Those Stubborn Facts: How the U.S. Lost the Global Semiconductor Manufacturing Tech Lead

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capex, capital spending, China, infotech, innovation, Intel, investment, manufacturing, microchips, national security, Samsung, semiconductors, South Korea, Taiwan, Taiwan Semiconductor Manufacturing Company, tech, Those Stubborn Facts

“North America-” (i.e., U.S.-) Owned Firms’ Share of Global Semiconductor Capital Spending, 1990: 31 percent

“North America-” (i.e., U.S.-) Owned Firms’ Share of Global Semiconductor Capital Spending, 2019: 28 percent

“Asia-Pac/Others*- Owned Firms’ Share of Global Semiconductor Capital Spending, 1990: 10 percent

“Asia-Pac/Others*-Owned Firms’ Share of Global Semiconductor Capital Spending, 2019: 63 percent

*Excludes Japan. Includes Taiwan, South Korea, and China

(Source: “A Path to Success for the EU Semiconductor Industry,” by Michael Alexander and Thomas Kirschstein, Roland Berger, February 12, 2021, https://www.rolandberger.com/en/Insights/Publications/A-path-to-success-for-the-EU-semiconductor-industry.html)

Our So-Called Foreign Policy: More Reasons to Doubt Those “China Century” Predictions

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China, GDP, gross domestic product, Our So-Called Foreign Policy, per capita GDP, population, Taiwan, The Lancet

Predictions that China will soon overtake the United States as the world’s largest economy are now commonplace (see, e.g. here) – and understandably so given how much faster than America the People’s Republic has been growing in recent decades. As a result, I was startled six weeks ago when I came across data punching lots of holes in this forecast, and called attention to them in this post.

Still, as I explained, the implications were mainly economic – indicating that Americans and their businesses had much less to fear than widely supposed from a substantial U.S. decoupling from China because the Chinese people’s overall purchasing power would be hard-pressed to keep growing nearly as fast as generally assumed. That was because China’s gross domestic product (GDP) per capita – the amount of wealth it was creating for each of its huge, one billion-plus population – was growing at distinctly unimpressive levels. In fact, it was 

In terms of overall national power, however, and China’s consequent ability to threaten American national security, I noted that plenty of reasons for worry remained – because the narrowing of the U.S.-China gap in terms of the actual sizes of their economies meant that China’s ability to pour resources into its military and its security-related tech industries continued to threaten to surpass America’s.

But this week, new figures – on China’s population – have called these concerns into question, too, at least over the long run.

The data – China’s own new census – revealed that the People’s Republic’s population growth has slowed to a crawl. The numbers bested some forecasts – which anticipated Beijing reporting an actual population decline. But because this near-population stagnation has resulted largely from trends unlikely to be reversed any time soon (mainly the regime’s draconian multi-decade population control policies and the major rise in living standards that China unquestionably has achieved), they also add to the evidence that the People’s Republic is heading into a period of long-term population shrinkage. In turn, this fall-off – coupled with the weak China per capita GDP growth mentioned above – indicates that its world’s biggest economy status could be surprisingly short-lived.

The math underlying this analysis is pretty simple – and since the time frames are long, the specific results should by no means be taken literally. But the story they tell differs so dramatically from the current conventional wisdom, and because one of the key assumptions looks conservative, they deserve to be taken seriously.

Let’s begin with those per capita GDP figures. According to the World Bank, in 2019, it was $65,298 for the United States, and $10,217 for China. And let’s look at recent population predictions that have attracted considerable attention. They come from the prominent medical journal The Lancet, and peg the U.S. population growing by some three percent between 2017 and 2100, and hitting 335.81 million, but China’s population falling during the same period to just 732.89 million – a nosedive of nearly 50 percent.

That’s stunning enough by itself, but take a look at what these numbers would do to the two countries’ GDPs. Let’s assume that America’s GDP per capita in 2100 stays at its 2019 level of $65,298. Multiply that by the 335.81 million U.S. population, and you get an economy whose total output is $21.93 trillion (before accounting for inflation). If China’s GDP per capita stays the same, this calculation produces a GDP for the People’s Republic of just $7.48 trillion before inflation That is, its economy would be just a third the size of America’s. Moreover, this means that the economy gap will have doubled, since China’s $14.280 trillion GDP as of 2019 was two-thirds the size of America’s $21.433 trillion (again, according to the World Bank).

Granted any number of non-economic and economic developments over the next eight decades could make this scenario completely meaningless. But leaving out those utter unknowables, it’s significsnt that one plausible knowable suggests that the U.S.-China economy gap may become even bigger in 2100. And that’s the fact that the data I cited in March (from the International Monetary Fund) show that since 1980, that U.S.-China per capita GDP gap has widened substantially. If that trend continues (as opposed to per capita GDP differences staying exactly where they are now, as my scenario assumes), then by the turn of the next century, the United States would stand even further ahead of China. In principle, the military potential gap would widen strongly as well.

And just as crucial to keep in mind: If China’s population plummets by nearly half by 2100, big time decline will have to have begun long before, which translates into a relatively brief spell of Chinese superiority in terms of that military potential. Further, this Chinese edge may be even more fleeting than these dry numbers indicate, since the United States by all accounts maintains Number One in that regard now, and military potential doesn’t turn into military strength overnight.

Nonetheless, there’s still a worrisome paradox to keep in mind. Precisely because China’s long-term prospects aren’t terrific, some leading strategists (see, e.g., here and here) argue that Beijing will be sorely tempted to capitalize on its relative gains to date and momentum to achieve high priority goals in the short-term – like taking over Taiwan.

