As I drove to baseball practice last week, the radio announced that President Biden may meet with Chinese President Xi Jinping this fall, but not before Xi is reportedly welcomed with open arms by our increasingly estranged ally Saudi Arabia.
At practice, my first basemen complained that his new baseball bat, though bearing the logo of a revered American baseball bat manufacturer, had been manufactured in China with a bamboo center. My glove, bat, spikes and baseballs all said, “Made in China,” as did my jersey, baseball pants, hat, sunglasses and wrist bands.
We explain this away as basic economics — workers in China are paid little, so products can be manufactured there must cheaper. But this situation is getting substantially more dangerous as China’s financial and technological capabilities grow. It makes me wonder, what’s our plan?
The economic contest between the United States and China is like the second coming of the Bretton Woods meetings, which established the financial standards for the reconstructed post-war world in 1944. As it was then, the privilege of determining the rules that support global trade in the 21st century always belongs to the country with preeminent economic, military and technological leadership and stability. China wants to be that country.
Michael Schuman recently wrote about what’s at stake. Western democracies broadly adhere to a “rule of law” that is intended to be impartial and applied evenly to all, while Chinese society is “ruled by law” that is intended to ensure continued Communist Party dominance.
Sure, China’s immediate economic future is not without serious challenges given significant missteps related to population control, over building and new rules on domestic corporations. Its relations with the European Union have dramatically deteriorated, emphasizing its obligation to address the world’s lack of trust in it if it is serious about becoming a financial leader.
But China has been achieving its long-term business goals over the last 50 years and is now on a trajectory to have the world’s largest economy by 2030.
America is more and more resembling an economic subsidiary of China. Chinese companies are acquiring American businesses, buildings and land at will, with the government currently holding almost $1 trillion in U.S. Treasury notes. Coupled with the U.S. corporate debt that Chinese interests hold, China possesses potent political and economic power that it has not been shy about using.
Not surprisingly, U.S. companies are prohibited from enjoying those same investment opportunities in China, making it an economic one-way-street. A Chinese company recently acquired 300 acres of land near Grand Forks, N.D., which just happens to be about 20 minutes’ drive from the Grand Forks Air Force Base. Who’s watching the store?
China is furiously financing the sale of products, such as 5G technology, to countries around the world, hoping to make them economically and technologically reliant. In the corporate world, it equates to making a controlling equity investment in a company and placing your friends on the board of directors.
Meanwhile, the United States and China are engaged in a curious Kabuki dance as companies from both countries enthusiastically welcome each other as significant trading and investment partners while fretting about ongoing economic espionage and the existence of embedded chips collecting intelligence. The U.S. government has blacklisted dozens of Chinese technology companies like Huawei, limiting their operations and preventing investment by U.S. entities in them because of the security threats they pose. But it has been approving nearly every application to export semiconductors, aerospace components and artificial-intelligence technology to China.
China has no doubt seen what Russia has done in addicting Europe to its energy resources to neutralize those countries to it military aggressions. If it uses a similar script and attacks or occupies Taiwan, it could control more than 90 percent of the world’s semiconductor chip manufacturing capabilities. It is also intent on dominating the fields of artificial intelligence and quantum computing by 2030 and 2035, respectively, greatly outspending the United State to achieve those goals using a “catch-up ethos” that Kai-Fu Lee describes in “AI Superpowers” as making Silicon Valley look “lethargic.”
What will it mean to America if China can build trust in its state-controlled economy, use its market power to continue to erode the status of the dollar as the global reserve currency and convince the world to accept a digital yuan issued by its central bank as it achieves technological superiority? At a minimum, the cost of capital, liquidity and borrowings would necessarily increase in the U.S. But social ramifications may also follow.
In “We Have Been Harmonized,” Kai Strittmatter describes a frightening behavioral dystopia and police state where the Chinese government controls everything that can be seen or communicated. The internet is censored through control of the three digital pipelines that enter and leave the country, and approximately 300 million facial recognition cameras funnel data to the government every moment. Apps on mobile phones digitally monitor and transmit endless behavioral information about citizens, resulting in their receiving a social score from the government. If that score is too low, they may lose mass transportation or educational privileges, or ultimately be assigned to “reeducation camps.” Such technological repression can very easily become permanent, making change impossible.
Dealing with these threats will require financial, political and technological leadership supported by democratic countries around the world. It will also take enormous courage for countries to accept the short-term economic pain that will accompany reordering their financial and technological choices. I don’t know if my baseball glove will ever be made in America again. But I sure hope we have a plan to deal with all this.
Thomas P. Vartanian is the author of “200 Years of American Financial Panics: Crashes, Recessions, Depressions and the Technology that Will Change it All” and executive director of the Financial Technology & Cybersecurity Center.