The challenge of dealing with China and Russia
Do the US and its allies have what it takes to deal with China and Russia? Nobody can answer that with any degree of certainty because it covers so many different things over a long time period. It sometimes feels like we’re in another cold war. Russia, too, is involved, but, unlike the cold war, is the junior partner to China this go around. While there are similarities today to that time, they are mostly superficial. The dynamics of today are very different from what they were from 1945-1989.
The world is a vastly different place in so many ways. Trade is much bigger, communications are much faster and technology is much more advanced in many areas. China has grown massively since the turn of the century. The Chinese economy is much bigger, more dynamic and sophisticated than the USSR economy ever was. While the USSR tended to live in its own economic world with fellow communist countries, China is heavily integrated with the world economy today. Taiwan aside, there are virtually no countries that don’t have economic interaction with China.
Russia is very different. Its economy is small and heavily dependent on oil and gas. In light of the invasion of Ukraine, Russia’s economy has been effectively kicked out of the 21st century. Virtually all businesses from developed countries have left and probably won’t be coming back any time soon, if ever. Europe used to get the bulk of its gas from Russia and now gets almost none of it. After a year of sanctions, Russia’s economy has begun to show signs of cracking.[i]
Between Russia and China, China is the vastly bigger challenge. To make a world war two analogy, China is Germany and Japan combined while Russia is Italy. Russia’s military has proven to be a complete joke. Had Ukraine been conquered quickly, I would have worried about other countries being invaded. After how badly the invasion of Ukraine has gone, I’m not worried about that at all. Russia’s military is so weak that no matter how badly Putin wants to invade anywhere else, they lack the capability to do it.
China is a different story. Its economic leverage is substantial. Unlike Russia, China seeks to have influence all over the world. Russia wants to be a regional power. China wants to be a global power. Like Russia, China has plenty of nuclear weapons and a large military.
Dealing with Putin is much more straightforward than dealing with Xi. Europe has been united in supporting Ukraine along with the US. Nobody knows how the war will end, but Ukraine has done way better than most everyone thought possible. Sanctions should stay on Russia for as long as the war is going on and Ukraine should keep getting support.
Putin is counting on the US and Europe getting tired of the war and seeking a resolution favorable to him. He has continued to pursue aggressive action against Ukraine despite many setbacks. While support for Ukraine won’t last forever, forever is doing a lot of work. Biden has been right to throw support behind Ukraine, albeit within limits. The aid the US has given Ukraine has been money well spent. It has helped to deplete the Russian military while showing the world that Putin is no brilliant mastermind.
Putin’s dream of recreating the USSR is not going to happen. His belief that Ukraine isn’t a real country and that he would be welcomed as a liberator was dead wrong. Very few people in Ukraine will ever accept being a part of Russia. By Putin’s original definition of winning, Russia will never win no matter what happens.
With China and Xi, the problem is much more complicated. Taiwan aside, China has no conquest goals. Because the Chinese economy is so big and so integrated with the world, imposing sanctions on China like what has been imposed on Russia is not going to happen. Trade with China will continue to happen no matter what. The US and its allies are weighing how to reduce their economic dependence on China without crashing global trade and investment. That is the right approach.
Whether the US and Europe, as well as other countries, can maintain unity against China is less clear than it is against Russia. Recently, Emmanuel Macron caused a bit of a spat when he visited China and seemed to suggest that Europe would take a different approach than the US. China would certainly love nothing more than to divide the US and Europe.
This piece argues that, Macron’s rhetoric notwithstanding, Europe is in fact on the same page as the US when it comes to China. The decoupling from China that the US is trying is also happening in Europe. China siding with Russia against Ukraine has certainly not helped its relationship with Europe. Beyond that, it has become obvious that China isn’t going to be a force for good. China is a dictatorship and no amount of economic integration is going to change that.
The benefits of trade have been a one-way street for the Chinese government. They have seen their economy grow and their domestic support grow with it. Rather than becoming more open and accountable, they have become even more oppressive. With the economic leverage China has gained, the suppression of dissent has now been exported abroad. Europe, like the US, recognizes that is a big problem that must be addressed.