I personally have no idea. And I’m the last person to preach complacency in China policy. In fact, I’m glad to see that the American political system has begun wakening to the dangers posed by China’s economic, technological, and military advances. But excessive pessimism has never led to any victories in any kind of struggle or competition, either, and hopefully The Lancet data will reinforce U.S. leaders’ confidence that if success in handling China isn’t guaranteed, it’s entirely achievable.

Our So-Called Foreign Policy: The Unanswerable Question Driving Biden’s China Policy

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Antony J. Blinken, Asia-Pacific, China, foreign policy, globalism, Indo-Pacific, liberal global order, national security, Our So-Called Foreign Policy, rules-based global order, strategy, Taiwan, Xi JInPing

Two of the first maxims of strategy in world affairs (and probably in some other realms, too) are that (a) intentions and capabilities are fundamentally different and that (b) the former are much harder to gauge than the latter. These rules of the road in turn lead promptly to a key lesson: The greater the extent to which plans are based on intentions, the likelier they are to produce failure.  

The difference between measuring intentions and capabilities and the resulting policy implications matters crucially these days. For the evidence keeps mounting that the Biden administration is relying more on gauging China’s intentions in formulating its approach to the People’s Republic (PRC) and less on the much sounder foundations of assessing Beijing’s wherewithal and, most important, how this capacity’s dangers to specific U.S. interests are evolving – including over Taiwan, the newest and scariest bilateral flashpoint.  . 

The reason for focusing on capabilities is no great mystery. Figuring out how strong or weak a country’s military and economy are entails dealing with matters that are readily measurable to begin with. Although dictatorships like China’s in particular often go to great lengths to present misleading economic data, and misinformation about the state of their armed forces, the PRC’s competitiveness can be judged pretty dependably by tracking its interactions with other economies – e.g., its export performance, its attractiveness as a magnet for foreign investment. And U.S. intelligence is good enough to determine roughly how many soldiers and weapons, and the quality of the latter, that China could bring to bear in various contingencies.

Even more obvious – and important – is the case for deciding on U.S. interests. For whatever a potential adversary’s overall capabilities, why should Americans care about those that can’t plausibly affect whatever goals and missions that the United States decides it values?

Identifying what China’s leaders want is a qualitatively different and more formidable challenge. Good intelligence can provide some valuable information, as can face-to-face dealings with Beijing’s representatives. But ultimately, measuring intentions is an exercise in mind-reading, and it’s rendered all the tougher because of the secretiveness of China’s political system and the cultural gaps dividing East Asian countries like China’s and their western counterparts like the United States.

Which is exactly why the Biden administration’s strategy toward the PRC is so troubling. A heavy emphasis on intentions is clear from at least two of its features.

The first is its obsession with playing word games to define how it wants the relationship with China to develop, which in turn faithfully reflects the globalist position that achieving various types of relationships with allies, adversaries, and countries in between should be a high foreign policy priority. As I’ve written previously, that’s a great way to substitute form for substance, and to rationalize failure to achieve or preserve particular valued objectives in the here and now for the sake of payoffs stemming from a sense of mutual obligation that could be entirely unilateral and imaginary, over a time frame that tends to keep lengthening. Think of it this way – it’s easy to avoid rocking the boat if you don’t care who owns or controls the vessel.

The Biden administration, however, has taken relationship fetishizing to a whole new level. How else could one reasonably characterize all the time and effort it’s devoted to terming U.S. dealings with Beijing as a “competition,” or an “extreme competition,” or “a steep competition,” or a “stiff competition” (see here for the last two) or a relationship that will be, in Secretary of State Antony J. Blinken’s words, “competitive when it should be, collaborative when it can be, adversarial when it must be.”

Why do the Biden-ites think anyone cares or should care? In particular, why do they think China cares or should care? Do they have any evidence of much thinking in Beijing along these lines? Or that any Chinese definition of a desirable relationship relationship would be remotely acceptable to the United States?

If anything, the President’s declaration that Chinese dictator Xi Jinping “is deadly earnest on [China] becoming the most significant, consequential nation in the world. He and others, autocrats, think that democracy can’t compete in the 21st century” can only mean he thinks that win-win ties are the last things on Beijing’s mind. Unless Mr. Biden believes that Xi is just interested in purely verbal bragging rights?

The second feature of Biden foreign policy that reveals a potentially dangerous emphasis on intentions is the refusal of the President and his top aides to define U.S. interests with any specificity – or even to speak concretely about the very idea of purely U.S. interests.

Their rhetoric is peppered with phrases like Mr. Biden’s claim that during his first phone call with Xi, “I made absolutely clear that I will defend American interests across the board.” But you’ll search in vain for meaningful elaborations beyond “I also told President Xi that we’ll maintain a strong military presence in the Indo-Pacific, just as we do with NATO in Europe — not to start a conflict, but to prevent one” – which of course refers to American commitments that have been in place for decades, not to anything new, much less that reflects concerns heightened for any reason.

What you will find – ad nauseam – are statements like Blinken’s declaration that the United States is “committed to leading with diplomacy to advance the interests of the United States and to strengthen the rules-based international order. “That system is not an abstraction. It helps countries resolve differences peacefully, coordinate multilateral efforts effectively, and participate in global commerce with the assurance that everyone is following the same rules. The alternative to a rules-based order is a world in which might makes right and winners take all, and that would be a far more violent and unstable world for all of us.”

Blinken of course might be entirely right on the merits. But it was more than a little interesting that the Chinese response to his remarks – which took place at that confrontational bilateral March meeting in Anchorage, Alaska – emphasized that the rules-based order is nothing more than a system selfishly “advocated by a small number of countries”; that “The United States itself does not represent international public opinion, and neither does the Western world;” and no doubt most important, “the United States does not have the qualification to say that it wants to speak to China from a position of strength.”

