Defensive Measures Against China: Time for a Reevaluation

Commentary by Scott Kennedy

Published October 29, 2024

This commentary is part of a report from the CSIS Economic Security and Technology Department, titled Staying Ahead in the Global Technology Race. The report features a set of essays outlining key issues on economic security for the next administration, including global technology competition, industrialization policies, economic partnerships, and global governance.

Read the Full Report

On a recent trip to China, I visited a Chinese firm that is on the U.S. Department of Commerce's Entity List. When discussion turned to their designation, they claimed utter disbelief and surprise; they could not fathom what prompted Washington's action. It is possible that their claims of innocence are genuine, but given their place in an important high-tech sector, likely links to the Chinese party-state, and the nature of some of their customers, one can also see why the U.S. government would have taken this step.

In fact, it may be difficult to disagree with most, if not every, individual decision the U.S. government has taken in the last five years to protect itself in the face of the broad national security challenge China presents to the United States, its allies, and the rules-based global order. Nevertheless, the cumulative effect of all of this action deserves careful evaluation. And where the result is not as intended, Washington needs to recalibrate its policy approach.

There are now around 1,000 Chinese companies and institutions blacklisted by the United States for national security or human rights reasons. The list of "controlled items" that require a license to be exported to China has ballooned, and in the case of advanced semiconductors and semiconductor equipment, the restrictions are country-wide. Extremely high U.S. tariffs-far above standard most favored nation (MFN) levels-are now applied to most Chinese goods, even those with no strategic value.The coverage of sectors in which screening of inward investment deals apply has expanded dramatically, while the United States and its allies have started developing new regulations for outward investment to China.As a result of a law passed in the spring of 2024, social media app TikTok will be banned in the United States unless ByteDance, its parent company, sells the platform to a non-Chinese owner.The Biden administration recently adopted a draft executive order that would ban Chinese connected autonomous vehicles and their components from the U.S. market starting with the 2027 model year.The administration and Congress are considering a wide range of other defensive measures as well.

What does all of this activity add up to? Is it worth it? And might there be a better way? It is time to ask-and answer-these and many other questions. There are at least four potential negative consequences that emerge from this tidal wave of actions.

The Biden administration argues that it is pursuing a "small yard, high fence strategy," meaning that it aims to protect national security while having as limited an impact on commerce as possible. Mitigating national security vulnerabilities from commerce with China-known as de-risking-may have been the original goal and still may be the overall purpose. But the breadth of the actions and the tit-for-tat, action-reaction by Washington, Beijing, and others is resulting in a far greater reduction of bilateral business and rerouting of supply chains than is reflected in the official policy framing. If current trends continue, the U.S. and Chinese economies will be decoupled in many areas, not just advanced technologies with military applications. And it is just as likely that the result of this division will be either global fragmentation or an isolated United States.

Second, and relatedly, while individual measures, such as those on advanced semiconductors and equipment, may initially work or be effective for several years, this is far from guaranteed. Although China has long aimed for greater technological self-reliance, there is ample evidence that the industries it has prioritized, the extent of its financial support and other measures, and the willingness of Chinese industry to actively participate has in part been in reaction to this U.S.-led technology boycott. It is possible that in some areas China will advance faster than it otherwise would have in individual technologies and in occupying the leadership of technology ecosystems. Moreover, as a result of less connectivity with Chinese industry and researchers, U.S. innovation may also suffer. If so, instead of mitigating national security risks, the United States may end making the problem worse.

Third, less connectivity with China means a slower energy transition. Yes, China has unfairly subsidized clean-energy products such as solar panels, wind turbines, batteries, and electric vehicles. And, yes, it sold a substantial portion of overproduction on global markets, threatening competitors in many countries. That said, a straight-out ban of such goods from other markets will necessarily mean less products in the short term. Additionally, if protection is not made conditional on the rapid development of high-quality domestic alternatives at prices the middle class can afford, these restrictions will be for naught.

And fourth, the U.S. approach is changing the nature of the international economic order in front of our eyes. In the 1960s, in the face of growing competition from Japan and other East Asian countries, the United States and its allies developed the rules and tools for anti-dumping and countervailing duties, and with them the underlying principles of "fair trade." Although these tools have various biases and are subject to widespread abuse, they did provide compensation to industries that were suffering from greater international competition and, as a result, kept the greater project of globalization alive. The expansion of export controls and other defensive measures is fundamentally challenging the notion-embedded in the original General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)-that national security justifications to restrict international commerce should be limited and the exception to the rule. The rise of "economic security" as a rationale for policy even more directly threatens to make open commerce and financial flows a thing of the past.

The seriousness of the Chinese challenge to the United States and the rules-based order requires definitive policies, but it does not justify any and all policies. The United States and its allies need to reassess their approach and adapt as needed. Here are three recommendations:

1. The United States needs to decide precisely what kind of outcomes it wants and what kind of outcomes it is unwilling to accept. Is bifurcation of the global economy, even if the United States is relatively isolated, acceptable simply because it means less connectivity with China? Would it be acceptable for the United States to maintain technological advantage over China if it means the elimination of a rules-based order and a race to the bottom in the use of tools to restrict global commerce?
2. Washington needs to include cost-benefit analysis for its overall approach and for each policy initiative. The presence of a national security risk does not mean the costs of any one policy are irrelevant. In fact, there are usually multiple possible options to address a risk, and their relative costs and benefits should be weighed, and done so with transparency.
3. And finally, because this overall shift is so consequential to the U.S. national security and economy, more information about individual cases and the broader national security threat China poses to the United States needs to be shared with the U.S. public. The U.S. government should consider how much more information could be shared without compromising U.S. intelligence methods and sources. The Chinese interlocutors I met during a recent trip may not deserve a clearer explanation, but as a part of a democracy, the American people deserve to know more.

It is possible that taking these steps could yield the conclusion that substantial changes in policy are needed. But it is also possible that the current approach could be reaffirmed. Hence, there should be a consensus in favor of being more careful, deliberate, and transparent.

Scott Kennedy is senior adviser and Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies in Washington, D.C.

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