President Trump’s administration and other leaders have begun to formulate a four-part strategy to fight back. The first step is to actively block Chinese penetration of key industrial sectors in the West. That’s what preventing China’s leading telecommunications company, Huawei, from building elements of Western countries’ 5G networks is about. The second step is to apply more leverage to force China to cease the industrial piracy and public subsidization of Chinese firms that unfairly tip the trading scales against Western companies. Each step makes some businesses uncomfortable, but these elements of American counter-strategy have significant and increasing support at home and abroad.
The next steps are much more controversial. China uses trade with Western nations to finance its mercantilist policies. Reducing the level of that trade through tariffs and other measures causes short-term pain to firms in the United States and other countries that sell to Chinese markets. These businesses predictably complain and pressure their governments to overlook China’s long-term plans. They are supported intellectually by free-market fundamentalists who themselves often underplay or overlook Chinese subversion of free markets. Many in this camp never see a tariff they like and almost always view Chinese subsidies of exports as a gift to American and Western consumers, overlooking the role those subsidies play in undermining the ability of Western firms to produce crucial goods on their own.
Things only get more contentious from there, particularly regarding industrial policy. It’s clear now that the United States will have to actively intervene in markets to enhance or maintain its capacity to produce goods in militarily sensitive areas. This is the open objective of Sen. Marco Rubio (R-Fla.), who has been widely criticized by free-market aficionados. They will also inevitably attack the Trump administration’s plan to promote a U.S. competitor to Huawei.
A new bill from Sen. Tom Cotton (R-Ark.) to incentivize domestic production of semiconductor chips is just the latest flash point in this titanic struggle. The legislation, called the American Foundries Act, appropriates $25 billion to subsidize and incentivize domestic manufacture of semiconductor manufacturing plants and other production and research facilities that will work toward keeping U.S. dominance in militarily important microelectronic technologies and ensuring sufficient capacity to produce goods reliant on those technologies in case of war. The bill is co-sponsored by Senate Minority Leader Charles E. Schumer (D-N.Y.) and four other liberal senators — along with Rubio and fellow conservative reformer Sen. Josh Hawley (R-Mo.), among others.
Cotton’s bill thus crosses the fundamentalists’ Rubicon by directly employing federal funds in support of certain firms and tilting the playing field away from the goal of market efficiency. Rubio has described this strategy as one of building national resiliency, and it has applications well beyond semiconductors.
Cotton and Rubio are right. If we are serious about containing China’s threat, we must actively develop the industrial capacity and superiority that the United States had when it successfully contained the Soviet Union. This might make the nation somewhat poorer as more expensive, domestically produced goods redistribute wealth away from suburban consumers toward working-class producers, but it will make the United States infinitely richer in terms of increased security and greater national cohesion.
Free-market extremists often ignore history’s lessons about how great powers fall. Ancient Athens lost the Peloponnesian War because it lost access to its Black Sea grain supply when Spartan ships established a blockade. Britain’s blockade of imperial Germany hastened that country’s defeat in World War I. The emerging strategy to contain China seeks to prevent a similar fate from befalling the United States and the West.
Nations that cannot rely on domestic supplies of food, goods and important materials cannot win a war with a nation that controls access to those things. China is openly seeking to control that access and thus dominate the globe. The fight over legislation such as Cotton’s will thus determine whether the United States still has the will to defend itself and its ideals.