In other words, as the Chinese see it, whatever Washington’s view of “right,” what matters is that it lacks the might to create or maintain it over China’s objections – which evidently are legion.

None of this is to say that specifying concrete interests is a guarantee of foreign policy success. But how else can that goal be achieved without setting out objectives considered vital to the nation’s security and prosperity, communicating them abroad in no uncertain terms, and ensuring that enough power is available to prevail when they’re threatened whether Americans guess correctly about potential adversaries’ intentions or not?

And these questions have moved to the forefront lately because Sino-American tensions are rising steadily over Taiwan – the world’s new leader in semiconductor manufacturing technology, which near neighbor China views as a renegade province. Worries are understandably rising that Washington and Beijing might stumble into a conflict that neither truly seeks. If the Biden administration could straighten out its own thinking about Taiwan and other U.S. interests in the Indo-Pacific region, the odds of such an unnecessary catastrophe could at least be considerably reduced.    

 

(What’s Left of) Our Economy: Is More Immigration Really the Key to America’s Tech Future?

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Cato Institute, China, education, entrepreneurs, Germany, H-1B visa, immigrants, Immigration, India, innovation, Israel, Japan, skills, South Korea, start-ups, Taiwan, technology, Washington Post, Worldometers.info, {What's Left of) Our Economy

One of the most compelling – and most often made – arguments in favor of higher U.S. legal immigration levels has to do with innovation. Supposedly, without encouraging ever more foreign workers to move to America, the nation will never be able to maintain its global technology leadership, and ultimately an acceptable, much less improved, degree of prosperity. (See, e.g., here and here.)

Part of the rationale for a welcoming posture, as indicated above, has to do with policies toward highly skilled and educated immigrants in particular (like those admitted under the H-1B program), and the special visa quotas allotted to them. But as the Washington Post editorial board recently made clear, there’s a more general view that immigration is especially good at providing America with “a steady supply of working-age strivers” and that “This nation’s prosperity, pluck, ambition and effervescent character are the products of more than 100 million immigrants who have sought better lives in the United States since its founding.” In other words, immigrants are far more likely than the native-born population to possess the risk-taking and general entrepreneurial traits that lead to so much technological progress.

I’ve already debunked one aspect of these claims here, but because they keep popping up, I keep thinking more about them, and have come across more data that not only casts further doubt on the technology-related need for more immigrants, but that indicate that the immigration cheerleaders are putting the cart before the horse.

For instance, it’s widely agreed that the U.S. tech sector is considerably healthier than Germany’s. In this vein, a widely followed global innovation index issued each year by a United Nations agency ranks the former third in the world and the latter ninth. Ninth isn’t so bad, but it’s at the least curious in this regard that for decades at least, Germany has admitted many more immigrants as a share of total population than has the United States.

Indeed, in 1990 (a good starting point, since current Germany came into being with the reunification that year of the former Federal Republic that comprised the nation’s western part and the former Communist run east), Germany’s immigrant inflow of 1.256 million represented 1.59 percent of the new country’s 79.054 million inhabitants. The 1.536 million green cards awarded by the United States that year accounted for only 0.60 percent of its 252.120 million people. (My official sources for German and U.S. annual immigration totals are here and here, respectively. For population, I used the reliable Worldometers.info website.)

But maybe Germany has made up some ground on the United States during this nearly three-decade period? Not according to this study last year from the Cato Institute – one of America’s foremost supporters of much more lenient U.S. immigration policies. If you look at Figure 2, you see that in 2018, Germany was lagging the United States just about as badly in the number of patents it received in the United States (still the world’s most important market for technology) as it was in 1990.

There doesn’t seem to be much evidence that its relatively large immigration inflows have given Germany much of an edge in entrepreneurship, either. As of 2019, according to this source, Germany’s business start-up rate was less than half that of the United States.

This chart, moreover, makes clear that it’s not just the U.S.-Germany comparison that mucks up the ostensible relationship between tech prowess and entrepreneurship on the one hand, and immigration levels on the other. After all, in 2019, India’s start-up rate was also much higher than Germany’s – even though India is much better known for sending folks abroad than for attracting them. Foreigners aren’t exactly flocking to live in China, either, yet its start-up rate matches Germany’s.

That Cato Institute study provides more complicating international comparisons. That Figure 2 shows that as of 2018, Israel has forged into the lead as the country receiving the largest number of U.S. patents. And its performance started taking off in the mid-1990s. Yet in 1995, when Germany and Israel were roughly on a par in their ability to receive American patents, the 76,361 immigrants Israel admitted in 1995 equalled 1.36 percent of its population of 5.619 million – not far from relatively un-innovative Germany’s figures. By the time it became the international leader, Israel’s immigration rate had fallen to 0.32 percent of its 8.972 million population – much lower than that of Germany, which had become a clear als-ran on the U.S. patent scene – and roughly the same as the recent U.S. rate which has been decried as so woefully inadequate.

And look at the other top performers in Figure 2 other than the United States and Israel. Taiwan hasn’t been anything close to an immigration magnet, either, and ditto for South Korea. As for Japan, it’s long been known as one of the most xenophobic countries in the world (as noted in that Washington Post editorial).

What do the non-U.S. “patent tigers” identified by Cato have in common? As author Jonathan M. Barnett puts it:

“Short on consumers, resources, and labor (and saddled with geographic separation from key consumer markets), the patent tigers (especially Israel and Taiwan) were compelled to specialize in innovation-intensive segments of the global supply chain in which ingenuity, rather than labor or natural resources, conferred a competitive advantage.”

