What we think about China

This was a big topic over the past weekend, not only at the G7, but at the FTWeekend Festival in Washington, where both Ed and I spoke. My Monday newspaper column covers most of my thoughts about the evolving nature of US foreign policy towards both China and the world as articulated most recently at the G7 summit in Japan.

The headline idea is that America is trying to move away from a “decoupling” stance and towards “de-risking”, which is primarily about targeting economic chokepoints and concentrations of power wherever they lie, be it in nation states or in the private sector. I think this is a very smart strategy, because it takes the temperature down on US-China relations, while still addressing the core issue of economic coercion made possible by monopoly power, be it in chips, gas, digital data, raw materials or manufacturing capacity.

That’s not to say that the US and China are resetting to any semblance of normal. But as Kevin Rudd, the former prime minister of Australia, now the country’s ambassador to the US, put it during a panel with me at the FTWeekend Festival, if we can get past the Taiwan issue, we can start to let the process of economic de-risking play out as it will, and “let the best system [meaning political economy] win — and I think I know what that will be”. Translation: he likes America’s chances in the post-neoliberal world, barring any hot war in the South China Sea.

That’s a big if, of course. It’s been quite interesting to me that in recent weeks, even after US Treasury Secretary Janet Yellen and national security adviser Jake Sullivan gave speeches that could be viewed as conciliatory towards China (given that they explicitly rejected decoupling), Beijing has actually taken an ever more hawkish stance towards the west, in particular passing tougher espionage rules which will have the effect of making it very difficult for any foreign business to pass information in digital form across borders. This is strange to me. The Chinese claim that the US wants to “curb” them, and yet, when Washington extends a hand, President Xi Jinping’s camp takes an even harder line against the western business they supposedly want more of. Hmm.

This goes to a central point that was also covered in the panel I sat on with Rudd, former chief National Security Council and National Economic Council adviser Jennifer Harris, and the FT’s US managing editor Peter Spiegel. While the US is often blamed for China baiting and creating the economic environment (via tariffs and export bans) that has led to the economic and geopolitical frictions between the two countries, it was actually Beijing that first used the term decoupling, or the Chinese equivalent, in the Made in China 2025 plan, which was issued in 2015, well before the administration of Donald Trump.

The plan explicitly called for decoupling from western technology in multiple sectors, as China strove to build its own regional and global supply chains. We need to remember this, because once the Chinese state a policy like this, they never vectorially veer from it. Which is why I’m all for more industrial capacity in the US, and for the policies that help create it, such as the Chips Act. As one of the characters in the book Chip War, whose author Chris Miller I interviewed at the festival, puts it, “real men have fabs”.

Real men, and women, also know when to pivot. Ed, I had the good fortune to catch most of your big-stage interview with Hillary Clinton at the festival — well done on that. One thing I was surprised by is the sense that she hasn’t moved an inch in terms of thinking about the economic ramifications of neoliberal policy towards China (the well-documented China shock), or the political fallout of it (I’d count Trump’s victory over Clinton as part of that, given his ability to exploit the very real and legitimate felt experience of industrial hollowing out by Clintonian trade policy in various swing states). She basically said that she thought that letting China into the World Trade Organization was a good thing, with no caveats or qualifications. She still seemed angry, and more importantly, baffled by Trump the man, and didn’t really take on what Democrats can and should learn from his victory (something that MIT economist Daron Acemoglu had wise thoughts about in my Lunch with the FT with him which was published this past weekend).

Ed, am I missing something about Hillary? Has she learned anything from the fact that China didn’t get freer as it got richer? Does she understand that neoliberal Democrat failure to acknowledge and address the impact of extreme trade liberalisation on the US working class is part of the reason that we got Trump? Beyond that, what did you learn from your interview with her, and what was the big thing you took away from the FTWeekend Festival?

Recommended reading

• The New York Times’ magazine is not something that I’m typically wowed by, but I really loved the recent feature on whether the wishes of older people suffering from dementia should be honoured after they are clearly ill, even if they contradict the wishes they put forward when they were well. It’s a fascinating look into how one family that struggled with these questions, as the matriarch slowly lost her cognitive capacities, even as her ability to love and her wish to be seen as an autonomous individual remained. It’s a complicated and deep look into what it means to be a person, and what constitutes happiness.

• I’ve just started reading the novel Trust, by Hernan Diaz, which just won the Pulitzer Prize, and I can’t put it down — an amazing, page turning exploration of money, class and power in America, and what it all adds up to in the end.

• I thought the NYT did a great job graphically outlining the new legal, and illegal, paths to migration in the US.

• And in the FT, definitely check out my lunch with Daron Acemoglu — his book Power and Process (co-written with Simon Johnson) is worth a close read, and this is a cheat sheet.

Edward Luce responds

Rana, the FTWeekend Festival did indeed supply a lot of food for thought. I’ve interviewed Hillary before about the 2016 election, and of course she has written about it extensively. She blames a mixture of her own campaign’s inadequacies (failure to focus enough on the Midwest being a prime example, and her own gaffe on “deplorables”), Russian interference, the decision by the FBI’s James Comey to reopen the email investigation 10 days before the election, and the quirks of the electoral college. She did, after all, win the popular vote by 3m.

So I’m not sure what to say when you ask whether she understands whether neoliberalism led to Trump’s election. There are many assumptions in your question that I do not share. Democrats, including Obama’s administration and Bill Clinton’s, tried repeatedly to pass bills strengthening the public safety net, broadening healthcare (starting with the ill-fated “Hillarycare”, you will recall), and better training and investment to help the deindustrialised Midwest. It was Republicans who blocked this and Republicans who exploded the deficits with successive tax cuts that disproportionately benefited the wealthy. Neither party was in a position to prevent the move to automation that is the cause of the overwhelming majority of industrial jobs that have been lost in the US and elsewhere — as has been found by repeated and detailed empirical studies.

Not everything can be reduced to trade. My fear is that this repeated misdiagnosis of what has happened to the US economy will lead to the wrong medicine. You mentioned Kevin Rudd. He, like Australians of most political stripes, is no fan of America’s switch to “post neoliberalism”. My guess is he would share my view that it is a bad prescription.

Financial Times