Initially, policy makers and researchers surmised that the rivalry between an economically rising China and an apprehensive United States might lead to China’s growth surpassing or seriously threatening the U.S. economic supremacy. The British writer Martin Jacques depicted this possibility in his meticulously documented When China Rules the World, laying out the possibility of an alternative hegemony based on an unencumbered economic ascent. China scholar Gordon Chang took the opposing view that China’s economic prowess was built on a house of cards, anticipating a debacle in his The Coming Collapse of China. The reality lies somewhere between the two extremes and reveals a perceptible change in the political culture of one of the two contenders.
In the past few years, China’s unassailable economic growth and underlying productive capacity have seen many significant challenges. The Chinese powerhouse has begun to sputter and show signs of weakness. The Economist reports its economy growing at 3.2 percent in the second quarter of 2023 (“Why China’s Economy Won’t Be Fixed,” August 24, 2023). Housing prices, consumer spending, business investment, and exports have all fallen following China’s poorly managed response to the COVID pandemic. Moreover, economic policy has led to mounting public and private debt. Driven by politics instead of economics, industrial policy has led to bridges to nowhere and useless high-speed rail projects, resulting in higher debt and massive waste. Especially disturbing, China’s youth unemployment rate has seemingly skyrocketed to about 20 percent, a phenomenon mainly viewed in the Western media as affecting recent college graduates (ChinaFile, “Why Are China’s Job Numbers So Bad?” August 23, 2023).
Given the stalling Chinese economy and its increasing issues, one would assume that the ascendancy of Chinese hegemony might recede somewhat in the minds of American policy makers as well as prompt reflection and analysis of its causes. However, such reflection seems to have taken a back seat to domestic politics.
China’s economic difficulties, many attributable to mercantilist industrial policy, stem from a retrenchment against the use of market mechanisms to make economic resource allocations. It seems that China’s concomitant errors in economic policy could open a space for discussion of greater economic freedom and the need to allow individuals and markets to set decision-making priorities. This is a discussion that could take place on both sides of the Pacific.
Instead, the initial growth of China’s economic power has had the opposite effect on U.S. policy circles. As Eric Boehm of Reason magazine puts it, “Panic over China’s rapid economic growth has fueled all manner of big-government proposals in recent years. That includes calls for amping up industrial policy and infrastructure spending.” He continued to state “the specter of China shows up in debates over whether the federal government should regulate online speech, should subsidize American drug manufacture, should control how Americans invest” (“China’s Industrial Policy is Failing, Will American Politicians Take Notice?” August 21, 2023.)
Ironically, as these types of economic policies are adversely affecting China’s economy, American politicians are calling for their adoption asFormer U.S. President Donald Trump and one of his chief economic advisors, Peter Navarro, have continually praised the use of tariffs to hamper China’s growth. Trump’s chief Republican rival, Florida Governor Rick DeSantis, has parroted the same protectionist sentiments. Similarly, Florida Senator Marco Rubio “now voices disgust for Wall Street and financialism, upbraids Jamie Dimon of JP Morgan Chase for supporting Black Lives Matter, and zings Ray Dalio of Bridgewater Capital for boosting investment in China” (Lloyd Green, “Decades of Decadence Review: Marco Rubio Joins Publishings Motley Republican Crew,” The Guardian, June 18, 2023). President Biden, a Democrat, also seems committed to preventing China from “eating our lunch,” a phrase he uses frequently when discussing U.S.-China economic relations and promoting his own industrial policy.
The history of China’s economic development clearly demonstrates that free markets and free trade enormously increase wealth and improve human well-being. Conversely, protectionism and economic interventionism dictated by political imperatives raise costs and ultimately decrease wealth. The latter is a form of cutting off one’s nose to spite one’s face. China’s current reverses arguably make the case that what is needed is more economic freedom, not less. That American political circles, once committed to spreading freer markets and trade, are now coalescing around the opposite pole is disturbing.
Increased industrial policy and protectionism have hampered China’s economic progress in the last few years, and adoption of similar policies by U.S. policy makers bodes ill for America’s economic future. “What protection teaches us,” wrote the nineteenth-century American economist Henry George (1886), “is to do to ourselves in time of peace what enemies seek to do to us in time of war” (Protection or Free Trade). It is ironic in the extreme to use the very policies hindering an apparent rival as prescribed medicine for what ails us.