As a result, as widely agreed, they’ve worked hard to create top-notch educational systems for their own populations. German education is highly regarded, too, but it’s often observed that its history and culture in particular have discouraged self-starters.

The lessons for the United States seem pretty clear here.  On the one hand, it’s got lots of the overall population, raw materials and domestic markets that the patent tigers lack.  On the other, unlike Germany, it still enjoys an entrepreneur- and innovation-friendly culture.  If Americans did a much better job of educating their own people, especially in the math, science, and technology fields, they should be able to keep its global technology edge even while controlling immigration more tightly. 

If, however, the nation continues to coddle underperforming school systems, especially at the primary and secondary levels, the argument for relying on immigration to fill the tech gap will look all the stronger.  And in a supreme irony, the ready availability of highly skilled and educated immigrants will keep reducing national incentives to get the national education act together.      

Making News: Podcast On-Line of National Radio Interview on Biden & China…& More!

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allies, Biden, China, Japan, Making News, Taiwan, tariffs, Ted Galen Carpenter, The John Batchelor Show

I’m pleased to announce that the podcast is now on-line of the podcast of my latest interview on John Batchelor’s nationally syndicated radio show. The segment, which aired last night, can be found here, and focused on the Biden administration’s surprising (to me, anyway) decision to keep in place all of former President Trump’s towering and sweeping tariffs on Chinese goods.

In addition, my good friend (and incisive foreign policy analyst) Ted Galen Carpenter quoted my views on the U.S.-Japan security relationship in this recent blog post. Indeed, Ted’s piece shows that the likelihood of Tokyo helping the U.S. military meaingfully in a shooting war over Taiwan is even dimmer than I had previously written.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

Our So-Called Foreign Policy: Grave Doubts Still Justified About Japan’s Reliability Against China

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alliances, allies, Asia-Pacific, Biden, burden sharing, China, deterrence, globalism, Indo-Pacific, Japan, Our So-Called Foreign Policy, semiconductors, South Korea, Taiwan, Yoshihide Suga

The more I read about last week’s summit in Washington, D.C. between President Biden and Japan’s Prime Minister Yoshihide Suga, the more I’m reminded of that expression ”putting lipstick on a pig.” For far from the unalloyed success described by the Biden administration and so many of the press accounts (see, e.g., here and here) the results of the meeting can easily be seen as just the latest sign that, from the U.S. standpoint, the so-called alliance between the two countries still can’t be counted on to pass what must be the acid test of such relationships – and at a time when Tokyo’s support looks more important than ever.

The reason Japan’s contribution counts can be summed up in one word: Taiwan. As known by RealityChek readers and many others, the island has emerged in recent years as the world’s leader in the knowhow needed to produce the world’s most advanced semiconductors. These devices of course are not only the electronic brains of all those wonderful high tech devices we all enjoy using – and need. Microchips also control most of the highest tech weapons in America’s military arsenal, and the ever more capable versions that will be turned out by factories (or “fabs”) on Taiwan and, to a lesser extent, in South Korea, will power the cutting edge weapons that will determine victory and defeat on the increasingly electronic battlefields of the future.

If Taiwan was located, say, in the Caribbean, its semiconductor manufacturing leadership mightn’t be such an urgent problem. But it’s sitting in the South China Sea a scant 100 miles from China, which has not only become a powerful rival to U.S. interests in Asia and all over the world, but keeps sounding increasingly determined to take control of the island – which it regards as an outlaw province.

Once upon a time (when Taiwan wasn’t nearly so important), the United States could be sure of deterring a Chinese invasion or military operations aimed at resting major concessions from Taiwan’s government, or of actually defeating such Chinese actions. Now, though, as RealityChek reported years ago, the U.S. nuclear edge needed for high confidence deterrence is gone, and it’s widely agreed that the non-nuclear military gap has narrowed considerably as well – especially for a conflict in China’s backyard.

Which is where Japan (and other U.S. allies in the Asia-Pacific – now more often called the Indo-Pacific region) come in. It would greatly increase the odds of both U.S. deterrence, and victory if need be, if Washington could count on Tokyo to fight alongside America’s military if a war over Taiwan heaven forbid broke out. This is the acid test I was talking about up top. Any military planning for war needs to know for sure what assets it can absolutely rely on when the shooting starts and what assets are only “maybes.” And the results of the Biden-Suga summit left way too many maybes.

It’s true that Japan has added significantly to its military strength in recent years – though such a wealthy country can afford to spend much more. It’s also true that Japan has agreed to take on more responsibilities for preserving security in that Indo-Pacific region. Moreover, the joint declaration issued by the two governments after the summit specifically mentioned “the importance of peace and stability across the Taiwan Strait and [encouraging] the peaceful resolution of cross-Strait issues.” Similar recent statements by Japanese officials during Mr. Biden’s term are widely considered breakthroughs in terms of Tokyo’s recognition of the situation’s gravity.

Suga actually added in remarks to reporters following the summit that “We agreed to oppose any attempts to change the status quo by force or coercion in the East and South China Seas [where Taiwan is located], and intimidation of others in the region.” So that sounds like a somewhat more assertive description of Japanese intentions on Taiwan.

But “oppose” could mean all sorts of things – a stern diplomatic note, a few sanctions. Maybe a very stern note. Or lots of sanctions. Neither Suga nor any other Japanese leader has said “If China attacks Taiwan, we’re sending in our troops, too.” In other words, uncertainty over Japan still leaves American war planners with a big problem.

And much more is involved here than my own personal skepticism. As noted here, even if Japan ultimately agrees only to provide logistical and other forms of non-combat support to U.S. forces fighting over Taiwan, itse home islands would run major risks. For due to China’s “ability to launch missiles to virtually anywhere in Japan,” Beijing could target “bases that the U.S. military would rely on for executing operations” and inflict major casualties on Japan.