In the last year, the US has made moves that are, implicitly and explicitly, about decoupling from China. The CHIPS Act is an effort to boost the domestic semiconductor industry. Semiconductors are largely made in Taiwan now. If China did invade there it would gain control over a large majority of the production of an item that is basically the 21st century version of oil.
The Inflation Reduction Act (IRA) is another effort to restructure the manufacturing and supply chains of certain items. In the case of the IRA, it is about items used to manufacture clean energy technologies. Lithium, for example, is used to make batteries and the US has a limited amount of it, which the IRA is trying to boost. The IRA also seeks to boost domestic car manufacturers in its promotion of electric vehicles.
Some European countries have been upset by the electric vehicle provisions of the IRA, but may wind up enacting something similar to it. I have very mixed feelings about the attempts at industrial policy that are going on here. I certainly understand the need to attempt it, albeit more for national security than economic reasons. China is not a friendly place and I don’t want the manufacturing and supply chains of essential items like semiconductors to be dependent on it. We need to decouple from China in at least some areas and market forces alone aren’t going to do that.
While industrial policy has some success stories, it is full of failures, too. To be clear, there is no official definition of industrial policy, but what I am referring to here is government support for particular industries via subsidies and/or regulations. The goal is to promote things that market forces either wouldn’t promote or would do so way too slowly. Examples of successful industrial policy efforts include Operation Warp Speed and the Space Race. Examples of industrial policy gone wrong include Wisconsin’s promotion of a Foxconn factory and the Jones Act.
Since the US, Europe and other allies are going to be doing industrial policy, like it or not, it needs to be done right. The more successful efforts have been those that had a specific goal in mind, i.e., put a man on the moon, and stuck to it. The danger the CHIPS Act is facing now is mission creep. Although well-intentioned, I believe the Biden Administration is making a mistake by adding many conditions to getting act CHIPS Act money that aren’t related to semiconductors. Time will tell how big of an impact those conditions have, but I think it’s unwise to try to achieve goals via legislation designed to achieve something else.
China has many problems
Part of having an advantage over an opponent are your strengths. Just as important though are your opponent’s weaknesses. Luckily for the US and its allies, China has many weaknesses.
Like much of the world, China’s population is aging. Last year, more people died there than were born. The Chinese government is trying to reverse that trend, but their efforts so far haven’t worked. Unlike other aging countries in Asia, such as Japan and South Korea, China has begun experiencing a large aging of the population before being able to grow as much as they did.
The problem of an aging population is made worse by the need to raise the eligibility age for government benefits. That has proven to be unpopular and has led to protests. China may be a dictatorship, but even then there are limits to what the government can do that people will tolerate. One possible solution to the demographic problem would be to allow in immigrants, but China isn’t a place that is open to that.
I have written before about the inherent problems that dictatorships have when discussing China. The particular context was the revolt against perennial lockdowns in the name of “zero COVID.” After insisting for months that lockdowns would continue indefinitely, the government abruptly ended it. That they reversed a policy so fast makes it look like they really were just winging it and had no actual plan.
Dictatorships can make decisions quickly, which can be an advantage over democracies. The problem is that only works if they’re making good decisions. In the case of China, they clearly aren’t in many areas. Their pandemic response went from “zero COVID” to letting it rip through the country overnight. If they allowed in vaccines that were more effective than theirs, that could have been avoided. Because China is a dictatorship, the government can ban all vaccines they didn’t make and nobody there will even know that they exist.
During this century, the Chinese government and Chinese companies have built entire cities that look almost empty and have built massive amounts of infrastructure that may never be used. How was all that financed? Nobody really knows. It may be a giant bubble waiting to burst. In a country with an accountable government, the sources of that money would be known and the utility of the projects would be known, too. Private businesses would be hesitant to build if they thought it made no sense. Because China has so many state-run enterprises, their incentives are vastly different from a normal for-profit business and so they’re willing to throw money at most anything.
