Before wars become hot and kinetic, with missiles flying, they usually creep up into the sphere of trade and economics. Situational awareness of this dynamic is critical, so the missiles don’t surprise us if they do fly.
The norm in trade relations is mutual benefit through comparative advantage. This is the “friendly competition” that both the Trump and Biden administrations tried to achieve with China.
Donald Trump’s first move with Beijing was to call Xi Jinping a great guy and visit with a planeload of CEOs. Joe Biden tried (and failed) to roll back Trump’s tariffs in exchange for peace with China. He continues to emphasize engagement and cooperation on issues such as climate change and public health.
But Beijing isn’t playing ball. Instead, the Chinese Communist Party (CCP) persisted during both administrations in stealing U.S. technology, intellectual property, and the territory of our friends and allies. It reneged on Trump’s trade deal, including during the Biden administration.
Over the course of Trump and Biden’s administrations, both presidents got tougher after hoping for a thaw. America quietly and gradually realized we had an adversary in Beijing rather than a friendly competitor.
While neither Trump nor Biden called Beijing an enemy, both started to treat it as such by depriving it of the means to fight. This entails constricting the adversary’s economy, which is necessary to fund its military power.
One often hears a dictum of the 19th-century Prussian military theorist Carl von Clausewitz, that “war is only a continuation of state policy by other means.” Those other means are temporally prior and include diplomatic, but more consequentially, economic policy.
As the adversary reveals itself, economic policy is weaponized to inflict economic harm in preparation for war. Such measures include the attempt to impose economic hegemony on a region, control trade generally, restrict key commodities or technologies, or steal economic assets like intellectual property.
These economic measures sometimes lead to war, as with Napoleon’s 19th-century blockade to destroy British commerce and America’s 1941 oil embargo on Japan.
In the 19th century and before, most wealth came from territory, whether agriculture or industrial wealth that derived from mineral extraction and factories. In the 21st century, new wealth comes from intellectual property and high technology that can be stolen by an army of hackers rather than conquered by a division of tanks.
Yet the effect is similar—the takeover of productive assets required to maintain relative economic and military strength. Over the past few decades, China excelled at the theft of U.S. intellectual property, a theft by some estimates of as much as $600 billion annually. This does not include China’s theft of Europe’s intellectual property, and that of our Asian partners, like Japan, South Korea, and Taiwan. Those combined thefts by the CCP must be at least as great.
What technology Beijing cannot steal, it can transfer forcefully in exchange for market access to China’s 1.4 billion people. Without any vote legitimizing its power to constrict access to these 1.4 billion, the CCP arrogated to itself the status of a legitimate state that controls all of China’s trade. Lacking democratic legitimacy, it has no ethical right to do so.
Tragically, the world accepted this fraud in 1949 because the CCP controlled China militarily, and it was easier to surrender and protect U.S. and allied property and profits in China (for a short time) than to fight another war so soon after 1945. The CCP held Western investment hostage in 1949, and the West gave in to its terrorism.
But the long-term costs of negotiating with terrorists, and funding them with our trade, are now upon us. The regime in Beijing continues its old policy of seeding wars around the world against democracy, and preparing to exploit the influence networks and power vacuums that result.
In response, the United States and its allies are decoupling through tariffs and technology restrictions, thus depriving Beijing of the wealth of American markets.
Decoupling is a form of economic war that naturally accelerates through a downward spiral of retaliation and counter-retaliation until one side backs down, or kinetic war is reached.
After Moscow’s aggression against Ukraine, and before the West started shipping tons of lethal military aid, the United States and its allies sanctioned Russian energy exports. As Moscow continued its aggression, including against the capital city of Kyiv, economic warfare phased into the delivery of weaponry that targeted Russian soldiers directly. The range and lethality of that weaponry gradually increase as the war progresses.
With China, the United States is more cautious. At stake is $615 billion in annual two-way trade.
Economic sanctions are slowly imposed, and the weaponry the United States delivers to countries like Japan, the Philippines, and Taiwan has yet to be used directly against China’s People’s Liberation Army. Our leaders continue to meet Xi for smiles and handshakes, even as they tie the economic noose more tightly around the regime.
Both sides call each other “competitors” in “win-win” contests because as soon as they publicly admit that they are adversaries or enemies proceeding down the path of economic conflict, the deterioration of economic to kinetic war would accelerate.
Yet calling each other “competitors” in the way that Ford and Volkswagen are competitors is a lie masking the preparation for kinetic action on both sides.
Despite the risk of imposing economic harm on each other, it is, unfortunately, necessary to increase such measures against China until the CCP backs away from its various aggressions.
The CCP must first allow a full international investigation and accounting of the origins of COVID-19, cease technology theft and forced technology transfer, and relinquish all competing claims to free neighboring territories such as Taiwan, Japan’s southernmost islands, and almost the entire South China Sea. Beijing must cease its attempt to subvert the United Nations for its own totalitarian purposes.
Economic policy against the Chinese regime sends a message that we mean business without taking a step into war. These economic measures risk escalation, but that cannot be avoided without rapid and neverending concessions. The only way to defend democracy under these unfortunate conditions is, at the very least, to accept the risk that comes from decoupling.
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