Further, Tokyo’s distinct reluctance to voice full-throated condemnations of Chinese human rights violations and even atrocities for fear of disrupting lucrative economic ties raises even stronger doubts as to Japan’s willingness to participate in a full-fledged war with its leading trade partner. Indeed, in a post-summit event, Suga repeated another recent mainstay of Japanese diplomatic rhetoric:  “[W]e must work to establish a stable and constructive relationship with China.”

Given these considerations, it should be apparent that words alone simply can’t resolve legitimate doubts about Japan’s real intentions or likely responses to outright Chinse aggression anywhere in the region except for its own territory. 

I’m a foreign policy realist – someone who emphasizes the inevitably central role played by unsentimental, frankly selfish, judgments about concrete interests in all countries’ formulation of their foreign and defense policies. So I’m the last person to complain about Japan’s continuing caution and hedging as such. I can think of many compelling reasons for Japan to become more gung ho – e.g., does Tokyo really want to see China’s thug totalitarian government as the kingpin of its own neighborhood?. But this is a judgement for the Japanese people and their leaders to make.

Japan’s fence-sitting obviously also represents a challenge for American diplomacy, and President Biden has made improving cooperation with allies a centerpiece of his foreign policy. But major skepticism is justified as to whether he and his aides can turn Japan into a military ally worthy of the name, since their globalist emphases on alliances can too easily turn into prizing smooth ties for their own sake, as opposed to firm insistence on greater burden- and cost-sharing that’s bound to ruffle feathers at least in the short term. In fact, signs of such alliance fetishizing have already appeared in administration agreement to ease pressures on both Japan and South Korea for paying the costs of hosting U.S. forces clearly essential to these own countries’ defense.

And in this vein, this foot-dragging by Japan (and most other ostensibly staunch U.S. allies, too) raises a crucial question for Americans. Should they keep allowing their leaders to keep prodding and cajoling these countries in the hope that someday they might demonstrate plausible reliability?  Or should they conclude that the meager results of literally decades of prodding and cajoling mean that the success that’s so desperately needed should be written off as a pipe dream? As shown by rising tensions over Taiwan in particular, the clock is ticking – and quickly.

Our So-Called Foreign Policy: Biden’s Aides Show How Not to Deal with China

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Alaska, Antony J. Blinken, Asia-Pacific, Barack Obama, Biden, China, Donald Trump, global norms, globalism, Hong Kong, human rights, Indo-Pacific, international law, Jake Sullivan, liberal global order, Our So-Called Foreign Policy, Reinhold Niebuhr, sanctions, Serenity Prayer, South China Sea, Taiwan, tariffs, tech, Trade, Uighurs, United Nations, Yang Jiechi

You knew (at least I did) that America’s top foreign policy officials were going to step in it when they led off their Alaska meeting yesterday with Chinese counterparts by describing U.S. policy toward the People’s Republic as first and foremost a globalist exercise in strengthening “the rules-based international order” rather than protecting and advancing Americas’ own specific national interests.

This emphasis on the part of Secretary of State Antony J. Blinken and White House national security adviser Jake Sullivan simultaneously made clear that they had no clue on how to communicate effectively to the Chinese or about China’s own aims, and – as was worrisomely true for the Obama administration in which both served – unwittingly conveyed to Beijing that they were more concerned about dreaming up utopian global arrangements than about dealing with the United States’ own most pressing concerns in the here and now.

It’s true that, in his opening remarks at the public portion of yesterday’s event that Blinken initially refered to advancing “the interests of the United States.” But his focus didn’t stay there for long. He immediately pivoted to contending:

“That system is not an abstraction. It helps countries resolve differences peacefully, coordinate multilateral efforts effectively and participate in global commerce with the assurance that everyone is following the same rules. The alternative to a rules-based order is a world in which might makes right and winners take all, and that would be a far more violent and unstable world for all of us. Today, we’ll have an opportunity to discuss key priorities, both domestic and global, so that China can better understand our administration’s intentions and approach.”

Where, however, has been the evidence over…decades that China views the contemporary world as one in which peaceful resolution of differences is standard operating procedure, much less desirable? That multilateral efforts are worth coordinating effectively? That might shouldn’t make right and that China shouldn’t “take all” whenever it can?

Even more important, where is the evidence that China views what globalists like Blinken view as a system to be legitimate in the first place? Indeed, Yang Jiechi, who in real terms outranks China’s foreign minister as the country’s real foreign affairs czar, countered just a few minutes later by dismissing Blinken’s “so-called rules-based international order” as a selfish concoction of “a small number of countries.” He specifically attacked it for enabling the United States in particular to “excercise long-arm jurisdiction and suppression” and “overstretch the national security through the use of force or financial hegemony….”

Shortly afterwards, he added, “I don’t think the overwhelming majority of countries in the world would recognize…that the rules made by a small number of people would serve as the basis for the international order.”

Yang touted as a superior alternative “the United Nations-centered international system and the international order underpinned by international law.” But of course, even if you swallow this Chinese line (and you shouldn’t), it’s been precisely that system’s universality, and resulting need to pretend the existence of an equally universal consensus on acceptable behavior and good faith on the part of all members, that’s resulted in its general uselessness.

Meanwhile, surely striking Beijing as both cynical and utterly hollow were Blinken’s efforts to justify U.S. criticisms of China’s human rights abuses as threats to “the rules-based order that maintains global stability. That’s why they’re not merely internal matters and why we feel an obligation to raise these issues here today.”

