The economic dispute between the US and China is heating up:
Chinese officials are warning that they are prepared not only for trade war, but for financial, diplomatic and limited military confrontation with the United States, in response to American demands for fundamental changes in Chinese economic policy.
The dispute between the world’s two largest economies has moved beyond narrow issues of trade or specific areas of prospective conflict: Washington now views China’s technologically-focused economic strategy as a challenge to America’s world position, and China views Washington’s demands on China as the equivalent of a “new Opium War,” as a senior Chinese official told Asia Times last week.
Helped along by the US Senate’s torpedoing of a carefully crafted agreement with telecom giant ZTE:
A critical turning point was the Commerce Department’s ban on sales of American chips to power ZTE’s mobile handsets, sourced mainly from the American semiconductor giant Qualcomm. ZTE had violated sanctions on sales of high technology to Iran and North Korea. China’s President Xi Jinping intervened personally with President Trump to rescind the decision. Trump’s Commerce Department negotiated an unprecedented $1.9 billion fine as well as direct American controls over ZTE management, only to have the US Senate vote to reinstate the crippling ban on chip purchases. Trump’s Republican opponents united with Senate Democrats to embarrass the US President. The Chinese official commented, “That is Trump’s problem, not our problem.”
The US needs to address any Chinese trade abuses. But no amount of punitive trade actions will save the US economy from corkscrewing into irrelevance, if America does not launch its own “technologically-focused economic strategy,” rather than trying to somehow shut down China’s.
Goldman has some suggestions:
First, do what the Eisenhower administration did in 1957 – shift federal resources toward science and technology and starve the universities of all other forms of aid, including student loans.
Second, restore federal R&D spending to the levels of the Reagan years (when we spent 1.3% of GDP on basic R&D vs. about 0.7% now).
Third, begin Manhattan Project-style programs under the aegis of the Defense Department to force breakthroughs in critical technologies: quantum computing, semiconductor manufacturing, drone technology, artificial intelligence, missile defense (including space-based systems), and anti-submarine warfare to start.
Fourth, as I noted above. organize a brain drain out of China: Identify and recruit their most inventive and creative tech people.
Fifth, get together with the Japanese and organize an alternative to China’s One Belt, One Road program. The fulcrum of this program is the 600 million people of Southeast Asia, most of whom would welcome an alternative to Chinese dominance.