Strategy, not economics, should govern high-tech trade with China

The Biden administration’s creation of a “China House,” the Office of China Coordination, in the Department of State could be a positive step forward to address the China threat. The office is tasked with providing information regarding the China threat and accelerating and coordinating the government’s reaction to it. Last year, the CIA created the “China Mission Center” to aid the Intelligence Community with direct resources, funding and personnel to counter Beijing’s expanding diplomatic, technological and military power.

However positive, these actions are overdue. Together, they indicate that the flame of strategic thought is not completely extinguished in Washington. Sadly, for decades it was. Wall Street and the United States government supported China’s economic growth in the disastrous belief that a wealthier, more prosperous China would be more democratic and peaceful, becoming a “responsible stakeholder” in the liberal international order. The camarilla of the “engagement school” held profoundly mistaken, naïve and misguided assumptions regarding the behavior of the Chinese Communist Party (CCP).

Lamentably, these “experts” were completely divorced from an understanding of the motivations and objectives of the CCP, a strategic conception of U.S. national interests, and an understanding of the importance of the relative balance of power for securing America’s position as the world’s dominant military power. The consequence was a richer China that siphoned off its riches to increase its military might, technological prowess and diplomatic influence, and yielded a U.S. economy that was dependent upon China for critical manufacturing and goods, including pharmaceuticals, personal protective equipment and antibiotics. Today, China is more prosperous, more bellicose, and more determined to supplant the liberal order and the U.S. position in the world.

Yet, in the face of Beijing’s rise, the engagement school remains robust on Wall Street, in Silicon Valley and at government, think tanks, media and academe. Recent appeals for “just the right amount” of technological decoupling from China are profoundly misguided. This followed the October announcement by the Biden administration that it would impose export controls on advanced semiconductors and chip-making equipment to weaken China’s semiconductor and artificial intelligence development. And in December, Biden placed 36 Chinese groups, most notably Yangtze Memory Technologies Corporation (YMTC), on the “entities list” to hinder the ability of U.S. firms to export critical technologies to them, and 21 Chinese firms were listed as “foreign direct product rule” which means non-American companies are prohibited from exporting items with U.S. technological content.

There are three flaws of any effort to find a “Goldilocks amount” regarding hi-tech trade and technology transfer to China.

First, even to consider trade with the CCP is to lack an understanding of the odious nature of the regime. The CCP is uniquely vicious government that has killed tens of millions of Chinese citizens; perpetually violates human rights and presently is committing a genocide of Muslims in Xinjiang; lied about the origins of the COVID-19 pandemic and facilitated its spread; and ruthlessly exploits people and the environment.

Most importantly, in 2019, the CCP formally declared a “people’s war” against the United States, explicitly indicating that it is the enemy of the U.S. and intends to defeat America and its allies.  An understanding of the character of the CCP should compel anyone concerned with human rights to terminate connection with it and the entities it controls. And because the CCP is at war with the U.S., the U.S. is compelled to respond accordingly. This requires Wall Street, Silicon Valley, and all U.S. entities to decide whether they will assist the United States or the CCP to answer the dispositive question of the 21st century: Will this century be defined by the liberal international order or by the repression of communist China?

Second, understanding the China threat requires a change in mindset — we need to think like strategists, rather than financiers. With the defeat of the Soviet Union, the ideas, practices, understanding and training necessary for peer competition — not only how to defeat a peer competitor but how to prevent one from rising — were supplanted by the doyens of finance and foreign investment. The first rule of strategy is “do not fund your adversary.” Sadly, Western firms pursued investments in China, technology and knowledge transfer to Beijing, and permitted Chinese entities to raise funds on U.S. capital markets, including those with known or suspected ties to the People’s Liberation Army, to those directly and indirectly linked to the Muslim genocide, and to the CCP, since every Chinese entity needs the Chinese regime’s permission to exist.