To cut dependency on the Chinese economy, the United States needs to base its policies on “two pillars": economic containment of communist China and rebuilding the industrial power in the United States, said Jonathan Ward, a China scholar and founder of the Atlas Organization.
The rise of China was made possible through U.S. engagement, access to American markets and American capital, the invitation to participate in the global financial system, as well as through the transfer of American technology, Mr. Ward explained.
“The classic deal during the last couple of decades of the rise of China, especially in the early 2000s and 2010s, was a technology transfer for market access deal,” Mr. Ward said, “where very advanced technologies would wind up in the hands of Chinese state-owned or state-backed companies, and essentially allow [Chinese] massive technological advancement across the board that we did very little to control.”
The Chinese economy is heavily dependent on export and Chinese government investment, Mr. Ward said. There were attempts to create a consumer sector to shift to consumption-led growth, but it has not gone as expected, he said.
To sustain China’s economic growth, the Chinese Communist Party (CCP) “has identified about 10 strategic industries that are targeted for investment and also intellectual property theft,” Mr. Ward said, explaining that these two strategies can be leveraged to build state-owned or state-backed super companies that can compete on global markets and with domestic companies.
How to Decouple From China
Mr.Ward outlined a sound and economic strategy for victory that will lead to peace in the military dimension when coupled with a military strategy for real deterrence.
The strategy is based on two pillars: one is “economic containment” of communist China, and the other is “rebuilding, reindustrializing the United States and the alliance system,” Mr. Ward said.
The United States needs to realize that China depends more on the United States than vice versa, but certain sectors and certain companies are overexposed to China, Mr. Ward said.
“The rise of China does not really continue, from an economic perspective, without access to Western markets, Western capital, and Western technology.”
“If we’re able to establish best practices on market access, on capital, investment, on technology transfer, across the entire alliance system, we would slow down their game very much, very quickly.”
“If we’re doing that in the 2020s, we’re going to be competing against a state that’s not continually rising and innovating but one that’s starting to stagnate,” Mr. Ward said. This will create a geopolitical contest in which we can accelerate and gain new advantages, he pointed out. “We can outcompete them in the long run.”
The strategy proposed by Mr. Ward is focused on accelerating the American economy and slowing down the adversary, but he warned that “if we do this as a joint economy … then our gains are their gains; our advantages become their advantages.”
Mr. Ward likened this to driving a car with the adversary sitting next to the driver. No matter how fast the car is driven, the adversary will not be slowed down.
Chinese Dependency on the West
The West, particularly the United States, must realize that it has a lot of leverage in economic relations with China, said Miles Yu, a policy adviser to former secretary of state Mike Pompeo, on another episode of Epoch TV’s “American Thought Leaders,” on July 6..However, Western countries do not use this advantage and believe they must rely on China, Mr. Yu said. Western businesses have to be confident when dealing with China, and sooner or later, China will realize this, he added.
Mr. Yu provided an example of a Chinese retaliatory ban on importing coal from Australia, which the Chinese regime eventually evaded due to energy shortages. China heavily relies on coal for its energy needs.
The Chinese regime imposed a ban on importing Australian coal in 2020 after then-Australian prime minister Scott Morrison suggested an independent investigation into the origin of the COVID-19 virus, according to the journal Mining Technology.
Reindustrialization
Mr. Ward envisions that America must maintain deterrence in the next 10- to 16-year period and start to restructure its economy to extricate itself from the dependence on the CCP.
“We’re gonna have to work through this sector by sector, company by company, insofar as they matter, technology by technology, market by market, and start to come up with a world in which we are outpacing them across the board.”
Major companies play a big role in U.S.-China competition because economic power is built by business and commerce, Mr. Ward said.
“The United States has been the largest economic power for well over 100 years,” and the role that American companies played in prior strategic competitions such as World War II and the Cold War was very powerful, Mr. Ward said.
American companies helped the United States decisively win World War II by mobilizing their production capabilities to transition from peacetime to wartime economy like “the sleeping giant that woke,” Mr Ward said, citing the book “Freedom’s Forge,” by Arthur Herman.
British historian Norman Davies wrote in his book, “No Simple Victory: World War II in Europe, 1939-1945,” that the wartime economy of the United States, after it entered World War II, achieved “industrial expansion as the world has never seen.”
When the order was given at the end of 1941 to “put the peacetime economy on to a war footing,” factories changed gear “as if with effortless ease,” Mr. Davies wrote.
“Automobile plants switched to tank production. Shipyards turned from merchantmen to warships. Aircraft factories dropped airliners for fighters and bombers ... Steelworks, coal mines, and railways responded energetically to the challenge. The tempo quickened. The numbers multiplied,” Mr. Davies wrote, adding the surplus of armaments was shared with America’s allies.
Mr. Ward said that the United States also had “amazing technological advantages” that were put into play in the Cold War. “Our innovation ecosystem absolutely included our ability to commercialize science and technology and use our massive market to create innovation.”
“We need America’s economic engines to ultimately be aligned to U.S. national security,” Mr. Ward said.
Before becoming the arsenal of democracy in the Second World War, some well-known American companies collaborated with the Axis powers, Mr. Ward said.
“They did the wrong thing until they did the right thing. But, ultimately, they did the right thing, and that’s what matters.”
Mr. Ward said he hopes that “we don’t need a Pearl Harbor” for businesses to de-couple from China.
Risks and De-risking
Decoupling from China should be done on a corporate level through decisions made by leaders of corporations investing in China or using supply chains in China, Mr. Ward said. They need to recognize risks associated with their business policies, he argued.The government can only set guardrails in terms of what can be done, but de-risking needs to be achieved by corporate decisions, Mr. Ward said.
Corporate leaders need “some level of a reality check” and need to realize that their business decisions related to China affect geopolitics, he said.
The more capital and technology are being transferred to China, the more supply chains that feed back the American economy are being based there, the more the country is being put at risk, Mr. Ward pointed out.
How companies engage with China economically determines the overall risk at the country level, so companies hold a fiduciary responsibility to the country for putting capital and business interests at high risk, Mr. Ward explained.
“We have to start working through that together, figuring out how to do it, find new markets to diversify to new supply chains that are more secure, and new investment opportunities that come from the United States,” Me. Ward said. “Rebuilding this industrial base, securing our own supply chains, all of that will present opportunities.”
Having a first-tier broad-spectrum industrial base is a necessity for national security, Mr. Ward said.
American manufacturing power needs to be revitalized and reimagined, and this could create a lot of jobs, a lot of real opportunities, and a lot of national security benefits from purely economic to things like supply chain security, Mr. Ward argued. “We have to make [this] a number-one priority in this country.”
The broader general industrial base, like the one the United States had at the time of World War II, will allow the country “to wage peace through strength” to prevent war by being prepared and deter any adversary from fighting against the United States, Mr. Ward said.
