China, Leverage, and Values

https://stratechery.com/2019/china-leverage-and-values/

by chaostheory • 7 years ago

127 98 7 years ago

Leary• 7 years ago

The fundamental questions that America needs to answer are:

What are the aspects of the current economic relationship with China that are beneficial to the US, and what are the aspects that are harmful.

What policies should it adopt to manage its relationships with China while maintaining its values. Whether it should act unilaterally to achieve those objectives, or coordinate with its allies.

What are the near-term and long-term consequences of Cooperating with China vs. Competing with China in a new cold war, considering China's power will likely rise in comparison with the US's.

remarkEon2• 7 years ago

The awkward elephant in the room here is that China appears to be much more able than the US, at least right now, to rapidly pivot and turn a near-term weakness into a strength. There's plenty of evidence of this (their rapid transition to nuclear, rapid deployment of high speed rail, how they've generally been able to modernize their economy on a short timeline). Your questions are good ones, but I don't think we're asking the most important one: is the age of "free market" capitalism coming to a close with the rise of China (broadly defined as the more free and democratic your country is the more rapid your growth will be), and is the real competition we're entering into a conflict between a "free" and "quasi-authoritarian" vision of capitalism?

ineedasername4• 7 years ago

Good points, as long as you consider that ability to pivot is more a matter of political will than technical capability.

Spooky23• 7 years ago

The US has been retreating from the free market for many years. 25% of GDP is healthcare, insurance and education.

Key drivers of the economy, like housing, exist in their present form to due explicit and implicit subsidy. I think China is more like the US then we care to admit, except they think on a longer timescale.

ineedasername4• 7 years ago

I look at some of these questions from a game theory oint of view though, and China has shown itself something of a very regular 'defector'. In these recent moves the US has embraced more of a tit-for-tat strategy. And we're not the only players. Some other countries are to some degree going to follow suit with the US, making this a multiplayer game, in which tit-for-net has a larger upside for the cooperators than the sole defector. Of course this over simplifies things, but it's incorrect to say China's power will significantly rise relative to the US if the US and other countries begin treating with them as an "always defect" actor in this game.

ajross4• 7 years ago

If you want to throw geek jargon around, drop the "game theory" lens and start re-evaluating your "zero sum" assumptions.

A world where we buy endless cheap junk from China and ship cash out of the country to pay for it is far richer one for everyone[1] than one in which we need to make all the junk at our labor rates. Why? Because all that cash is coming right back into the country as investments.

It's like shopping at a store which decides the best use of their income is to lend it right back to you so you can buy more stuff.

[1] Especially the chinese, of course, who have lifted their nation out of abject poverty in barely over half a century. But we win here too relative to the isolationist scenario.

_bxg17• 7 years ago

A more interesting tactic would be to make economic sanctions dependent on values-based policies. Stop censoring certain kinds of speech, and we'll lower tariffs a bit. Stop persecuting Uighurs, and Huawei can have Android back. Strongarm the communist party into being less evil, instead of bluntly attacking China as a whole. I think most of China's people would pressure its government to agree to those kinds of deals. It's really just those at the top who are doing all the bad stuff. The rest are just excited about their newfound prosperity and want to hang on to it.

selimthegrim• 7 years ago

Why didn’t this work with Carter?

classicsnoot5• 7 years ago

Your use of the term "evil" says a lot about the warped Western perspective. Without diving too deeply into pedantry, it is the West that claims the cognitively dissonant idea that religiosity is subject to the State while also demanding the State act religiosly (just wars, responsibility to protect, etc.). For all the pseudo-commie bluster, China is a Han ethnostate. Lies that benefit the State are just. Brutality that protects the State is just. China has decided that a Muslim population in its borders requires brutality, and this rubs westerners wrong. China has decided that mass surveillance should be open and accepted, and this rubs westerners wrong. But the West is very comfortable with destabilizing Ghadaffi and instigating regional chaos, which was and continues to be incredibly brutal. The West appears to be quite comfortable with mass surveillance so long as nudes abound, food arrives at our doorsteps, and ideologies we collectively find icky are suppressed.

