Letting Chinese EV and battery firms build in America wouldn’t revive manufacturing. It would reduce U.S. market share, hollow out domestic capabilities, and create new strategic dependencies.
100% agree. The problem is that this is not just about grafting on nat econ sec to neoclassical econ, it requires a fundamental reworking, and almost none of the economists want to do this
Thanks as always, Robert, for the research and commentary.
If people in the US these days are actually not just arguing to let PRC - or more appropriately, CCP, Inc. - firms set up shop in America but actually are listening to such recommendations, then I'm glad I am here in Taiwan.
And when it comes to the auto industry, your remark that allowing PRC firms to establish plants in the US will not increase demand that is in fact finite is important to understand. If anything, the CCP has actively sought to promote EVs as it was confident it could dominate the entire supply chain, and in many ways does. it's not about creating markets - one has to believe in markets to do that - but instead to the CCP it's about dominating markets.
After asking an auto designer at a leading auto design firm in Turin last fall the difference between his firm’s clients from the PRC versus clients from Europe and the US, he said the PRC firms demand AI is used for the entire design so it can get a new design fast and cheaply. Client firms from Europe and the US often still demand the traditional process of three designs, clay and wooden models, and ensuring IP is protected.
Other examples of why firms from the PRC can destroy local industries rather than empower them can be seen in the case of EV battery makers, when Beijing actively sought to lock a Swedish battery materials maker from the EV supply chain so that PRC firms could control that valuable part of the supply chain.
In short, the PRC firms only want cheap prices and to control market share so they could put their rivals out of business.
Again, though, politics matter when it comes to the PRC. Your calling attention to the ITIF’s Hamilton Center on Industrial Strategy and its special research series examining China’s predatory industrial strategies is therefore important. Understanding why the CCP pursues such predatory strategies is crucial in explaining why traditional theories on trade cannot be used when applied to the case of the PRC.
The CCP has lacked political legitimacy since 1949 as it has never allowed its people a referendum on the party’s power. And after 1989 and June 4th, the CCP has believed that it must and can achieve legitimacy via mercantilism for its economic policy and authoritarianism politically, in order to "Make China Great Again" by reversing the shame of the so-called “Century of Humiliation.” This would include taking control of Taiwan and unseating the US as the world's richest and most-advanced nation.
Those who argue America ought to let the PRC build their plants in America are thinking only in economic terms, and as you point out, basing their claims on some very dubious assumptions. Firms from the PRC are in it for more than just the money, and arguably, communist parties cannot be counted on to respect the rules or importance of competition. All one needs to do is look as how ineffective the WTO has become given that an increasingly powerful Beijing viewed it as a vehicle to help it ensure that trade was imbalanced in China’s favor, rather than as an organization that was to be empowered to ensure fair trade.
The main problem for proponents of national economic security is the lack of an adequate and popular theoretical framework. Over the past 80 years, during the era of free trade and globalization, Western intellectuals neglected this topic because the West was significantly technologically superior to other civilizations. Consequently, both academic economic theories and business strategies failed to address such issues as technological and economic security, protection from the colonial expansion of foreign multinationals, the strategic vulnerability of national supply chains, and so on. Today, China has achieved the status of a strategic competitor to the West for the first time, but the social sciences, due to the enormous inertia generated during the years of globalization, simply have not developed analytical tools capable of comprehensively explaining this new reality. A new theoretical paradigm for strategic defense in economics is needed, rejecting the paradigm of globalization and supposedly mutually beneficial cooperation between all countries.
100% agree. The problem is that this is not just about grafting on nat econ sec to neoclassical econ, it requires a fundamental reworking, and almost none of the economists want to do this
Thanks as always, Robert, for the research and commentary.
If people in the US these days are actually not just arguing to let PRC - or more appropriately, CCP, Inc. - firms set up shop in America but actually are listening to such recommendations, then I'm glad I am here in Taiwan.
And when it comes to the auto industry, your remark that allowing PRC firms to establish plants in the US will not increase demand that is in fact finite is important to understand. If anything, the CCP has actively sought to promote EVs as it was confident it could dominate the entire supply chain, and in many ways does. it's not about creating markets - one has to believe in markets to do that - but instead to the CCP it's about dominating markets.
After asking an auto designer at a leading auto design firm in Turin last fall the difference between his firm’s clients from the PRC versus clients from Europe and the US, he said the PRC firms demand AI is used for the entire design so it can get a new design fast and cheaply. Client firms from Europe and the US often still demand the traditional process of three designs, clay and wooden models, and ensuring IP is protected.
Other examples of why firms from the PRC can destroy local industries rather than empower them can be seen in the case of EV battery makers, when Beijing actively sought to lock a Swedish battery materials maker from the EV supply chain so that PRC firms could control that valuable part of the supply chain.
In short, the PRC firms only want cheap prices and to control market share so they could put their rivals out of business.
Again, though, politics matter when it comes to the PRC. Your calling attention to the ITIF’s Hamilton Center on Industrial Strategy and its special research series examining China’s predatory industrial strategies is therefore important. Understanding why the CCP pursues such predatory strategies is crucial in explaining why traditional theories on trade cannot be used when applied to the case of the PRC.
The CCP has lacked political legitimacy since 1949 as it has never allowed its people a referendum on the party’s power. And after 1989 and June 4th, the CCP has believed that it must and can achieve legitimacy via mercantilism for its economic policy and authoritarianism politically, in order to "Make China Great Again" by reversing the shame of the so-called “Century of Humiliation.” This would include taking control of Taiwan and unseating the US as the world's richest and most-advanced nation.
Those who argue America ought to let the PRC build their plants in America are thinking only in economic terms, and as you point out, basing their claims on some very dubious assumptions. Firms from the PRC are in it for more than just the money, and arguably, communist parties cannot be counted on to respect the rules or importance of competition. All one needs to do is look as how ineffective the WTO has become given that an increasingly powerful Beijing viewed it as a vehicle to help it ensure that trade was imbalanced in China’s favor, rather than as an organization that was to be empowered to ensure fair trade.
The main problem for proponents of national economic security is the lack of an adequate and popular theoretical framework. Over the past 80 years, during the era of free trade and globalization, Western intellectuals neglected this topic because the West was significantly technologically superior to other civilizations. Consequently, both academic economic theories and business strategies failed to address such issues as technological and economic security, protection from the colonial expansion of foreign multinationals, the strategic vulnerability of national supply chains, and so on. Today, China has achieved the status of a strategic competitor to the West for the first time, but the social sciences, due to the enormous inertia generated during the years of globalization, simply have not developed analytical tools capable of comprehensively explaining this new reality. A new theoretical paradigm for strategic defense in economics is needed, rejecting the paradigm of globalization and supposedly mutually beneficial cooperation between all countries.
Thanks, Robert. I had read Noah Smiths article with interest and appreciate your counter-view.