condemn China to chronic underperformance, unless and until it resumes reform. In the meantime, the US can push back — much harder than in the past — in the specific areas where its interests and values are implicated. We don’t need to jeopardize our own economic freedom to do that.

Walter Lohman is director of the Heritage Foundation’s Asian Studies Center.