Moralising is a habit of those who lack the strength and/or will to get what they desire through other means. The West dethroned its warriors and elevated its priests; China is dethroning its priests and raising up its warriors. Time will tell which class of leader shall overcome, but history is pretty clear about what kind of societies rise or fall.

fallingfrog• 7 years ago

I don’t disagree, but sadly our current government acts in a purely self-interested way- or in the interests of our ruling class anyhow- and any talk of doing what’s right by any administration in living memory has been insincere. But ideally I see what you’re saying.

throwwayhhgbnhd5• 7 years ago

Would a loophole be China labeling them as “enemy combatants” and then drone striking them? [1]

In 2014, former CIA and NSA director Michael Hayden said in a public debate, “We kill people based on metadata.”
According to multiple reports and leaks, death-by-metadata could be triggered, without even knowing the target’s name, if too many derogatory checks appear on their profile. “Armed military aged males” exhibiting suspicious behavior in the wrong place can become targets, as can someone “seen to be giving out orders.” Such mathematics-based assassinations have come to be known as “signature strikes.”

1. https://www.rollingstone.com/politics/politics-features/how-...

educationdata2• 7 years ago

This is more an outsider's imagination. The communist party will never make this kind of deal with you. Bringing this kind of topic to the table will immediately make them walk away.

Right now the US administration is limiting the trade talk within trade talk, avoiding politics. However, if the trade talk really falls apart, I have no doubt the conflict will escalate and politics will be openly involved.

anthuman3• 7 years ago

You can't sanction major economies without hurting yourself. It's why sanctions are used on nations with weak economies. Systematically important economies like the US, EU, China, Japan, etc are "unsanctionable".

Sanctioning china for "values" is as absurd as china sanctioning the US for "values". How would everyone react to china sanctioning the US or Europe for invading much of the middle east and north africa. Everyone would laugh.

Also, sanctions are acts of war at best and war crimes at worst. Economic sanctions exist to starve and hurt the population to punish the government. By any objective measure, it is a war crime and crime against humanity. "Luckily", rules and laws don't apply those with the greatest weapons.

Also, I highly doubt most of china's people would side with the US against their own government. No more than we'd side with China over the US government. That's not how people work. Especially if foreign government are attacking your own government.

Either we go to war with them or we decide to live with them. China has 1.4 billion people. The idea that we'd pressure them to act a certain way is ludicrous. More than anything, it'd probably have the opposite effect.

youeseh• 7 years ago

Is there a resource where we can check the current state of tariffs between the US and China? Which tariffs are currently in effect? Which tariffs are on their way? Whats their status? etc.

dba7dba• 7 years ago

IMHO, tariffs is meaningless when it comes to trading with China. China govt should simply stop requiring foreign firms to partner up with local firms and/or placing arbitrary restrictions on imported products. Sure many nations do it, but China is an extreme case.

Edit: I got downvoted but what part of my statement about China incorrect?

internet_user• 7 years ago

That tariffs are meaningless. If they are so meaningless, maybe full-blown sanctions should be applied.

throwwayhhgbnhd5• 7 years ago

You can set up a Wholly Foreign Owned Enterprise in China so no local partners are needed.

It’s what Tesla has done.

nycdatasci• 7 years ago

Law firm websites like this are the most reliable source that I’ve found: https://www.strtrade.com/f-tariff-actions-resources.html

Invictus0• 7 years ago

I see China moving to appease the Americans in the short term and then working to secure their economic independence in the long term. The truth is that the Chinese know that they have overplayed their hand here; that Trump can raise tariffs all day long and it is foolish to race to the bottom with him. By making the requisite concessions in the trade war, which, as Ben noted, has historically been tilted to their favor, they will be able to steady their economy as they continue to build up their advanced technology infrastructure.

SubiculumCode• 7 years ago

If the China tariffs last too long, it seems logical that supply chains will move outside of China. This might be ok for China, which is purportedly looking to pivot to a consumer based economy, but it might not be on their chosen timeline.

hyeonwho4• 7 years ago

Disposable income of the Chinese consumer is almost all locked up in housing.

mistermann2• 7 years ago

I have this constant feeling that life on Planet Earth circa year 2000 or so onwards is playing out kind of like a bizarre imitation of the old movie Lord of the Flies. To me, it feels like everyone is absolutely batshit insane. Everyone (well, mostly) is so sure of themselves, so sure of what is right and wrong. As if life is so simple.

