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President Joe Biden has identified China as the pre-eminent international competitive challenge confronting America, but his administration appears distracted and lacks a credible policy.
Since 2000, China’s R&D spending has increased 16% annually and will likely exceed U.S. outlays by 2025. The aim is to match or surpass the West in artificial intelligence, microprocessors, computers, electric vehicles and other critical technologies.
U.S. government support for R&D as a share of gross domestic product has been falling for more than a decade. A bipartisan majority in the Senate recently passed a $250 billion bill to address the issue and provide $52 billion to boost semiconductor production.
Preoccupied Democrats
However, the administration and House leadership are preoccupied with the bipartisan infrastructure bill and the $3.5 trillion American Family Plan. The proposed new taxes won’t raise enough revenue to fully fund expanded Medicare, universal pre-K education, the child tax credit, free community college, and the other new initiatives.
Scaling down the new spending will likely be accompanied by fewer new taxes. The federal deficit will soar—leaving the Democrats with not enough resources to match Chinese President Xi Jinping on industrial policies.
China’s rapidly growing Navy challenges U.S. dominance in the South Pacific. The U.S. trade deficit with China continues to swell, and that helps finance Beijing’s Belt and Road initiative, which purchases influence all the way into Eastern Europe and Latin America.
The U.S. fleet needs bolstering and reorientation toward smaller, more-agile and unmanned vessels. This is unaffordable with defense spending falling from 4.7% of GDP in 2010 to less than 3% in the Biden budget, and the Navy is faced with decommissioning large surface ships before new, more-nimble vessels hit the water.
If China invades Taiwan, the United States won’t be able to defend it.
Vital resources
In Afghanistan, the United States abandoned huge deposits of lithium—the critical resource in modern batteries—to potential Chinese capture. Taiwan is the home of the most important global microchip foundry—the Taiwan Semiconductor Manufacturing Co
TSM,
This situation developing would have been akin to President Ronald Reagan handing the Soviet Union control over Middle East oil.
The Senate Armed Services Committee added $25 billion to the Biden administration’s annual military budget request but on the House side, 27 members sent a letter to Armed Services Committee Chairman Adam Smith demanding the committee drop that addition—it relented.
Defense Secretary Lloyd Austin, an experienced land-war general, so far has not articulated a strategy for the Pacific and that vacuum in administration policy is mirrored on trade.
U.S. Trade Representative KatherineTai is not interested in new trade agreements—though exigencies in the Pacific might make Taiwan an exception—and she has repeatedly stated trade policy must be pro-union and pro-middle class.
She has deflected Japan’s urgings that we rejoin the Trans-Pacific Partnership. This is a terribly critical mistake.
China has applied for membership in the TPP. Just those negotiations could pre-empt U.S. options to form a stronger economic alliance in the Pacific to complement U.S. efforts to build stronger military cooperation with allies.
History repeats
Much of China’s economic success was enabled by joining the World Trade Organization in 2001. Then cheating on the rules, extracting technology from Western firms seeking market access and stealing intellectual property, and tying in knots the dispute settlement mechanism.
Tai has not articulated a strategy for reforming the WTO.
Tai has embraced the essence of President Donald Trump’s steep tariffs on China. For many reasons, including Beijing’s intransigence and infighting within his administration, those have yielded disappointing results.
History repeats. Treasury Secretary Janet Yellen says those tariffs hurt consumers, while Tai says they provide leverage. At least Yellen and Tai should get their talking points straight.
Austin and Tai came to their positions with impressive records for implementing the military and trade policies for their superiors but neither has written or said very much about a broad Pacific strategy.
For example, how exactly should American forces be reconfigured in the Pacific and what would moving resources from the Middle East entail? How should the WTO and regional trade agreements be reconfigured to address China’s mercantilist practices? And what should the United States offer Asian allies, if not the TPP, to resist the gravity of the Chinese market?
Austin and Tai exhibit a disturbing absence of ideas and vision but have undertaken extensive reviews of defense and trade policy.
If I have learned one thing in nearly half century in Washington, when high-level political figures are in over their heads, they order top to bottom policy reviews. That’s Lloyd Austin and Katherine Tai—and Joe Biden.
Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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