Japan’s recovery from the devastation of World War II was assisted by another war. Japanese manufacturers and the service industries around military bases received a big lift when they helped U.S. forces during the Korean War.
A little over a decade later, South Korea got a similar boost when its manufacturers helped the U.S. military during the Vietnam War.
Both countries also followed a model of state-led industrialization that the United States would probably not have tolerated a generation later during the heyday of stricter trade rules and neoliberal investment regimes. The U.S.’ need for economically strong non-communist allies in the region, during and after the Korean and Vietnam Wars, also contributed to this tolerance for the “unorthodox” economic strategies of Japan and South Korea.
The future path is clear: The state has to be involved in pushing the market toward renewable energy, whether that state is “communist” or “capitalist” or something in between.
China is already the world’s second-biggest economy. It doesn’t need a boost from the Ukraine war, but still it is getting one. Chinese exports to Russia, whose trade with many countries has been reduced by international sanctions, surged by nearly 70% in the first 11 months of last year. Chinese combustion-engine cars, which are no longer as popular in the Chinese market, have now monopolized the Russian market, and China’s factories are benefiting from the cheap energy that Russia has difficulty selling elsewhere.
Meanwhile, China continues to engage in state-led industrialization in which it chooses to subsidize winners (renewable energy) and withdraw support from losers (combustion-engine cars) in the marketplace.
The Biden administration is not happy with China’s stronger economic relationship with Russia or its economic strategy. The president recently announced additional tariffs against Chinese products, including steel and aluminum. The tariffs on Chinese electric cars will increase fourfold. In his press conference, President Joe Biden said:
For years, the Chinese government has poured state money into Chinese companies across a whole range of industries: steel and aluminum, semiconductors, electric vehicles, solar panels—the industries of the future—and even critical health equipment, like gloves and masks.
China heavily subsidized all these products, pushing Chinese companies to produce far more than the rest of the world can absorb. And then dumping the excess products onto the market at unfairly low prices, driving other manufacturers around the world out of business.
This, of course, is how many other countries managed to catch up to Western economies, by defying the economic laws of comparative advantage as well as market-determined levels of supply and demand. The United States tolerated its allies breaking the rules. It has no such patience for China.
The backlash from China to the new U.S. tariffs was predictable. According to one Chinese government official, “China opposes the unilateral imposition of tariffs which violate (World Trade Organization) rules, and will take all necessary actions to protect its legitimate rights.” It is an interesting reversal of the previous positions of the two countries, with China supporting the rules-based language of “free trade” and the United States backing the more parochial language of “protectionism.”
It is also a stark reversal for Biden himself. When former President Donald Trump announced tariffs against China five years ago, Biden called the move “short-sighted.” There were some expectations that the incoming Biden administration would lift those sanctions because they were hurting American consumers, farmers, and workers in industries hit with Chinese counter-sanctions. But the administration did little to reverse the Trump policy toward China.
Now that it’s election season again in the United States, China has become an easy political target. Trade unions support the sanctions, and Biden needs those votes in critical swing states like Michigan and Wisconsin. Biden has also won bipartisan praise from Congress for the sanctions.
Despite this support, the sanctions are a terrible idea.
If you’re an average U.S. citizen, the tariffs will mean higher prices not only for products from China but for anything that depends on inputs from China. Farmers will continue to find it more difficult to sell their soybeans and corn to China. Manufacturers are going to have to pay more for high-performing components like batteries.
Biden himself understands the economic logic. In 2019, he said that Trump “thinks his tariffs are paid for by China. Any beginning econ student at Iowa or Iowa State could tell you the American people are paying his tariffs.” According to one estimate, the bill to consumers for Trump’s tariffs was $48 billion, with half paid by manufacturers.
If you’re a traditional environmentalist, the sanctions are penalizing exactly the economic products you want to encourage: those relying on renewable energy. Chinese subsidies have driven down the prices of solar panels. This is good news. The United States should be cooperating with China on how to push the world away from fossil fuels. Instead, Washington is putting short-term political gain over long-term planetary survival.
Finally, if you’re worried about world peace, the tariffs are only pushing China and Russia together, making a new Cold War into a self-fulfilling prophecy.
What’s the alternative?
The Biden administration should be telling China quietly that these tariffs are just a temporary measure that will be rolled back if the Democratic candidate wins the presidential election in November. Perhaps after the election, Beijing and Washington could engage in some political theater in which the former pretends to be conciliatory and the latter reciprocates, and the two sides negotiate down their mutual tariffs.
In his second term, Biden could work with China on how to make the transition away from fossil fuels affordable for the entire world. Sure, the two countries will still disagree about much. But the mutual challenge of climate change will ensure that a Cold War doesn’t descend upon the planet.
If Trump happens to win in November, all bets are off. The Republican candidate has promised a new round of tariffs against China, which will probably be all the higher given Biden’s recent move. Trump, moreover, is still committed to extracting every last drop of oil and natural gas on his way to making America a petro-state along the lines of Russia.
The future path is clear: The state has to be involved in pushing the market toward renewable energy, whether that state is “communist” or “capitalist” or something in between. The sooner Washington and Beijing can cooperate in doing this, the better it will be for all of us.