After all, whatever any decent person thinks of Beijing’s contemptible crackdown in Hong Kong, arguably genocidal campaigns against the Uighur minority, and brutally totalitarian system generally, what genuinely serious person could believe that the United States, or other democracies, had any intention or capability of halting these practices?

What might have made an actually useful, and credible, impression on the Chinese from a U.S. standpoint would have been blunt declarations that (a) Beijing’s saber-rattling toward (global semiconductor manufacturing leader) Taiwan and sealanes-jeopardizing expansionism in the South China Sea, and cyber-attacks were major threats to American security and prosperity that the United States would keep responding to with all means necessary; and (b) that Washington would continue using a full-range of tariffs and sanctions against predatory Chinese economic practices as long as they continued harming U.S. businesses and their employees. That is, Blinken and Sullivan should have emphasized Chinese actions that hurt and endanger Americans – and against which in the economic sphere, Donald Trump’s policies showed Washington could make a significant difference.

It’s possible that in the private sessions, President Biden’s emissaries will dispense with the grandstanding and zero in on the basics. (Although that shift would raise the question of why this approach was deemed unsuitable for the public.) But the Biden-ites weirdly advertised in advance that China’s economic abuses and the technology development threat it poses wouldn’t be U.S. priorities at any stage of the Alaska meetings.

In the mid-20^th century, American theologian Reinhold Niebuhr popularized (although probably didn’t write) a devotion called the “Serenity Prayer” whose famous first lines read “God grant me the serenity to accept the things I cannot change, courage to change the things I can, and wisdom to know the difference.” I’m hoping someone puts copies into Blinken’s and Sullivan’s briefcases for their flight back from Alaska.

Following Up: A New Warning on U.S. Allies’ Reliability

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alliances, allies, Asia, Asia-Pacific, Biden, China, deterrence, Following Up, Indo-Pacific, infotech, multilateralism, national security, Nonproliferation Policy Education Center, semiconductors, Sheena Greitens, Taiwan, Taiwan Semiconductor Manufacturing Company, tech, TSMC, Xi JInPing, Zack Cooper

Well isn’t this a kick in the pants for the Biden administration – and by extension for all Americans?. No sooner did the President give a major speech to U.S. allies on his plans to return them to the center of American foreign policy-making because they’ll be such crucial assets in vital efforts to achieve essential goals like coping with China’s rise, than a new study comes out reporting that these hopes could be in vain. 

Specifically, the United States’ allies in Asia could well stay on the sidelines in what’s arguably become the most important potential showdown with China of all: ensuring Taiwan’s independence.

As known by RealityChek regulars, keeping Taiwan free of Beijing’s control has become so pressing for two reasons. First, Chinese dictator Xi Jinping is sounding and acting more determined than ever to “reunify” what he and his predecessors have regarded as a breakaway province by whatever means necessary – including using force. And second, a Taiwanese firm, Taiwan Semiconductor Manufacturing Corporation (TSMC), has recently grabbed the global lead in actually producing (as opposed to designing) the world’s most advanced semiconductors. If China manages to control TSMC’s capabilities, it could use them to build the electronic devices and defense systems that would secure substantial technological and military superiority over the United States.

President Biden is of course correct in arguing that the more allies the United States can mobilize, the easier it will be to handle China’s increased aggression and economic predation. But that claim inevitably assumes that these allies will actually join with America to push back against China, and especially that Washington can count on their assistance if heaven forbid the missiles and bullets start flying.

And this assumption is exactly what’s questioned in a paper recently published by the Washington, D.C.-based Nonproliferation Policy Education Center. According to authors Zack Cooper and Sheena Greitens, there’s not a single country in the Asia-Pacific (or, as it’s now officially called by the U.S. government, the Indo-Pacific) region that’s sure to stand shoulder to shoulder with American forces as they seek to actually repel either a Chinese attack on Taiwan, or an effort by Beijing to turn the island into a satellite through coercive means short of full invasion, like limited military strikes, cyber-attacks, or an embargo.

In fact, write Cooper and Greitens, these allies not only would likely balk at sending their own ships, plans, and troops to buttress American forces. To varying degrees, they’d be reluctant to allow the United States the kind of access to their military bases needed to prevail over China in any of the above contingencies.

The authors believe that sufficient allied cooperation can be generated if the United States begins (ASAP!) “a series of detailed discussions with key allies about their roles in different contingency scenarios involving China and Taiwan (and for some, the South China Sea).” That advice sounds fine as far as it goes.

But the need in the first place for “detailed discussions” on such dangerous and perhaps rapidly growing threats – which would leave all countries in the region far less prosperous and prosperous if not deterred or beaten back – makes appallingly clear just how dysfunctional these alliance relationships have become. Moreover, you can be sure that the longer and more detailed these discussions become, the more allied doubts they’ll reflect, and the less likely they’ll be to produce the kind of certainty when push comes to shove that the United States or Taiwan will need.

I don’t view Cooper and Greitens analysis as gospel. But in my experience, the Nonproliferation Policy Education Center has done serious work on Asian security issues in the past, and the larger project of which this essay is a part has had support from sponsors across the political spectrum. So its warning is worth taking seriously, and if its arguments are on target, the problem they describe will resist easy solution – and not just because truly worthwhile agreements with the allies could take years to negotiate, but because the U.S.-based semiconductor production capacity needed to reduce Taiwan’s importance will take just as long to create.

Luckily, as indicated in the piece linked just above, both Congress and the new administration claim to recognize the need – at least rhetorically – to restore cutting-edge U.S. competitiveness in this and other information technology manufacturing. In the meantime, the Biden administration should of course try maintaining enough of a semblance of allied unity vis-a-vis China to give Beijing pause over Taiwan. Hopefully, Washington  can even inspire some genuine support for preserving the island’s independence.