It seems to me that the rate of scientific progress has vastly outpaced that of the humanities (or, whatever is the appropriate "balancing" field to science) for so long that humans have become a danger to ourselves, for a very long time now, on several different fronts. We are simply not mature and responsible enough to be wielding this much power, yet here we are. And there's very little reason to feel very optimistic, that I see anyways.

https://en.wikipedia.org/wiki/Lord_of_the_Flies

solveit• 7 years ago

or, whatever is the appropriate "balancing" field to science

My opinion is that there is no such field, that there never has been such a field, and that we are therefore screwed.

hurrdurr22• 7 years ago

This is my feeling as well. Good to know I'm not alone in this... however, it's still limited comfort since we're all probably screwed, as someone else had already pointed out.

tasuki• 7 years ago

I have this constant feeling that life on Planet Earth circa year 2000 or so onwards is playing out kind of like a bizarre imitation of the old movie Lord of the Flies. To me, it feels like everyone is absolutely batshit insane. Everyone (well, mostly) is so sure of themselves, so sure of what is right and wrong. As if life is so simple.

Apart from scientific progress, what has changed? Humans gonna human.

stevens32• 7 years ago

Our values are so far skewed towards progress that actually directing that progress to be beneficial to all is almost an afterthought (or, work that most people aren't really allowed to contribute to). People also aren't rewarded for what they _didn't_ do, and as long as nothing changes we'll continue to motivate people to build with more or less reckless abandon wrt social impact. Investigating correct usage of power isn't immediately profitable, and in a capitalist reward system it's hard to see how that work would get prioritized to the same level as simply increasing power.

I'd never thought of this balancing of progress perspective, thanks for such a thought provoking comment!

iliketosleep• 7 years ago

The author is correct in saying that China fired the first shots in the trade war with effectively shutting out major US companies with its protectionism, while China's expansion into the US went on unrestrained. If this process continued on unchecked, China would definitely replace the US as the world power. China is an authoritarian state, with core values that are at odds with the US. Therefore, the stakes could not be higher, and now could very well be the last time that the US has enough leverage over China to actually come out on top.

avocado4• 7 years ago

China is going to have 450 million sick old people in 10 years. I don't think their domination was ever inevitable.

dragonsh• 7 years ago

Don't worry China won't be alone soon India will be in the same rank for authoritarian rule where everything will be monitored and dissent will be termed anti-national with secession laws applied and people jailed. This is the path India's current administration which might come back again, learned from China and using British methodology of divide and rule (dividing India along religious lines by letting people know where the cabinet is going for holy bath or pilgrimage).

Fjolsvith8• 7 years ago

And hungry people, with the pork famine on the way. They're going to have to play ball if they want to be able to feed their people soon.

anovikov• 7 years ago

Chinese environmental and demographic problems are a ticking bomb. I doubt they will be in anywhere like better position than now 10 years down the road.

For all the insane crap happening in the U.S., it has healthiest demography among all (large that is, not counting say Israel) developed countries.

mrpopo• 7 years ago

For all the insane crap happening in the U.S., it has healthiest demography among all (large that is, not counting say Israel) developed countries.

Granted, it's better than in China, yes. But life expectancy is declining in the U.S. And France has a healthy demography and a stable population.

throwaway342414• 7 years ago

I agree with the article that the US can damage China's economy for several years by restricting components (but that it also will eventually be able to domestically produce the components required). I also agree with the article that doing so would hurt the US companies that produce the components that China no longer could buy.

What I don't get, is what specifically will be achieved by doing this? How is the US coming out "on top"? I get that China has different values than the US, but I don't understand how restricting components fixes that.

ardy422• 7 years ago

What I don't get, is what specifically will be achieved by doing this? How is the US coming out "on top"? I get that China has different values than the US, but I don't understand how restricting components fixes that.

I'm just speculating, but it could perhaps hurt the desirability of their advanced exports on the world market, and create space for other countries to fill the void. One of China's current political advantages is that it's the current "workshop of the world," and if that's reduced they may end up being less influential.

