“Decoupling” from the People’s Republic has become the flavor of the month. When it comes to commerce between the United States and China, however, it will be a tough row to hoe.
Unlike the Soviet Union during the Cold War, China is deeply integrated into the global economy and cannot simply be shunned until it begins to act responsibly. Perhaps the liberal economies of the West should have held out for more reforms before letting China into the World Trade Organization, but that is largely water under the bridge. The United States and its democratic allies have too much invested in China and are too dependent on Chinese goods to make a sharp break feasible. That said, Washington can and should develop a mechanism for ensuring that the United States is not dependent on strategic goods “made in China.” What is needed is a Committee on Foreign Imports to the United States—a CFIUS 2.0.
Thousands of products imported into the U.S. have components made and assembled in China by Chinese companies or Western companies operating in China. Putting an end to these imports might be a blow to China but it would be a substantial blow to American consumers as well. On the other hand, American exports to China of commodities like soybeans and corn are a significant part of the American economy. American farmers and their allies in Congress are not going to tolerate policies that disrupt that trade for long. Even President Trump has had to back away from his trade-war rhetoric in order to reopen those commodity markets for American farmers. Given the recession we are now in, it would be an “own goal” at this moment to rush into an economic decoupling with China.
However, we do need a way of ensuring that American health and national security are not compromised by unnecessary dependencies on products and supply chains directly linked to China. One possible means for doing so would be to use the Committee on Foreign Investment in the United States (CFIUS) as a model for how to deal with imports that create critical dependencies.
CFIUS was created during the Ford Administration as a way for preventing foreign entities from buying American assets that were judged to be of high strategic importance. It was given the power to review and, if justified, ask the President to block transactions that impaired American security in a broad sense. An intergovernmental body, drawn from key departments, drives this process and provides a means for vetting risks posed by these investments to national security.
Regulating imports using a similar framework would be a more complicated but not an impossible task. The key would be, first, to identify those areas where U.S. security and public health might be most affected by the source and design of a foreign import. Our recent experience with Huawei would put a wide range of technologies into this category. So would the discovery of American dependence on Chinese suppliers of medical supplies and pharmaceuticals, never mind critical minerals. The goal would be to establish a set of sectors considered vital to American security and wellbeing—and, in turn, to identify supply chains that are not beholden to potential adversaries.
This program would not be simple to implement. It would begin with the definition of what constitutes a strategic product. Although foreign suppliers of these commodities and goods would be relatively easy to identify, American suppliers would also need to review their supply chains to make sure that some crucial element or component of their final product is not vulnerable. This approach assumes that most strategic products can be produced outside of China. There may be exceptions but, for most goods and commodities, finding alternative suppliers should not be an issue given that they will have an American market without Chinese competition.
It’s likely that culling strategic products from Chinese manufacturing and suppliers will increase the cost of those items. But that marginal “tax” is potentially a small price to pay for greater security. It’s also possible that American companies will jump to claim their products are strategic and deserve protection. Reliable reports suggest that some companies are already seeking special protection from Chinese and other competitors. Real discipline and oversight will be needed in order to ensure that this effort does not evolve into a simple mercantilist initiative. The experience of the CFIUS program may be instructive. In most years, fewer than a handful of cases receive committee scrutiny, and serious action is only taken in a small proportion of those.
China is indeed a bad actor, but it is also a global economic power from whom we cannot simply file for divorce. Concentrating our efforts on preventing another Huawei or another pharmaceutical crisis would be the start to a smarter and more feasible approach.