But as I’ve written previously (in the afore-linked National Interest piece), the greater the emphasis placed on resolving the semiconductor challenge via the homegrown solution of reviving the domestic industry, instead of relying mainly on protecting Taiwan’s security militarily, the better the odds of maintaining American security and prosperity. And in any necessary negotiations with the allies, the sooner President Biden abandons his globalist faith in apologetics and gauzy preaching, and acknowledges the need for at least some of the hard-bargaining Trump-ian “transactionalism” he’s decried, the better.  

(What’s Left of) Our Economy: In Case You Still Doubt How Much Manufacturing Matters

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automotive, CCP Virus, coronavirus, COVID 19, electronics, Immigration, infotech, Nikkei Asia, semiconductors, stay-at-home, Taiwan, TSMC, wages, Wuhan virus, {What's Left of) Our Economy

One of the most encouraging recent developments in American public policy lately is the virtual disappearance of the idea that manufacturing boasts no special importance to the American economy. I guess that’ll happen when a pandemic reveals dangerous shortages of key medical equipment (and the long supply chains needed to supply equally key parts, components, materials and the production equipment to make all of these items).

Ditto for the loss by a U.S.-based company (Intel) of the global lead in the knowhow to produce the world’s most powerful semiconductors – which run not only the world’s exploding numbers of electronics devices and networks, but soaring percentages of production machinery, as well as lying at the heart of nearly all present and future defense-related goods.

But I’m far from taking this triumph for granted – no doubt because this victory has been so recent, and because I’ve spent so much of my career making the case for government promotion of manufacturing against a free market-worshipping opposition that not only represented an entrenched conventional wisdom, but that could vastly out-spend and therefore practically drown out us “industrial policy” supporters.

And that’s why I was so pleased to see an article just out from the Japanese publication Nikkei Asia that dramatically illustrated how a robust national manufacturing base can supercharge an entire national economy and its workforce’s well-being.

Nikkei Asia described the effect on Taiwan of the new expansion programs being carried out by its world-class semiconductor manufacturing company TSMC (the firm that, along with South Korea’s Samsung, has taken the global microchip manufacturing technology lead from Intel). TSMC’s planned growth is dramatic, largely because the CCP Virus and its effects have created such surging demand for and consequent shortages of microchips. Blame (or credit) the booming popularity of semiconductor-powered electronic devices critical for increasingly popular stay-at-home work and leisure, and the on-and-off jolts generated by the pandemic for giant semiconductor-using industries like the automotive sector.

Compounding the impact, according to authors Cheng Ting-Fang and Laury Li, is the trend of “other Taiwanese companies…bringing production home from China amid Beijing-US trade tensions.”

And the results? “Business has never been brisker for construction companies in Taiwan….” Consequently, wages are way up for construction workers with both ordinary skill sets and specialized knowledge. But even though labor shortages are evident, Taiwan’s government shows no signs of killing this living standards bonanza by trying to open immigration flood gates.

As explained by a manager in the construction industry itself, “Foreign workers are not the ultimate solution as the government sets limits on their entry and many positions, such as electroplating specialists, require professional knowledge.”

Bottlenecks are already appearing and more are sure to come. But it also seems that Taiwan’s businesses will be solving the problem in the way that brings the greatest, most broadly shared national benefits – with technological and managerial innovation (i.e., by improving productivity) rather than by suppressing wages via artificially pumping up Taiwan’s labor supply.

At the same time, it’s not just workers that are in great demand on Taiwan. As the Nikkei Asia article specifies, “Cranes, trucks, excavators and all manner of heavy vehicles stream in and out of the vast construction site for” TSMC’s new advanced semiconductor factory in the city of Tainan. So the need for these machines is pressing, too – and thus for the workers and machinery needed to turn them out.

Is there a downside? Absolutely. Higher wages (and they’ve advanced throughout the economy) have driven major real estate and housing price increases (though the wage hikes indicate that affordability remains pretty much the same, and therefore bubble fears are unwarranted so far). And Taiwan’s water supplies and other infrastructure systems are under strain.

Overall, though, I’d bet on Taiwan to cope successfully with these and other actual and potential problems – which most other countries would actually love to have. And that’s precisely because, to a practically unrivalled extent, the country knows how much manufacturing matters. 

Full disclosure: I own some TSMC stock.  

 

Our So-Called Foreign Policy: Why Scalpels Won’t Cut it Against China

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Biden, China, China Strategy Group, decoupling, Donald Trump, Eric Schmidt, EU, European Union, FDI, foreign direct investment, Germany, Google, health security, Made in America, manufacturing, multilateralism, national security, Our So-Called Foreign Policy, semiconductors, Silicon Valley, supply chain, Taiwan, technology

Yesterday’s RealityChek post argued made clear that one of the two recent blueprints for China policy offered to President Biden from the foreign policy and technology establishments suffered from crippling internal contradictions.

The second effort, from the Silicon Valley-dominated “China Strategy Group,” can be read more profitably by the President, because popping up here and there are some insights that are genuinely valuable especially since they come from analysts once strongly supportive of what they themselves call the pre-Trump strategy of “near-unbounded integration.”

Principally, the group, which notably is co-chaired by Google co-founder Eric Schmidt, calls for recognizing that “some degree of [U.S.-China] disentangling is both inevitable and preferable. In fact, trends in both countries—and many of the tools at our disposal—inherently and necessarily push toward some degree of bifurcation.” In other words, it’s endorsed a limited version of what’s now commonly called economic and technological decoupling.