It's unlikely to affect the domestic political situation there, but that may be a lost cause for this generation.

chewz• 7 years ago

It is not just about chips. This is probably the golden opportunity for the US to cripple China's export and push China into longer cycle recession which is long overdue anyway. That would cripple Chinese economy for next 20-40 years, give way for social problems and give the US and the rest some breathing space.

The other scenario is that Trade War will lead to real war (possibly by proxy). The situation is quite similar to pre WWI with China being in a role of Imperial Germany with fast growing economy, teritorial demands and unstable ruler. That war could also stimulate the US economy.

These are pretty dim scenarios but surely someone in Washington is thinking in terms or real-politik. In Bejing they do.

Fjolsvith8• 7 years ago

What I don't get, is what specifically will be achieved by doing this?

Its all in the Art of the Deal. You should read it.

TLDR: They are negotiating points that Trump is using to advance the US position in the trade talks.

throwwayhhgbnhd5• 7 years ago

The author is only right if that’s where we start the timeline.

We can say the entire West started it during the Opium Wars, and China is merely trying to get back what it once had.

jazzyjackson• 7 years ago

The US being flooded with Chinese Fentanyl has always seemed like an echo to me, if not specifically engineered to be vengeful.

Barrin922• 7 years ago

while China's expansion into the US went on unrestrained. If this process continued on unchecked, China would definitely replace the US as the world power.

pretty much any projection, from consevative to optimistic implies that China will replace / supplement the United States on a 'several decades+' timeframe, so the aggressive stance taken by the US on a election cycle basis strikes me as unwise. At the end of the century Asia will be the center of the world.

This is one advantage that China always had over the US, politicians in the country are able to think in 40 instead of 4 year intervals. And given that broadened context, poking the bear now simply to delay their capabilities by a few years seems like not such a good idea.

adventured• 7 years ago

China isn't thinking 40 years out. That's the greatest myth running about China's authoritarian system. There are few governments more obsessed with day to day sentiment and short-term thinking. That's why they have to control their people so tightly and they constantly watch everything going on socially for the slightest aberration. Everything about China is at risk of implosion at all times, that's why the authorities there behave as they do (from social credit, to wiping out other cultures, to aggressively limiting social variance, to extreme debt binging, to fear of basic human rights and expression, to perpetual economic stimulus, to their hyper universal surveillence).

China talks long-term, that's it. The USSR used to talk long-term in their propaganda too, it was a fraud. Watch their actions instead. There is a mountain of evidence that they aren't actually acting long-term. See: their taking on the greatest-fastest pile of debt in world history over the last 10-15 years. They did that to satisfy extremely short-term thinking about social instability. There can be no greater example of short-term thinking for such a system, than to trade extreme debt to fake faster growth for a bit longer, rather than plotting longer term in a financially healthy manner and accepting slower growth.

In terms of being unwise. The US doesn't need foreign countries, including on trade, nearly to the extent that China desperately needs foreign trade. When ranked globally, the US is among the least trade dependent major nations, and that provides an enormous bargaining position. China derives roughly 10x the growth impulse from each dollar of US economic growth, as compared to what the US derives from China.

It is in fact wise for the US to confront China right now, precisely because the US does not need China. There are dozens of countries that net can replace much of the manufacturing that China handles for the US today. China knows this, it's why they've responded very carefully to US tariffs, they recognize there is a vast imbalance.

China is in a precarious position today. They have all the debt of the US, with barely any social safety net (which will make their debt, tax and budget situation far worse), bad demographics, twin deficits (trade and budget), a smaller economy that is extremely rigid and one that is prone to frequent wrecks that must be constantly corrected by the central government with large stimulus programs. The system is clearly not working very well. There's zero proof thus far that Xi's new, highly regressive system will continue on the path of long-term economic expansion and success, now that Deng's system is formally dead. They may very well crash into a wall of stagnation under the new anti-Deng, anti-liberalization approach. It'll take many years yet to find out either way. I happen to not believe the new Xi system is compatible with furthering the success that the old system produced.