We can’t know for sure how well China’s economy is doing. Much of the information comes from the government, which nobody should believe absent independent verification. Xi seems determined to take over the economy and has sought to control private businesses. Given the track record of economies that are run that way, it seems like a safe bet that the Chinese economy won’t do well if he is successful in that endeavor.
Because China is a dictatorship, many things there depend on the government functioning well. One of many benefits of having an economy centered around private activity is that it doesn’t depend on the government nearly as much. A government can be dysfunctional, but its impact on the economy is muted by not having control over it. The US is a great example of that. The federal, state and local governments are often dysfunctional, but the economy continues to thrive and grow despite that. In China, because the government has so much economic control, its being dysfunctional has a much greater impact.
Those are just the most obvious problems China has that I can think of. I’m no authority on China, but others are and I’m sure they could list many more problems over there. Even if there were no other problems, the ones mentioned are huge on their own. The Chinese government isn’t made up of wizards. They are mortals just like everyone else and are prone to the same errors. In a democracy, there are feedback loops that let a government known if they’re doing things wrong, i.e., elections and polls. In a dictatorship, feedback loops don’t really exist so if the government makes a bad decision, nobody is there to tell them about it.
Is the US up to the task?
A concern I have heard and read many times is that the US doesn’t have what it takes to deal with China and Russia. The idea seems to be that the US is too divided domestically to maintain a consistent and unified position for very long. Since that is the case, the reasoning goes, the US will lack the discipline and consensus needed to combat China and Russia. Because of that, China has the advantage against the US and Russia has the advantage against Ukraine.
As always, I have no idea what the future holds. Historically, betting against the US has not gone well, just ask Nazi Germany, Imperial Japan and the USSR, but nothing is set in stone. The US is heavily polarized right now and a significant minority, predominantly on the right, lives in an alternate universe. Our standards of behavior are certainly much lower than they were just a short while ago. Things that used to be unacceptable are now glossed over.
As bad as things might look, this isn’t the US’ first rodeo. In the 1950s and 1960s, the civil rights movement fought against segregation. There was violence, division, backlash and multiple high profile assassinations. That whole time, the US was countering the USSR in the cold war. Despite the fights at home, there was a consistent approach to dealing with communism.
We can walk and chew gum at the same time. We have plenty of divisions right now, but we always have. There has never been a time in US history where there weren’t any domestic divisions. During the cold war period, in addition to the civil rights movement, there was stagflation, Watergate, a surge in crime and multiple recessions. While dealing with all that, the US dealt with the USSR.
China and Russia can be dealt with now and in the future. Domestic divisions don’t and won’t prevent that. We are capable of countering China and Russia while we argue over abortion, taxes, healthcare, identity, gun control, etc. The only current domestic dispute we have that has me concerned is whether we default on our debt payments. If that happens, it will certainly have a significant negative economic impact and will strengthen China and Russia’s belief that the US is past its prime. It will also 100% be the fault of House Republicans. They are the ones who manufactured this whole situation and they are the only reason defaulting is even being discussed.
That issue aside, no other domestic matters concern me enough to think they will impact our ability to counter China and Russia. That doesn’t mean we won’t make any mistakes. We made plenty during the cold war, i.e., Vietnam. There will probably be times where we do the right thing, but only after trying everything else and other times where we act slower than we should. But we are capable of successfully countering China and Russia. We have so many strengths that they lack such as a dynamic economy, world class universities, openness to immigration, an accountable government and the freedoms that come with it.
The US approach to dealing with problems can be vexing to people here and to allies abroad. We have a political system that moves slowly by design. Almost every good law that gets passed could have and should have been passed much sooner. Still, we have successfully dealt with many problems before and there is no reason the problems of today can’t be solved. We just have our own unique style of going about doing that. As they say on The Mandalorian, this is the way.
[i] The linked to article is by Evan Gershkovich of the Wall Street Journal. It was the last article he wrote before being detained by Russia on false charges of spying.