In addition, it argues that both this decoupling, along with tariffs that it acknowledges may be needed to push back against certain Chinese offenses and provocations, should be pursued even though they will entail costs – a refreshing and crucially important departure from the long-time pre- and post-Trump consensus in the mainstream American political, business and policy communities that any increased consumer or producer price, or loss of even a smidgeon of market share in China resulting from retaliation from Beijing, proves conclusively the folly of placin any significant curbs on doing business with the People’s Republic.

Finally, the group points out that efforts to rebuild domestic supply chains to reduce reliance on China for critical goods must involve “more than a focus on the end products. Safeguarding key technologies requires the United States to define and secure the entire ecosystem of production, from fabrication to supply to talent to cutting-edge innovation.” In other words, Washington can’t simply seek to become self-sufficient, or largely so, in face masks or ventilators or semiconductors. It needs to become self-sufficient or largely so in all the materials, parts, and components required to make these products.

Yet many of these important insights (and useful recommendations for restructuring the U.S. government to foster the competition with China more effectively) are kneecapped by equivocation and a resulting failure to understand that sometimes policy scalpels cut too finely, and some policy needles are too small to be threaded – especially considering the “all of society” drive China’s totalitarian system is making to gain global technology leadership, and the dangers to America’s “security, prosperity, and way of life” Chinese success would create.

For example, the group emphasizes that decoupling policy mustn’t invite “escalatory cycles of confrontation, retaliation, or unintended conflict” or overlook those areas “where cooperation, collaboration, and exchange with China is in our interest, as severing ties and closing off the United States to the ideas, people, technologies, and supply chains necessary to compete effectively will undermine U.S. innovation.” At the same time, the authors acknowledge that China will respond to any further U.S. decoupling moves “more aggressively” precisely because “China’s leaders understand U.S. dependency as an important source of leverage.”

So although in principle, this omelet can be made without breaking many eggs, Beijing won’t be cooperating in fact. And the circle can’t be squared with clever phrase-making like “navigating the asymmetric competition” that look satisfactorily reassuring on paper and in speeches to conferences but that need to survive the body blows that will inevitably be delivered by reality.

The group’s approach to Chinese investment in the United States (whether in the form of creating new businesses or taking over or contributing capital to existing firms) illustrates the other big drawback of granular approaches when it comes to China: They ignore how any Chinese entity big enough to play in any foreign market, and especially America’s, is under Beijing’s thumb in every important respect.

As a result, there’s no point in taking the time and expending the resources to follow the group’s recommendations to figure out which Chinese tech platforms (whose importance it emphasizes) are and are not violating American privacy standards or conducting misinformation campaigns dangerous to democracy, or censoring content Chinese authorities don’t like, or helping suppress human rights in China or anywherer else, or stealing valuable data, or helping terrorists and criminals launder money; or whether these activities matter enough to merit official U.S. attention, or whether troublesome practices can be negotiated away through talks with Beijing on technical and other fixes.

In this instance, Washington should stay out of the black holes of setting priorities and especially monitoring and enforcing agreements, and assume that by simply banning these platforms from operating in the United States and in fact prohibiting all Chinese entities from owning U.S. hard assets. The latter step would add the benefit of shielding participants in America’s economy from competition with subsidized, market-distorting outfits from China. At the very least, Chinese entities should be required to prove that they’re not controlled or subsidized in any way by Beijing, or engaged in the above malign activities, before gaining entry.

In addition, despite the group’s understanding that entire manufacturing eco-systems, not just final products, need to be rebuilt and nurtured to ensure supply chain security, it appears to underestimate just how widely these relationships extend. After all, most of the numerous inputs to goods like mechanical ventilators (like its controls, power sources, monitors, and alarm systems) depend on big and complex supply chain and manufacturing eco-systems themselves.

Further, just as before the pandemic, few expected face masks and surgical gloves to become products vitally important to the nation’s well-being, the list of critical goods is likely to change and grow over time as new threats emerge. Therefore, the group is correct in warning that “any product or service could be termed essential to national security in an extreme hypothetical.” But what’s the basis for confidence that many products or services can safely be ruled out, and that such hypotheticals will always remain extreme?

At least as important, like the Biden administration, the group’s determination not to ruffle too many international feathers has also clearly led it to back the notion that the definition of “Made in America” for supply chain purposes should actually mean, “Also Made in Lots of Other Countries” that it considers trusted suppliers. Unfortunately, many of the countries so classified imposed export controls on critical medical goods during the pandemic’s first wave last spring. That is, when cooperation was most needed, they built walls – meaning that their trustworthiness isn’t exactly ironclad.

And as then President-elect Biden learned when the European Union rebuffed his entreaty to consult with Washington before signing an investment agreement with China, the allies remain determined to fence sit in the U.S.-China technology competition. The group acknowledges that the list of anti-China partners “may include all of the [European Union], though in some cases EU position/member states’ positions are too ambiguous today with respect to China for inclusion in all instances, and members may need to be considered on an individual basis.” But simply stating this position and its EU-splitting ambitions is enough to make clear its absurdity – especially since the EU country most reluctant to cooperate against China is economic kingpin Germany.

None of this is to say that all trade with (as opposed to investment in hard assets from) China should be cut off completely, or that international cooperation can be of no use to the United States in its struggle versus the People’s Republic. In particular, (and due largely to recklessly indiscriminate free trade policies), America urgently needs products and knowhow now dominated by foreign producers (notably Taiwan’s semiconductor manufacturing industry, and Japanese and Dutch suppliers of key microchip production equipment and materials). And if other countries are willing to cooperate with Washington on various China containing initiatives at acceptable prices, more help is indeed better than less. But the United States will never safeguard its interests adequately without realizing that multilateralism can’t be an end in and of itself, and that against monumental threats, axes are usually more effective than scalpels.