42yeah• 7 years ago

IMHO why can't both take one step back? Forbidding technologies flow leads to different standards in different countries. China forbode Google, Twitter, etc from rooting in China years ago, so China developed a totally different ecosystem than the rest of the world (basically) to take their place: baidu as search engine, QQ as IM, weibo as social media. This made Chinese hard to take a peek to the outside world, while the outside world also has a hard time peeking in. And now US is doing pretty much the same. Just when Chinese companies are trying to develop overseas business, US bans them. And as people from US and China cannot communicate, hatred grows and lotsa Chinese are now volunteering to ban foreign products. This is truly meaningless.

radicaldreamer• 7 years ago

The whole point of the West's policies is to increase competition at the low end of the labor market (manual, commodity, factory) while maintaining protectionism at the high end (intellectual property, media, culture, and technology), which is not coincidentally where elites are concentrated. The idea is to keep the price of labor as low as possible (to maximize profit for the owners of enterprises).

mistermann2• 7 years ago

Are you sure that's the whole point? Undisputed superpower of the world isn't exactly a minor detail, I'm pretty sure China has that at least in the back of their minds.

Fjolsvith8• 7 years ago

How does the West's policies increase competition at the low end of the labor market? By your argument, the West is harming itself by cutting off access to cheap Chinese labor.

AFascistWorld• 7 years ago

You mean like the past 2 decades?

panarky2• 7 years ago

Blocked in China:

Twitter, Google, YouTube, Github, The New York Times, Facebook, Instagram, Whatsapp, Bloomberg, Tumblr, Signal, Reddit, Netflix, Le Monde, Wikipedia, Reuters, Dropbox, Bing, Discord, etc., etc., etc.

Who started this trade war after all?

eo3x0• 7 years ago

This doesn’t include the fact that all foreign enterprises in China are actually 51% owned domestically. Tariffs, while severe, are no where close to this extreme protectionism.

The US finally decided to bring a knife to a gun fight.

throwwayhhgbnhd5• 7 years ago

That’s not true. Tesla in China is a Wholly Foreign-Owned Enterprise.

dis-sys2• 7 years ago

what are Apple/Microsoft's domestic partners in China?

note that, not talking about Apple's data center partner or Microsoft's cloud partner, just talking about Apple/Microsoft's core business (iphone, mbp, windows, office etc) here.

throwaway342414• 7 years ago

Does China gain an advantage, by not using / having access to the same services that the whole rest of the world uses?

If they're gaining an advantage that's one thing. I don't want to just take that assumption for granted though. If China is actually harming themselves, I think it might not make sense for the US to copy them because "they did it first".

ardy422• 7 years ago

Does China gain an advantage, by not using / having access to the same services that the whole rest of the world uses?

This is how they gain advantage from that: they develop their own domestic services that their government has total control over. Eventually those services may become good enough to become competitive exports.

dis-sys2• 7 years ago

Does China gain an advantage, by not using / having access to the same services that the whole rest of the world uses?

Of course. Back 15 years ago, no one was developing any serious systems in China, US companies obviously refused to take any real tech to China from day one, what they offer was just some local sales/support jobs, on top of that, you might see a few app dev jobs which are always kept arm's length distance from the know how. By developing all those Chinese domestic services, local developers got the chance to actually working on some state of the art techs.

throwwayhhgbnhd5• 7 years ago

They are not blocked. They refuse to comply with Chinese censorship laws. There is a difference.

Not blocked in China: Microsoft, Yahoo, Apple, Tesla, Nike, Adidas, Polo, Gucci, Coach, Channel, Armani, General Motors, Ford, BMW, Mercedes, etc., etc., etc.,

panarky2• 7 years ago

They are not blocked

They are absolutely blocked (with the possible exception of Github).

refuse to comply with Chinese censorship laws

And Huawei refuses to comply with US economic sanctions laws.

Not blocked in China ...

The fact that some US companies do business in China is not evidence of anything.

It should be obvious that China denied access to their markets and severely restricted the operations of far more US companies than the US has of Chinese companies.

China's attempt to portray itself as a victim in a trade war is transparent bullshit.

yalogin• 7 years ago

This is the only Trump initiative I support. Hope he doesn’t do his usual bow down to the aristocrat routine and back down for whatever reason he sided with Putin, Saudis. This is a fight that the US must win. The only issue is Trump picked fights with the EU and they probably will use that as an excuse to not help out. The fight with China should have been done as a coalition to begin with.

China, Leverage, and Values

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