Bulletin
Investor Alert

Peter Morici

Jan. 6, 2021, 7:05 a.m. EST

Biden’s defense and economic teams aren’t ready to battle China

Peter Morici

China’s  hardening nationalism  and  global ambitions  are the most significant foreign policy challenges facing President-elect Joe Biden, but his top defense and economic appointees will require a lot of on-the-job training.

China is building cyberwar capabilities that could cripple  U.S. electric utilities and satellite navigation systems  and  quickly defeat the U.S. fleet in the Pacific . Strengthening and rebalancing of American deterrence in the Pacific  are required to avert a potential disaster.

Domestic economic strength and greater equality are preconditions for the military resources and diplomatic soft power needed to counter China, but  Biden exhibits too much nostalgia for multilateralism, manufacturing and strong unions .

Both China and the United States seek leadership in artificial intelligence, microprocessors and other technologies to create weapons, wealth and jobs. Overlaying that, globalization, economies of scale and  network effects  are creating high tech behemoths like  Ant  and  Facebook   (NAS:FB) that can challenge the sovereign authority of Beijing and Washington.

Emerging digital empires don’t employ a lot of factory workers for unions to organize or create large glass-tower bureaucracies that could offer more opportunities for women and minorities without STEM degrees or equivalent technical training. 

President Xi Jinping is at once subsidizing and subordinating Chinese high tech  to support its surveillance state and assist Beijing’s ambitions to  replace the liberal political and economic international order with a soft adherence to its autocratic, state-directed capitalism .

U.S. antitrust enforcement risks neutering Big Tech leaders by limiting their scope to  branch out into new businesses  or  breaking them up altogether . That risks leaving America challenged to match Chinese manufactures like Huawei and  software wonders like WeChat  and reducing America to a technological vassal state in an emerging Chinese technological empire.

If Biden really wants to help women and minorities—and American competitiveness—he should aim to double the number of capable students enrolled in university STEM disciplines and technology apprenticeships. And support incubators for new high-tech competitors to challenge Facebook and Google (NAS:GOOG) instead of breaking them up.

The  pledge of 30 CEOs from big companies , including IBM (NYS:IBM) and Merck (NYS:MRK) to create 1 million jobs for Black Americans is laudable but naive without recognition that many high school graduates are poorly equipped to train for the jobs in the digital economy.

President Donald Trump fell into the same trap as his predecessors. He let Beijing lure him into three years of trade and investment negotiations instead of acting quickly with measures tough enough to disrupt the Chinese economy and force results.

Trump’s tariffs were not enough and Beijing undercut U.S. domestic support by promising Wall Street financial institutions like Goldman Sachs, (NYS:GS) , JP Morgan (NYS:JPM) and BlackRock (NYS:BLK)  better treatment in the Middle Kingdom. The  Phase One Trade Deal  to  open Chinese markets for American products is failing , other than for  farm goods  and  U.S. banks .

Tools of Chinese mercantilism—forced technology transfer and patent theft, export subsidies and markets closed to U.S. exports outside of agriculture and in some measure banking—remain largely in place. Biden can hardly expect to combat those by simply embracing multilateralism in the World Trade Organization with European cooperation.

National security adviser John Ratcliffe reports  Beijing is cultivating members of Congress , whose constituents’ employment may be dependent on Chinese investments, just as it plied Wall Street during Trump’s trade war. And  former Vice Foreign Minister Fu Ying is preaching to American intellectuals and media that cooperative competition is now possible  between the United States and China.

Neither Biden nor his key security and economic appointments appear sensitive to or have substantial experience with all this.

To head the National Economic Council, Biden has chosen an executive at the center of China’s deal with Wall Street— Blackrock’s head of sustainable investing Brian Deese . For U.S. Trade Representative,  Katherine Tai  is an outstanding trade lawyer but has not held a high-level policy position or demonstrated much systemic vision.

At Treasury, Janet Yellen, a labor economist who proved uninventive at the Fed, will  reflexively support free trade  and emphasize  Keynesian solutions  when our problems are more industrial-strategic and structural. At Defense,  Gen. Lloyd Austin  offers great experience fighting land wars in the Middle East, but the paramount security challenges are cyber and naval in the Pacific.

Each is highly accomplished and worthy of high-level responsibilities, but they are the wrong pegs in the wrong hole for the challenges China poses.

Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.

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