China’s Playing Chess Over Trade. The U.S.? Checkers.

By Orit Frenkel, Executive Director, ALI

As printed in The Hill, March 1, 2019

The president’s brash talk and liberal use of tariffs puts America in a losing game

In the U.S.-China trade war, the Trump administration has been playing checkers while Beijing plays chess. Rather than protecting American interests by being tough, our government has been undermining our own natural advantages, while enabling China’s own successful economic and geopolitical strategies.

The United States has been alienating our allies, building tariff walls and retreating from the international institutions that we created after World War II. Predictably, the Chinese have quickly filled the vacuum. Though much damage has been done in the past two years, and the current engagement with China is erratic and sloppy, all is not lost. The U.S. must step back onto the global stage rather than forfeit international leadership — and the 21st century — to China. But to do that, the U.S. needs to acknowledge and address our policy failures in these four critical areas:

• U.S. investment in 21st-century technologies is waning.
  
  The U.S. is still the most innovative country in the world, but China is poised to overtake our investments in key technologies — including telecommunications, artificial intelligence and autonomous vehicles — that will guide the next century. The federal government’s spending on research and development has been on the decline since the Great Recession began in 2008, and we now spend less than half as much on R&D relative to the size of the economy as we did in the mid-1960s at the Apollo Program’s peak. Meanwhile, China’s R&D expenditure has increased almost 30-fold from 1991 to 2016 — from $13 billion to $410 billion. Today, China accounts for roughly 20% of global R&D and is on pace to overtake the U.S. by 2020. 
  
  A 2015 report from MIT lists four landmark scientific breakthroughs that year — the first spacecraft to land on a comet, the discovery of a new fundamental particle (the Higgs boson), the development of the world’s fastest super computer, and advances in plant biology that could help meet global food challenges. None of these were American achievements. The first two were produced by a European consortium and the second two by China. 
  
  

• China is spending its way to a bigger global footprint.
  
  It would be hard to overstate the impact of China’s Belt and Road Initiative (BRI), an influence and investment plan out of Beijing that’s audacious, expansive and a bit chilling. Between 2014 and 2017, Beijing has spent about $340 billion on BRI. For context, the U.S. spent about $122 billion (in 2017 dollars) on the Marshall Plan in the wake of World War II. BRI spans 68 countries and covers 60 percent of the world’s population and one-third of global GDP.  Spending is expected to reach $1.5 trillion over the next decade. BRI serves as a Chinese government vehicle to support its state-owned companies, and it uses Chinese goods and labor to expand and build infrastructure, from roads to rail to energy pipelines and power transmission grids, among other things. The initiative serves a dual strategic purpose, spreading China’s economic and military reach.
  
  In contrast, the U.S. provides almost no foreign assistance to support infrastructure development and is paring funding and retracting in ways that put the US. government at a strategic disadvantage while undermining our long-term interests. The Trump administration is proposing to cut our current level of foreign assistance, which was $49 billion in 2016. Compounding the problem, partisan politics has largely sidelined the U.S. Export-Import Bank over the past four years. In 2014, the Bank’s last year of full operation, it provided $20 billion in export credits, primarily to finance infrastructure exports to the developing world. In 2016, China provided $34 billon in export credit financing, the highest globally. The list of the top 10 global construction firms today shows how far we’ve fallen: It includes seven Chinese firms and not one from the United States. While the recently passed legislation to create the U.S. International Development Finance Institution is a very positive step, it will not match China’s funding.  Major new resources and reforms are needed to ensure that  U.S. companies can compete in the developing world.

• China is writing the rules and making the world follow them.
  
  When China invests, it brings its own set of laws and norms, many of which either violate or skirt the world’s existing rules-based system. It frequently sets product standards in the recipient countries that favor Chinese companies, effectively creating a captive market. China is slowly remaking global rules to its liking in a way that put American businesses and workers at a disadvantage.
  
  With infrastructure investments that can equal the GDP of some of the recipient countries, like Laos, the standards that China’s companies bring often become the de facto country standards. This makes it hard for non-Chinese companies to sell infrastructure and services to that country. These norms often usher in poor labor and environmental standards, eroding good governance and the rule of law. 
  
  China is using BRI as a vehicle to set international standards or procedures in technologies of the future, such as global positioning, wireless communications, and smart-city sensor and data platforms.
  
  Beijing, for example, is aiming to increase adoption of its own global positioning system, BeiDou, as an alternative to the United States’ Global Positioning System (GPS). Chinese enterprises, including smartphone makers, have already backed the new standard.

• China is laying the foundation to win the war over cybersecurity.
  
  China’s aggressive moves to set international standards in telecommunications, GPS and data, raise serious concerns about cybersecurity. Chinese telecommunications giant Huawei is rapidly moving to wire the world with its 5G network, prompting national security concerns in the U.S. In an age when the most powerful weapons — short of nuclear arms — are cyber-controlled, whichever country dominates 5G will gain an economic, intelligence and military edge for much of this century.
  
  BRI also serves to export elements of China’s domestic surveillance regime. In Kenya, Huawei is partnering with the government to construct what it calls “safe cities” that leverage thousands of surveillance cameras feeding data into a public security cloud. Without a swift about-face, the U.S. will lose this new technological arms race and put America’s national security at risk. 

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Though tariffs can be useful tools when employed according to the rules, the U.S. has wielded them like a hammer against some of our friends and allies, damaging many of those relationships. The answer to every trade challenge or dispute, it seems, is a tariff. At the same time, the administration has been undermining many of the institutions and alliances that would be helpful in this fight with China. American administrations from President Truman forward have been assembling a strategic trade arsenal that has been used by presidents of both parties to advance U.S. interests while promoting a healthy global trade agenda. The United States has thrived because of this tested approach. Unless this administration, or certainly the next one, deploys a strong domestic and global strategy to counterbalance China, our economic and national security will be imperiled.

It’s time for the United States to put away the checkers. Because as the entire world can now see quite clearly, China plays a mean game of chess.